Registration No. 33-63212
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /__/
Pre-Effective Amendment No. __ /__/
Post-Effective Amendment No. 14 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 /__/
Amendment No. 16 /X/
(Check appropriate box or boxes.)
JANUS ASPEN SERIES
(Exact Name of Registrant as Specified in Charter)
100 Fillmore Street, Denver, Colorado 80206-4928
Address of Principal Executive Offices (Zip Code)
Registrant's Telephone No., including Area Code: 303-333-3863
Stephen L. Stieneker - 100 Fillmore Street, Denver, Colorado 80206-4928
(Name and Address of Agent for Service)
Approximate Date of Proposed Offering: October 24, 1997
It is proposed that this filing will become effective (check appropriate line):
X immediately upon filing pursuant to paragraph (b) of Rule 485.
___ on (date) pursuant to paragraph (b) of Rule 485.
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
___ on (date) pursuant to paragraph (a)(1) of Rule 485.
___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
___ on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following line:
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
JANUS ASPEN SERIES
Equity Income Portfolio and Capital
Appreciation Portfolio - Institutional Shares
and Retirement Shares
Between the Prospectuses and Statements of
Additional Information and Form N-1A Item
(Cross Reference Sheet for Other Series of Janus
Aspen Series are included in previous post-
effective amendments relating to those series)
Form N-1A Item
Part A Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Cover Page
3. Condensed Financial Expense Information; Financial
Information Highlights; An Explanation of
Performance Terms
4. General Description of The Portfolio's Investment Objective and
Registrant Policies; General Portfolio Policies;
Additional Risk Factors; Other
Information; Appendix A - Glossary of
Investment Terms
5. Management of the Fund Investment Adviser and Portfolio
Manager; Portfolio Transactions;
Management Expenses; Other Service
Providers; Other Information
5A. Management's Discussion Not Applicable
of Fund Performance
6. Capital Stock and Other Distributions; Taxes; Shareholder's
Securities Guide
7. Purchase of Securities Shareholder's Guide
Being Offered
8. Redemption or Repurchase Shareholder's Guide
9. Pending Legal Proceedings Not Applicable
<PAGE>
Part B Caption in Statement of Additional
Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Miscellaneous Information
History
13. Investment Objectives and Investment Objective; Portfolio
Policies Policies, Investment Restrictions; Types
of Securities and Investment Techniques
14. Management of the Fund Investment Adviser; Officers and
Trustees
15. Control Persons and Principal Shareholders
Principal Holders of
Securities
16. Investment Advisory and Investment Adviser; Custodian, Transfer
Other Services Agent and Certain Affiliations;
Portfolio Transactions and Brokerage;
Officers and Trustees; Miscellaneous
Information
17. Brokerage Allocation and Portfolio Transactions and Brokerage
Other Practices
18. Capital Stock and Other Shares of the Trust; Miscellaneous
Securities Information
19. Purchase, Redemption and Shares of the Trust
Pricing of Securities Being
Offered
20. Tax Status Income Dividends, Capital Gains
Distributions and Tax Status
21. Underwriters Not Applicable
22. Calculation of Performance Performance Information
Data
23. Financial Statements Financial Statements
<PAGE>
JANUS ASPEN SERIES
CAPITAL APPRECIATION PORTFOLIO
Supplement Dated October 24, 1997 to Prospectus Dated May 1, 1997
THIS SUPPLEMENT IS INTENDED TO BE USED WITH THE PROSPECTUS DATED MAY 1, 1997 FOR
THE INSTITUTIONAL SHARES. THIS SUPPLEMENT, TOGETHER WITH THE PROSPECTUS
PREVIOUSLY FURNISHED TO YOU, CONSTITUTE A CURRENT PROSPECTUS. TO REQUEST ANOTHER
COPY OF THE PROSPECTUS, PLEASE CALL OR WRITE YOUR INSURANCE COMPANY.
I. The following table is added at page 2 of the Prospectus:
Financial Highlights
The unaudited information below is for the fiscal period from May 1, 1997
(inception) to August 31, 1997.
Capital Appreciation Portfolio
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1. Net asset value, beginning of period $10.00
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Income from investment operations:
2. Net investment income .07
3. Net gains or (losses) on securities
(both realized and unrealized) 2.63
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4. Total from investment operations 2.70
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Less distributions:
5. Dividends (from net investment income) 0
6. Distributions (from capital gains) 0
- --------------------------------------------------------------------------------
7. Total distributions 0
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8. Net asset value, end of period $12.70
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9. Total return* 27.00%
- --------------------------------------------------------------------------------
10. Net assets, end of period (in thousands) $2,338
11. Average net assets for the period (in thousands) $1,182
12. Ratio of gross expenses to average net assets**(1) 1.25%
13. Ratio of net expenses to average net assets** 1.25%
14. Ratio of net investment income to average net assets** 3.23%
15. Portfolio turnover rate** 124%
16. Average commission rate $.0465
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* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 2.40% before waiver of certain fees and/or voluntary
reduction of the advisory fee to the effective rate of the corresponding
Janus retail fund.
II. The management fee schedule in the section "Breakdown of Management
Expenses" on page 7 of the Prospectus is amended as follows (thus lowering
the fee rate at the initial breakpoint): Management fees will accrue at the
following rates: 0.75% on the first $300 million in assets; 0.70% on the
next $200 million in assets; and 0.65% on assets in excess of $500 million.
The same fee reductions and expense limits still apply.
<PAGE>
JANUS ASPEN SERIES
CAPITAL APPRECIATION PORTFOLIO
RETIREMENT SHARES
Supplement Dated October 24, 1997 to Prospectus Dated May 1, 1997
THIS SUPPLEMENT IS INTENDED TO BE USED WITH THE PROSPECTUS DATED MAY 1, 1997.
THIS SUPPLEMENT, TOGETHER WITH THE PROSPECTUS PREVIOUSLY FURNISHED TO YOU,
CONSTITUTE A CURRENT PROSPECTUS. TO REQUEST ANOTHER COPY OF THE PROSPECTUS,
PLEASE CALL OR WRITE YOUR PLAN SPONSOR.
I. The following table is added at page 2 of the Prospectus:
Financial Highlights
The unaudited information below is for the fiscal period from May 1, 1997
(inception) to August 31, 1997.
Capital Appreciation Portfolio
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1. Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .10
3. Net gains or (losses) on securities (both realized and unrealized) 2.58
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4. Total from investment operations 2.68
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Less distributions:
5. Dividends (from net investment income) 0
6. Distributions (from capital gains) 0
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7. Total distributions 0
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8. Net asset value, end of period $12.68
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9. Total return* 26.80%
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10. Net assets, end of period (in thousands) $13
11. Average net assets for the period (in thousands) $11
12. Ratio of gross expenses to average net assets**(1) 1.75%
13. Ratio of net expenses to average net assets** 1.75%
14. Ratio of net investment income to average net assets** 2.66%
15. Portfolio turnover rate** 124%
16. Average commission rate $.0465
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* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 2.90% before waiver of certain fees and/or voluntary
reduction of the advisory fee to the effective rate of the corresponding
Janus retail fund.
II. The management fee schedule in the section "Breakdown of Management
Expenses" on page 7 of the Prospectus is amended as follows (thus lowering
the fee rate at the initial breakpoint): Management fees will accrue at the
following rates: 0.75% on the first $300 million in assets; 0.70% on the
next $200 million in assets; and 0.65% on assets in excess of $500 million.
The same fee reductions and expense limits still apply.
<PAGE>
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
Supplement Dated October 24, 1997 to Prospectus Dated May 1, 1997
THIS SUPPLEMENT IS INTENDED TO BE USED WITH THE PROSPECTUS DATED MAY 1, 1997 FOR
THE INSTITUTIONAL SHARES. THIS SUPPLEMENT, TOGETHER WITH THE PROSPECTUS
PREVIOUSLY FURNISHED TO YOU, CONSTITUTE A CURRENT PROSPECTUS. TO REQUEST ANOTHER
COPY OF THE PROSPECTUS, PLEASE CALL OR WRITE YOUR INSURANCE COMPANY.
I. The following table is added at page 2 of the Prospectus:
Financial Highlights
The unaudited information below is for the fiscal period from May 1, 1997
(inception) to August 31, 1997.
Equity Income Portfolio
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1. Net asset value, beginning of period $10.00
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Income from investment operations:
2. Net investment income .01
3. Net gains or (losses) on securities (both realized and unrealized) 2.39
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4. Total from investment operations 2.40
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Less distributions:
5. Dividends (from net investment income) 0
6. Distributions (from capital gains) 0
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7. Total distributions 0
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8. Net asset value, end of period $12.40
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9. Total return* 24.00%
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10. Net assets, end of period (in thousands) $781
11. Average net assets for the period (in thousands) $430
12. Ratio of gross expenses to average net assets**(1) 1.25%
13. Ratio of net expenses to average net assets** 1.25%
14. Ratio of net investment income to average net assets** 0.59%
15. Portfolio turnover rate** 131%
16. Average commission rate $.0449
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* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 4.89% before waiver of certain fees and/or voluntary
reduction of the advisory fee to the effective rate of the corresponding
Janus retail fund.
II. The management fee schedule in the section "Breakdown of Management
Expenses" on page 7 of the Prospectus is amended as follows (thus lowering
the fee rate at the initial breakpoint): Management fees will accrue at the
following rates: 0.75% on the first $300 million in assets; 0.70% on the
next $200 million in assets; and 0.65% on assets in excess of $500 million.
The same fee reductions and expense limits still apply.
<PAGE>
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
RETIREMENT SHARES
Supplement Dated October 24, 1997 to Prospectus Dated May 1, 1997
THIS SUPPLEMENT IS INTENDED TO BE USED WITH THE PROSPECTUS DATED MAY 1, 1997.
THIS SUPPLEMENT, TOGETHER WITH THE PROSPECTUS PREVIOUSLY FURNISHED TO YOU,
CONSTITUTE A CURRENT PROSPECTUS. TO REQUEST ANOTHER COPY OF THE PROSPECTUS,
PLEASE CALL OR WRITE YOUR PLAN SPONSOR.
I. The following table is added at page 2 of the Prospectus:
Financial Highlights
The unaudited information below is for the fiscal period from May 1, 1997
(inception) to August 31, 1997.
Equity Income Portfolio
- --------------------------------------------------------------------------------
1. Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .02
3. Net gains or (losses) on securities (both realized and unrealized) 2.36
- --------------------------------------------------------------------------------
4. Total from investment operations 2.38
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Less distributions:
5. Dividends (from net investment income) 0
6. Distributions (from capital gains) 0
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7. Total distributions 0
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8. Net asset value, end of period $12.38
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9. Total return* 23.80%
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10. Net assets, end of period (in thousands) $12
11. Average net assets for the period (in thousands) $11
12. Ratio of gross expenses to average net assets**(1) 1.75%
13. Ratio of net expenses to average net assets** 1.75%
14. Ratio of net investment income to average net assets** 0.43%
15. Portfolio turnover rate** 131%
16. Average commission rate $.0449
- --------------------------------------------------------------------------------
* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 5.39% before waiver of certain fees and/or voluntary
reduction of the advisory fee to the effective rate of the corresponding
Janus retail fund.
II. The management fee schedule in the section "Breakdown of Management
Expenses" on page 7 of the Prospectus is amended as follows (thus lowering
the fee rate at the initial breakpoint): Management fees will accrue at the
following rates: 0.75% on the first $300 million in assets; 0.70% on the
next $200 million in assets; and 0.65% on assets in excess of $500 million.
The same fee reductions and expense limits still apply.
<PAGE>
Janus Aspen Series
Capital Appreciation Portfolio
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Statement of Additional Information
May 1, 1997 as supplemented October 24, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus for the
Institutional Shares (the "Shares") of Capital Appreciation Portfolio (the
"Portfolio") a separate series of Janus Aspen Series, a Delaware business trust
(the "Trust"). The Shares are sold under the name "Janus Aspen Series". Each
series of the Trust represents shares of beneficial interest in a separate
portfolio of securities and other assets with its own objective and policies.
The Portfolio is managed separately by Janus Capital Corporation ("Janus
Capital").
The Shares of the Portfolio 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 other qualified retirement plans. The Portfolio also
offers a second class of shares to certain other participant directed qualified
plans.
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus dated May 1, 1997 as supplemented October 24, 1997, which is
incorporated by reference into this SAI and may be obtained from your insurance
company. This SAI contains additional and more detailed information about the
Portfolio's operations and activities than the Prospectus.
[Logo] JANUS
<PAGE>
Capital Appreciation Portfolio
Statement of Additional Information
Table of Contents
Page
- -------------------------------------------------------------------------------
Investment Policies, Restrictions and Techniques ............................ 3
Investment Objective ..................................................... 3
Portfolio Policies ....................................................... 3
Investment Restrictions .................................................. 3
Types of Securities and Investment Techniques ............................ 4
Illiquid Investments ................................................... 4
Zero Coupon, Pay-In-Kind and Step Coupon Securities .................... 4
Pass-Through Securities ................................................ 5
Investment Company Securities .......................................... 6
Depositary Receipts .................................................... 6
Other Income-Producing Securities ...................................... 6
Repurchase and Reverse Repurchase Agreements ........................... 6
High-Yield/High-Risk Securities ........................................ 7
Futures, Options and Other Derivative Instruments ...................... 7
Investment Adviser ......................................................... 14
Custodian, Transfer Agent and Certain Affiliations ......................... 15
Portfolio Transactions and Brokerage ....................................... 16
Officers and Trustees ...................................................... 17
Shares of the Trust ........................................................ 18
Net Asset Value Determination ........................................... 18
Purchases ............................................................... 19
Redemptions ............................................................. 19
Income Dividends, Capital Gains Distributions and Tax Status ............... 19
Principal Shareholders ..................................................... 20
Miscellaneous Information .................................................. 20
Shares of the Trust ..................................................... 20
Voting Rights ........................................................... 20
Independent Accountants ................................................. 21
Registration Statement .................................................. 21
Performance Information .................................................... 21
Financial Statements ....................................................... 22
Appendix A ................................................................. 28
Explanation of Rating Categories ........................................ 28
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2
<PAGE>
Investment Policies, Restrictions and Techniques
Investment Objective
As stated in the Prospectus, the Portfolio's investment objective is
long-term growth of capital. There can be no assurance that the Portfolio will
achieve its objective. The investment objective of the Portfolio is not
fundamental and may be changed by the Trustees without shareholder approval.
Portfolio Policies
The Prospectus discusses the types of securities in which the Portfolio
will invest, portfolio policies of the Portfolio and the investment techniques
of the Portfolio. The Prospectus includes a discussion of portfolio turnover
policies.
Portfolio turnover (total long-term purchases or sales, whichever is less,
divided by the average monthly value of the Portfolio's long-term portfolio
securities) is not anticipated to exceed 200%. The Portfolio's annualized
portfolio turnover rate for the period May 1, 1997 through August 31, 1997 was
124%.
Investment Restrictions
As indicated in the Prospectus, the Portfolio is subject to certain
fundamental policies and restrictions that may not be changed without
shareholder approval. Shareholder approval means approval by the lesser of (i)
more than 50% of the outstanding voting securities of the Trust (or the
Portfolio or class of shares if a matter affects just the Portfolio or class of
shares), or (ii) 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities of the Trust
(or the Portfolio or class of shares) are present or represented by proxy. As
fundamental policies, the Portfolio may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to fifty percent (50%) of the value of its total assets, purchase
the securities of any one issuer (except cash items and "government securities"
as defined under the Investment Company Act of 1940, as amended (the "1940
Act")), if immediately after and as a result of such purchase, the value of the
holdings of the Portfolio in the securities of such issuer exceeds 5% of the
value of the Portfolio's total assets.
(2) Invest 25% or more of the value of its total assets in any particular
industry (other than U.S. government securities).
(3) Invest directly in real estate or interests in real estate; however,
the Portfolio 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 Portfolio from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or repurchase
agreements).
(6) Act as an underwriter of securities issued by others, except to the
extent that the Portfolio may be deemed an underwriter in connection with the
disposition of portfolio securities of the Portfolio.
As a fundamental policy, the 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 objectives, policies and
limitations as the Portfolio.
The Trustees have adopted additional investment restrictions for the
Portfolio. These restrictions are operating policies of the Portfolio and may be
changed by the Trustees without shareholder approval. The additional investment
restrictions adopted by the Trustees to date include the following:
(a) The 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 the
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 the Portfolio's commitments
under outstanding futures contracts positions would exceed the market value of
its total assets.
(b) The Portfolio does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
3
<PAGE>
(c) The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute
purchasing securities on margin.
(d) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
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.
(e) The Portfolio may borrow money for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of the 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.
(f) The Portfolio does not currently intend to purchase any security or
enter into a repurchase agreement, if as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees, or the Portfolio's investment
adviser acting pursuant to authority delegated by the Trustees, may determine
that a readily available market exists for securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"),
or any successor to such rule, Section 4(2) commercial paper and municipal lease
obligations. Accordingly, such securities may not be subject to the foregoing
limitation.
(g) The Portfolio may not invest in companies for the purpose of exercising
control of management.
For purposes of the Portfolio's restriction on investing in a particular
industry, the Portfolio will rely primarily on industry classifications as
published by Bloomberg L.P. To the extent that Bloomberg L.P. classifications
are so broad that the primary economic characteristics in a single class are
materially different, the Portfolio may further classify issuers in accordance
with industry classifications as published by the Securities and Exchange
Commission ("SEC").
The Portfolio is seeking permission from the SEC to borrow money from or
lend money to other funds that permit such transactions and for which Janus
Capital serves as investment adviser. All such borrowing and lending will be
subject to the above limits. There is no assurance that such permission will be
granted.
Types of Securities and Investment Techniques
Illiquid Investments
The Portfolio may invest up to 15% of its net assets in illiquid
investments (i.e., securities that are not readily marketable). The Trustees of
the Portfolio have authorized Janus Capital to make liquidity determinations
with respect to its securities, including Rule 144A Securities and commercial
paper. Under the guidelines established by the Trustees, Janus Capital will
consider the following factors: 1) the frequency of trades and quoted prices for
the obligation; 2) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers; 3) the willingness of
dealers to undertake to make a market in the security; and 4) the nature of the
security and the nature of marketplace trades, including the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer. In the case of commercial paper, Janus Capital will also consider
whether the paper is traded flat or in default as to principal and interest and
any ratings of the paper by a nationally recognized statistical rating
organization ("NRSRO"). A foreign security that may be freely traded on or
through the facilities of an offshore exchange or other established offshore
securities market is not deemed to be a restricted security subject to these
procedures.
Zero Coupon, Pay-In-Kind and Step Coupon Securities
The 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.
4
<PAGE>
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), the Portfolio must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds. Because the 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 the Portfolio may have to
distribute cash obtained from other sources in order to satisfy the distribution
requirements under the Code. The Portfolio might obtain such cash from selling
other portfolio holdings which might cause the Portfolio to incur capital gains
or losses on the sale. In some circumstances, such sales might be necessary in
order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for the 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 Portfolio 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 Portfolio. The most common
type of pass-through securities are mortgage-backed securities. Government
National Mortgage Association ("GNMA") Certificates are mortgage-backed
securities that evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrowers over the term of the loan rather than returned in a lump sum at
maturity. The 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, 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 Portfolio), 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 the
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 the Portfolio might be
converted to cash and the 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 the 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 or guarantor of the security and interest
and principal payments ultimately depend upon payment of the underlying loans by
individuals. Tax-exempt asset-backed securities include units of beneficial
interests in pools of purchase contracts,
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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.
Investment Company Securities
From time to time, the Portfolio may invest in securities of other
investment companies, subject to the provisions of Section 12(d)(1) of the 1940
Act. The Portfolio may invest in securities of money market funds managed by
Janus Capital subject to the terms of an exemptive order obtained by Janus
Capital and the Janus funds which currently provides that the Portfolio will
limit its aggregate investment in a Janus money market fund to the greater of
(i) 5% of the investing Portfolio's total assets or (ii) $2.5 million. The Janus
funds are seeking an amended and restated exemptive order that would permit the
Portfolio to invest in Janus money market funds in excess of the limitations of
Section 12(d)(1) of the 1940 Act. There is no assurance that such amendment will
be granted.
Depositary Receipts
The Portfolio may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depositary of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. The Portfolio may also invest in
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and
in other similar instruments representing securities of foreign companies. EDRs
are receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs. EDRs, in bearer form, are designed for use
in European securities markets.
Other Income-Producing Securities
Other types of income producing securities that the Portfolio may purchase
include, but are not limited to, the following types of securities:
Variable and floating rate obligations. These types of securities have
variable or floating rates of interest and, under certain limited circumstances,
may have varying principal amounts. Variable and floating rate securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). See also "Inverse Floaters."
Standby commitments. These instruments, which are similar to a put, give
the Portfolio the option to obligate a broker, dealer or bank to repurchase a
security held by the 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. Certain variable
rate securities (including certain mortgage-backed securities) pay interest at a
rate that varies inversely to prevailing short-term interest rates (sometimes
referred to as inverse floaters). For example, upon reset the interest rate
payable on a security may go down when the underlying index has risen. The
Portfolio will not invest more than 5% of its assets in inverse floaters.
The Portfolio will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of its portfolio.
Repurchase and Reverse Repurchase Agreements
In a repurchase agreement, the 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." The 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 the Portfolio to suffer a loss if the market value of
such securities declines
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before they can be liquidated on the open market. In the event of bankruptcy or
insolvency of the seller, the 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 investments. While
it is not possible to eliminate all risks from these transactions, it is the
policy of the Portfolio to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by Janus Capital.
The 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. In a reverse
repurchase agreement, the 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, the Portfolio will maintain cash and appropriate liquid assets
in a segregated custodial account to cover its obligation under the agreement.
The Portfolio will enter into reverse repurchase agreements only with parties
that Janus Capital deems creditworthy. Using reverse repurchase agreements to
earn additional income involves the risk that the interest earned on the
invested proceeds is less than the expense of the reverse repurchase agreement
transaction. This technique may also have a leveraging effect on the Portfolio,
although the Portfolio's intent to segregate assets in the amount of the reverse
repurchase agreement minimizes this effect.
High-Yield/High-Risk Securities
The Portfolio intends to invest less than 35% of its net assets in debt
securities that are rated below investment grade (e.g., securities rated BB or
lower by Standard & Poor's Ratings Services ("Standard & Poor's") or Ba or lower
by Moody's Investors Service, Inc. ("Moody's")). Lower rated bonds involve a
higher degree of credit risk, which is the risk that the issuer will not make
interest or principal payments when due. In the event of an unanticipated
default, the Portfolio would experience a reduction in its income, and could
expect a decline in the market value of the securities so affected.
The 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. The portfolio
manager will analyze the credit worthiness 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 the Portfolio unless its
portfolio manager deems such securities to be the equivalent of investment grade
securities.
Subject to the above limits, the Portfolio may purchase defaulted
securities only when its portfolio manager believes, based upon their analysis
of the financial condition, results of operations and economic outlook of an
issuer, that there is potential for resumption of income payments and that the
securities offer an unusual opportunity for capital appreciation.
Notwithstanding the portfolio manager's belief as to the resumption of income,
however, the purchase of any security on which payment of interest or dividends
is suspended involves a high degree of risk. Such risk includes, among other
things, the following:
Financial and Market Risks. Investments in securities that are in default
involve a high degree of financial and market risks that can result in
substantial or, at times, even total losses. Issuers of defaulted securities may
have substantial capital needs and may become involved in bankruptcy or
reorganization proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information about the
condition of such issuers. The market prices of such securities also are subject
to abrupt and erratic movements and above average price volatility, and the
spread between the bid and asked prices of such securities may be greater than
normally expected.
Disposition of Portfolio Securities. Although the Portfolio generally will
purchase securities for which its portfolio manager expects an active market to
be maintained, defaulted securities may be less actively traded than other
securities and it may be difficult to dispose of substantial holdings of such
securities at prevailing market prices. The Portfolio will limit holdings of any
such securities to amounts that the portfolio manager believes could be readily
sold, and holdings of such securities would, in any event, be limited so as not
to limit the Portfolio's ability to readily dispose of securities to meet
redemptions.
Other. Defaulted securities require active monitoring and may, at times,
require participation in bankruptcy or receivership proceedings on behalf of the
Portfolio.
Futures, Options and Other Derivative Instruments
Futures Contracts. The Portfolio 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.
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The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain other liquid assets by the Portfolio's custodian for the benefit of the
FCM. Initial margin payments are similar to good faith deposits or performance
bonds. Unlike margin extended by a securities broker, initial margin payments do
not constitute purchasing securities on margin for purposes of the 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 the
Portfolio, the Portfolio may be entitled to return of margin owed to the
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 Portfolio does business and
by depositing margin payments in a segregated account with the Portfolio's
custodian.
The Portfolio intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" adopted by
the CFTC and the National Futures Association, which regulate trading in the
futures markets. The Portfolio will use futures contracts and related options
primarily for bona fide hedging purposes within the meaning of CFTC regulations.
To the extent that the Portfolio holds positions in futures contracts and
related options that do not fall within the definition of bona fide hedging
transactions, the aggregate initial margin and premiums required to establish
such positions will not exceed 5% of the fair market value of the Portfolio's
net assets, after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into.
Although the Portfolio will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to the Portfolio immediately upon closing out the futures position,
while settlement of securities transactions could take several days. However,
because the Portfolio's cash that may otherwise be invested would be held
uninvested or invested in other liquid assets so long as the futures position
remains open, the Portfolio's return could be diminished due to the opportunity
losses of foregoing other potential investments.
The Portfolio's primary purpose in entering into futures contracts is to
protect the 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, the 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 the Portfolio not participating in a market advance.
This technique is sometimes known as an anticipatory hedge. To the extent the
Portfolio enters into futures contracts for this purpose, the segregated assets
maintained to cover the Portfolio's obligations with respect to the futures
contracts will consist of other liquid assets from its portfolio in an amount
equal to the difference between the contract price and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
the futures contracts. Conversely, if the 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. The 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 the Portfolio owns Treasury bonds and the portfolio manager expects
interest rates to increase, the Portfolio may take a short position in interest
rate futures contracts. Taking such a position would have much the same effect
as the 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 the Portfolio's interest rate futures contract will increase, thereby
keeping the net asset value of the Portfolio from declining as much as it may
have otherwise. If, on the other hand, a portfolio manager expects interest
rates to decline, the 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 the 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.
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Futures contracts entail risks. Although the Portfolio believes that use of
such contracts will benefit the Portfolio, the Portfolio's overall performance
could be worse than if the Portfolio had not entered into futures contracts if
the portfolio manager's investment judgement proves incorrect. For example, if
the Portfolio has hedged against the effects of a possible decrease in prices of
securities held in its portfolio and prices increase instead, the 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 the
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 the 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
the Portfolio will not match exactly the Portfolio's current or potential
investments. The 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 the Portfolio's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with the
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 the 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. The 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 the 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 the 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 three days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for the 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, the 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, the Portfolio's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts. The Portfolio may buy and write put and call
options on futures contracts. An option on a future gives the 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 the 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, the
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Portfolio is considering buying. If a call or put option the Portfolio has
written is exercised, the 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, the 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, the Portfolio may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
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The amount of risk the 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 amount for the assets at the time of delivery. The Portfolio may enter
into forward contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
The following discussion summarizes the Portfolio's principal uses of
forward foreign currency exchange contracts ("forward currency contracts"). The
Portfolio may enter into forward currency contracts with stated contract values
of up to the value of the 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). The 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"). The Portfolio also may hedge some or all of its
investments denominated in a foreign currency or exposed to foreign currency
fluctuations against a decline in the value of that currency relative to the
U.S. dollar by entering into forward currency contracts to sell an amount of
that currency (or a proxy currency whose performance is expected to replicate or
exceed the performance of that currency relative to the U.S. dollar)
approximating the value of some or all of its portfolio securities denominated
in that currency ("position hedge") or by participating in options or futures
contracts with respect to the currency. The 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 the 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 the 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 the Portfolio's currency exposure from
one foreign currency to another removes the Portfolio's opportunity to profit
from increases in the value of the original currency and involves a risk of
increased losses to the 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 the Portfolio than if it had
not entered into such contracts.
The Portfolio will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose value is tied
to, the currency underlying the forward contract or the currency being hedged.
To the extent that the Portfolio is not able to cover its forward currency
positions with underlying portfolio securities, the Portfolio's custodian will
segregate cash or other liquid assets having a value equal to the aggregate
amount of the 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, the Portfolio will find alternative cover or segregate additional cash
or liquid assets on a daily basis so that the value of the covered and
segregated assets will be equal to the amount of the Portfolio's commitments
with respect to such contracts. As an alternative to segregating assets, the
Portfolio may buy call options permitting the Portfolio to buy the amount of
foreign currency being hedged by a forward sale contract or the 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 contacts. In such event,
the Portfolio's ability to utilize forward contracts may be restricted. In
addition, the 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 Portfolio may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Portfolio may buy put
options on the foreign currency. If the value of the currency declines, the
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, the 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 the 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, the Portfolio could sustain losses on
transactions in foreign currency options that would require the Portfolio to
forego a portion or all of the benefits of advantageous changes in those rates.
The Portfolio may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, the
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 decline in value of portfolio securities will be offset
by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the Portfolio
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the 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 the 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, the Portfolio also may lose all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
The Portfolio may write covered call options on foreign currencies. A call
option written on a foreign currency by the Portfolio is "covered" if the
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 the 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 the Portfolio in cash or other
liquid assets in a segregated account with the Portfolio's custodian.
The Portfolio also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
the 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, the Portfolio will collateralize the option by segregating cash
or other liquid assets in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Options on Securities. In an effort to increase current income and to
reduce fluctuations in net asset value, the Portfolio 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
Portfolio may write and buy options on the same types of securities that the
Portfolio may purchase directly.
A put option written by the Portfolio is "covered" if the Portfolio (i)
segregates cash not available for investment or other liquid assets with a value
equal to the exercise price of the put with the Portfolio's custodian or (ii)
holds a put on the same security and in the same principal amount as the put
written and the exercise price of the put held is equal to or greater than the
exercise price of the put written. The premium paid by the buyer of an option
will reflect, among other things, the relationship of the exercise price to the
market price and the volatility of the underlying security, the remaining term
of the option, supply and demand and interest rates.
A call option written by the Portfolio is "covered" if the 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 Portfolio's
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if the 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 than the exercise price of
the call written if the difference is maintained by the Portfolio in cash and
other liquid assets in a segregated account with its custodian.
The Portfolio also may write call options that are not covered for
cross-hedging purposes. The Portfolio collateralizes its obligation under a
written call option for cross-hedging purposes by segregating cash or other
liquid assets in an amount not less than the market value of the underlying
security, marked to market daily. The 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.
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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 the 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 the Portfolio to write
another put option to the extent that the exercise price is secured by other
liquid assets. Effecting a closing transaction also will permit the Portfolio to
use the cash or proceeds from the concurrent sale of any securities subject to
the option for other investments. If the Portfolio desires to sell a particular
security from its portfolio on which it has written a call option, the Portfolio
will effect a closing transaction prior to or concurrent with the sale of the
security.
The 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. The 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 the 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 the 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.
The Portfolio may write options in connection with buy-and-write
transactions. In other words, the 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, the Portfolio's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between the 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 the 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, the Portfolio may elect to close the
position or take delivery of the security at the exercise price and the
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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.
The Portfolio may buy put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the 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.
The 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
the Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Portfolio.
Eurodollar Instruments. The 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 portfolios and sellers to obtain a fixed rate for
borrowings. The 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. The 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 the 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 the 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
other liquid assets having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Portfolio's
custodian. If the 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. The 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 NRSRO at the
time of entering into such transaction. Janus Capital will monitor the
creditworthiness of all counterparties on an ongoing basis. If there is a
default by the other party to such a transaction, the 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, accordingly, they are less liquid than swaps. To the extent the
Portfolio sells (i.e., writes) caps and floors, it will segregate cash or other
liquid assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the 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 the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
The 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 Portfolio 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
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may be more readily available than in the over-the-counter market, potentially
permitting the 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 the
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.
Investment Adviser
As stated in the Prospectus, the Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928.
The Advisory Agreement provides that Janus Capital will furnish continuous
advice and recommendations concerning the Portfolio's investments, provide
office space for the Portfolio and pay the salaries, fees and expenses of all
Portfolio officers and of those Trustees who are affiliated with Janus Capital.
Janus Capital also may make payments to selected broker-dealer firms or
institutions which were instrumental in the acquisition of shareholders for the
Portfolio or other Janus Funds or which performed recordkeeping or other
services with respect to shareholder accounts. The minimum aggregate size
required for eligibility for such payments, and the factors in selecting the
broker-dealer firms and institutions to which they will be made, are determined
from time to time by Janus Capital. Janus Capital is also authorized to perform
the management and administrative services necessary for the operation of the
Portfolio.
The Portfolio pays custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in connection with
the execution of portfolio transactions, legal and accounting expenses, interest
and taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not affiliated with Janus
Capital, and other costs of complying with applicable laws regulating the sale
of Portfolio shares. Pursuant to the Advisory Agreement, Janus Capital furnishes
certain other services, including net asset value determination, portfolio
accounting and recordkeeping, for which the Portfolio may reimburse Janus
Capital for its costs.
The Portfolio has agreed to compensate Janus Capital for its services by
the monthly payment of a fee at the annual rate of 0.75% of the first $300
million of the average daily net assets of the Portfolio, 0.70% of the next $200
million of the average daily net assets of the Portfolio and 0.65% of the
average daily net assets of the Portfolio in excess of $500 million. The
advisory fee is calculated and payable daily. Janus Capital has voluntarily
agreed to cap the advisory fee of the Portfolio at the effective rate of Janus
Olympus Fund (the "retail fund"). The effective rate of the 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 the
Portfolio as of the last day of any calendar quarter, then the advisory fee
payable by the Portfolio for the following calendar quarter will be a flat rate
equal to such effective rate. The effective rate (annualized) of Janus Olympus
Fund was .74% for the quarter ended September 30, 1997. Janus Capital may
terminate this fee reduction at any time upon at least 90 days' notice to the
Trustees.
For the period ended August 31, 1997, the investment advisory fee was
$2,973 prior to waiver by Janus Capital. The advisory fee was $0 after waiver
for this period.
In addition, Janus Capital has agreed to reimburse the Portfolio by 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 an annual rate of 1.25% of the average daily net assets of the Portfolio
through at least April 30, 1998. Mortality risk, expense risk and other charges
imposed by participating insurance companies are excluded from the above expense
limitation.
The current Advisory Agreement became effective on December 10, 1996, and
it will continue in effect until June 16, 1998, and thereafter from year to year
so long as such continuance is approved annually by a majority of the
Portfolio's Trustees who
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are not parties to the Advisory Agreement or interested persons of any such
party, and by either a majority of the outstanding voting shares of the
Portfolio or the Trustees. The Advisory Agreement i) may be terminated without
the payment of any penalty by the 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, including the Trustees who are not interested persons of the Portfolio
or Janus Capital and, to the extent required by the 1940 Act, the vote of a
majority of the outstanding voting securities of the 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
Portfolio, are made independently from those for any other account that is or
may in the future become managed by Janus Capital or its affiliates. If,
however, a number of accounts managed by Janus Capital are contemporaneously
engaged in the purchase or sale of the same security, the orders may be
aggregated and/or the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect the
price paid or received by an account or the size of the position obtained or
liquidated for an account. Pursuant to an exemptive order granted by the SEC,
the Portfolio and other portfolios advised by Janus Capital may also transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating portfolios on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
policies and is managed accordingly by a particular portfolio manager or team of
portfolio managers. As a result, from time to time two or more different managed
accounts may pursue divergent investment strategies with respect to investments
or categories of investments.
As indicated in the Prospectus, Janus Capital does not permit the portfolio
manager to purchase and sell securities for his own accounts except under the
limited circumstances contained in Janus Capital's policy regarding personal
investing by directors/ Trustees, officers and employees of Janus Capital and
the Trust. The policy requires investment personnel and officers of Janus
Capital, inside directors/Trustees of Janus Capital and the Trust 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 Portfolio.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Trust to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI"), owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns
approximately 12% of its voting stock and, by agreement with KCSI, selects a
majority of Janus Capital's Board.
Custodian, Transfer Agent and Certain Affiliations
State Street Bank and Trust Company ("State Street"), P.O. Box 0351,
Boston, Massachusetts 02117-0351 is the custodian of the domestic securities and
cash of the Portfolio. State Street and the foreign subcustodians it selects,
have custody of the assets of the Portfolio held outside the U.S. and cash
incidental thereto. The custodian and subcustodians hold the Portfolio's assets
in safekeeping and collect and remit the income thereon, subject to the
instructions of the Portfolio.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the
Portfolio's transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the
Portfolio. Janus Service is not compensated for its services related to the
shares, except for out-of-pocket costs.
The Portfolio pays DST Systems, Inc. ("DST"), a subsidiary of KCSI, license
fees for the use of its portfolio and fund accounting system a monthly base fee
of $250 to $1,250 per month based on the number of Janus funds using the system
and an asset charge of $1 per million (not to exceed $500 per month).
The Trustees have authorized the Portfolio to use another affiliate of DST
as introducing broker for certain Portfolio transactions as a means to reduce
Portfolio expenses through credits against the charges of DST and its affiliates
with regard to commissions earned by such affiliate. See "Portfolio Transactions
and Brokerage."
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Portfolio Transactions and Brokerage
Decisions as to the assignment of portfolio business for the Portfolio 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 Portfolio may trade foreign
securities in foreign countries because the best available market for these
securities is often on foreign exchanges. In transactions on foreign stock
exchanges, brokers' commissions are frequently fixed and are often higher than
in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to the 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
commission was reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of Janus Capital. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services, and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities.
Most broker dealers used by Janus Capital provide research and other
services described above. For the period ended August 31, 1997, the Portfolio
paid $95 of its total brokerage commissions to brokers and dealers in
transactions identified for execution primarily on the basis of research and
other services provided to the Portfolio on transactions of $65,741. Research
received from brokers or dealers is supplemental to Janus Capital's own research
efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to the Portfolio. 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
Portfolio. Research products and services incidental to effecting securities
transactions furnished by brokers or dealers may be used in servicing any or all
of Janus Capital's clients and such research may not necessarily be used by
Janus Capital in connection with the accounts which paid commissions to the
broker-dealer providing such research products and services.
Janus Capital may consider sales of Portfolio shares 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 the 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 Portfolio purchases or sells a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where in the opinion
of Janus Capital better prices and executions will be achieved through the use
of a broker.
The Portfolio's Trustees have authorized Janus Capital to place
transactions with DST Securities, Inc. ("DSTS"), a wholly-owned broker-dealer
subsidiary of DST. Janus Capital may do so if it reasonably believes that the
quality of the transaction and the associated commission are fair and reasonable
and if, overall, the associated transaction costs, net of any credits described
above under "Custodian, Transfer Agent and Certain Affiliations," are lower than
those that would otherwise be incurred.
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During the period ended August 31, 1997, the Portfolio paid brokerage
commissions of $340. There were no commissions paid through DSTS.
As of August 31, 1997, the Portfolio owned securities of $35,670 of Merrill
Lynch & Co., Inc.
Officers and Trustees
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street
Denver, CO 80206-4928
Trustee, Chairman and President of Janus Investment Fund+. Chairman, Chief
Executive Officer, Director and President of Janus Capital. Chairman and
Director of IDEX Management, Inc., Largo, Florida (50% subsidiary of Janus
Capital and investment adviser to a group of mutual funds) ("IDEX").
James P. Craig, III*# - Trustee and Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Trustee of Janus Investment Fund+. Chief
Investment Officer, Vice President, and Director of Janus Capital.
Scott W. Schoelzel* - Executive Vice President and Portfolio Manager
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund+.
Vice President of Janus Capital. From 1991 to 1993, a Portfolio Manager
with Founders Asset Management, Denver, Colorado. Prior to 1991, a general
partner of Ivy Lane Investments, Denver, Colorado (a real estate investment
partnership).
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
Vice President and Chief Financial Officer of Janus Investment Fund+. Vice
President of Finance, Treasurer and Chief Financial Officer of Janus
Service, Janus Distributors and Janus Capital. Director of IDEX Janus
Service and Janus Distributors. Director, Treasurer and Vice President of
Finance of Janus Capital International Ltd. Formerly (1992-1996), Treasurer
of Janus Investment Fund and Janus Aspen Series.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street
Denver, CO 80206-4928
Treasurer and Chief Accounting Officer of Janus Investment Fund. Director
of Fund Accounting of Janus Capital.
Kelley Abbott Howes* - Secretary
100 Fillmore Street
Denver, CO 80206-4928
Secretary of Janus Investment Fund. Director and President, Janus
Distributors, Inc. Associate Counsel of Janus Capital. Formerly (1990 to
1994) with The Boston Company Advisors, Inc., Boston, Massachusetts (mutual
fund administration services).
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Investment Fund+. President of HPS Division of MKS
Instruments, Boulder, Colorado (manufacturer of vacuum fittings and
valves).
Gary O. Loo# - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (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.
17
<PAGE>
Dennis B. Mullen - Trustee
14103 Denver West Parkway
Golden, CO 80401
Trustee of Janus Investment Fund+. Chief Financial Officer of Boston Market
Concepts, Golden, Colorado (restaurant chain). Formerly (1993-1997),
President and Chief Officer of BC Northwest L.P., a franchise of Boston
Chicken, Inc., Bellevue, Washington (restaurant chain); (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. Formerly (1989 to
1993), 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).
James T. Rothe - Trustee
102 South Tejon Street, Suite 1100
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. Professor of Business, University of
Colorado, Colorado Springs, Colorado. Principal, Phillips-Smith Retail
Group, Colorado Springs, Colorado (a venture capital firm). Formerly
(1986-1994), Dean of the College of Business, University of Colorado,
Colorado Springs, Colorado.
- --------------------------------------------------------------------------------
+ Includes comparable office with various Janus funds that were reorganized into
Janus Investment Fund on August 7, 1992.
The Trustees are responsible for major decisions relating to the
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolio 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 Portfolio described in this SAI and all funds advised and sponsored by
Janus Capital (collectively, the "Janus Funds") for the periods indicated. None
of the Trustees receive any pension or retirement benefits from the Portfolio or
the Janus Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the
from the Portfolio for fiscal year Janus Funds for calendar year
Name of Person, Position ended December 31, 1996** ended December 31, 1996***
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, Trustee* $0 $0
John W. Shepardson, Trustee+ $0 $73,000
William D. Stewart, Trustee $0 $70,000
Gary O. Loo, Trustee $0 $70,000
Dennis B. Mullen, Trustee $0 $67,000
Martin H. Waldinger, Trustee $0 $73,000
James T. Rothe, Trustee++ $0 $0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* An interested person of the Portfolio and of Janus Capital. Compensated by
Janus Capital and not the Portfolio.
** The Portfolio had not commenced operations as of December 31, 1996.
*** As of December 31, 1996, Janus Funds consisted of two registered investment
companies comprised of a total of 29 funds.
+ Mr. Shepardson retired on March 31, 1997.
++ Mr. Rothe began serving as Trustee on January 1, 1997.
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, Martin Luther King Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
The per share NAV of the Portfolio's Shares is determined by dividing the total
value of the Portfolio's securities and other assets, less liabilities,
attributable to the Shares of the Portfolio, by the total number of Shares
outstanding. In determining NAV, securities listed on an exchange, the NASDAQ
National
18
<PAGE>
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 Portfolio are traded primarily in the
over-the-counter market. Valuations of such securities are furnished by one or
more pricing services employed by the Portfolio and are based upon a
computerized matrix system or appraisals obtained by a pricing service, in each
case in reliance upon information concerning market transactions and quotations
from recognized municipal securities dealers. Other securities that are traded
on the over-the-counter market are valued at their closing bid prices. Foreign
securities and currencies are converted to U.S. dollars using the exchange rate
in effect at the close of the NYSE. The 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 securities maturing within 60 days are valued on the
amortized cost basis. Securities for which quotations are not readily available,
and other assets, are valued at fair values determined in good faith under
procedures established by and under the supervision of the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which the Portfolio's NAV is not calculated. The 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 Portfolio 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
Portfolio are purchased at the NAV per Share as determined at the close of the
regular trading session of the NYSE next occurring after a purchase order is
received and accepted by the 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 Portfolio.
Redemptions
Redemptions, like purchases, may only be effected through the separate
accounts of participating insurance companies or certain qualified retirement
plans. Shares normally will be redeemed for cash, although the 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 Portfolio is governed
by Rule 18f-1 under the 1940 Act, which requires the Portfolio to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the NAV of the Portfolio
during any 90-day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation, the 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.
The right to require the Portfolio 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 Shares of the Portfolio to make semiannual
distributions in June and December of substantially all of their investment
income and an annual distribution in June of their net realized capital gains,
if any. It is also a policy of the Portfolio to qualify as regulated investment
company by satisfying certain requirements prescribed by Subchapter M of the
Code. In addition, the 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 the
Portfolio's Shares are reinvested automatically in additional Shares of the
Portfolio at the NAV determined on the first business day following the record
date.
The Portfolio may purchase the securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS. In order to
avoid taxes and interest that must be paid by the Portfolio if these investments
are profitable,
19
<PAGE>
the Portfolio may make various elections permitted by the tax laws. However,
these elections could require that the Portfolio recognize taxable income, which
in turn must be distributed, before the securities are sold and before cash is
received to pay the distributions.
Some foreign securities purchased by the Portfolio may be subject to
foreign taxes which could reduce the yield on such securities. The amount of
such foreign taxes is expected to be insignificant. The Portfolio, may from year
to year make the election permitted under section 853 of the Code to pass
through such taxes to shareholders as a foreign tax credit. If such an election
is not made, 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 Portfolio 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 Portfolio cannot directly own Shares of
the Portfolio 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 the Portfolio. As of August
31, 1997, all of the outstanding Shares of the Portfolio were owned by certain
insurance company separate accounts and by Janus Capital, which provided seed
capital for the Portfolio. The percentage ownership of each separate account
owning more than 5% of the Portfolio's Shares is as follows:
Life of Virginia - 37.90%
Western Reserve Life - 58.60%
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. As of the
date of this SAI, the Trust is offering eleven series of shares, known as
"portfolios," in two classes. Additional series and/or classes may be created
from time to time.
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 the Portfolio are fully paid and nonassessable when issued. The
Shares of the Portfolio participate equally in dividends and other distributions
by the Shares of the Portfolio, and in residual assets of the Portfolio in the
event of liquidation. The Shares of the Portfolio have no preemptive, conversion
or subscription rights.
The Portfolio currently offers two classes of shares. The Shares discussed
in this SAI are offered only in connection with investment in and payments under
variable insurance contracts, as well as certain qualified retirement plans. A
second class of shares, Retirement Shares, are offered only to participant
directed qualified retirement plans whose service providers require a fee from
Trust assets for providing certain services to plan participants.
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 Trustees are responsible for major decisions relating to the
Portfolio's policies and objectives; the Trustees oversee the operation of the
Portfolio by its officers and review the investment decisions of the officers.
The present Trustees were elected by the initial trustee of the Trust on
May 25, 1993, with the exception of Mr. Craig and Mr. Rothe who were appointed
by the Trustees as of June 30, 1995 and as of January 1, 1997, respectively.
Under the Trust Instrument, each Trustee will continue in office until the
termination of the Trust or his earlier death, retirement, resignation,
bankruptcy, incapacity or removal. Vacancies will be filled by a majority of the
remaining Trustees, subject to the 1940 Act.
20
<PAGE>
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 the 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 portfolio of the Trust has one vote (and fractional
votes for fractional shares). Shares of all portfolios of the Trust have
noncumulative voting rights, which means that the holders of more than 50% of
the shares of all portfolios 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
portfolio or class of the Trust will vote separately only with respect to those
matters that affect only that portfolio or class or if the interest of a
portfolio or class in a matter differs from the interests of other portfolios or
classes of the Trust.
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Portfolio, audit the Portfolio's annual
financial statements and prepare its tax returns.
Registration Statement
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this SAI relates. If further information is desired with
respect to the Portfolio or such securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
Performance Information
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for the Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the 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 Portfolio was made available for sale on May 1, 1997. The lifetime
total return of the Shares for the period May 1, 1997 through August 31, 1997
was 27%.
Yield quotations of the Portfolio's Shares 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
Quotations of yield or total return for the Portfolio will not take into
account charges and deductions against any variable annuity contracts and
variable life insurance contracts to which the Portfolio shares are sold. The
Portfolio's yield and total return should not be compared with other mutual
funds that sell their shares directly to the public since the figures provided
do not reflect charges against the variable annuity contracts and variable life
insurance contracts.
From time to time in advertisements or sales material, the Portfolio may
discuss its performance ratings or other information as published by recognized
mutual fund statistical rating services, including, but not limited to, Lipper
Analytical Services, Inc., Ibbotson Associates, Micropal or Morningstar, Inc. or
by publications of general interest such as Forbes, Money, The Wall Street
Journal, Mutual Funds Magazine, Kiplinger's, or Smart Money. The Portfolio may
also compare its performance to that of other selected mutual funds, mutual fund
averages or recognized stock market indicators, including, but not limited to,
the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Russell 2000 Index and the NASDAQ composite.
21
<PAGE>
In addition, the Portfolio may compare its total return to the yield on U.S.
Treasury obligations and to the percentage change in the Consumer Price Index.
Such performance ratings or comparisons may be made with funds that may have
different investment restrictions, objectives, policies or techniques than the
Portfolio and such other funds or market indicators may be comprised of
securities that differ significantly from the Portfolio's investments.
Financial Statements
The following unaudited financial statements for the period ended August
31, 1997 are included in this SAI.
Schedule of Investments as of August 31, 1997
Statement of Operations for the period May 1, 1997 to August 31, 1997
Statement of Assets and Liabilities as of August 31, 1997
Statement of Changes in Net Assets for the period May 1, 1997 to August 31,
1997
Financial Highlights for the period May 1, 1997 to August 31, 1997
22
<PAGE>
JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO SCHEDULE OF INVESTMENTS
AUGUST 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares or
Principal Amount Market Value
- --------------------------------------------------------------------------------
Common Stock - 17.6%
- --------------------------------------------------------------------------------
Computer Software - 3.7%
160 Microsoft Corp.* $21,150
2,000 Peritus Software Services, Inc.* 50,000
350 Wind River Systems* 15,006
- --------------------------------------------------------------------------------
86,156
- --------------------------------------------------------------------------------
Computers - Micro - 0.7%
192 Dell Computer Corp.* 15,756
- --------------------------------------------------------------------------------
Data Processing and Management - 2.1%
1,000 LHS Group, Inc.* 50,000
- --------------------------------------------------------------------------------
Electronic Components - 4.0%
400 Intel Corp. 36,850
1,000 Lam Research Corp.* 56,500
- --------------------------------------------------------------------------------
93,350
- --------------------------------------------------------------------------------
Finance - Investment Banker/Broker - 1.5%
580 Merrill Lynch & Co., Inc. 35,670
- --------------------------------------------------------------------------------
Life and Health Insurance - 0.1%
44 SunAmerica, Inc. 2,370
- --------------------------------------------------------------------------------
Medical - Drugs - 1.5%
100 Eli Lily & Co. 10,463
196 Pfizer, Inc. 10,854
102 Warner-Lambert Co. 12,960
- --------------------------------------------------------------------------------
34,277
- --------------------------------------------------------------------------------
Medical - HMO - 0.2%
70 Oxford Health Plans, Inc.* 5,119
- --------------------------------------------------------------------------------
Money Center Banks - 1.1%
240 BankAmerica Corp. 15,795
87 Citicorp 11,103
- --------------------------------------------------------------------------------
26,898
- --------------------------------------------------------------------------------
Multi-Line Insurance - 0.3%
108 Travelers Group, Inc. 6,858
- --------------------------------------------------------------------------------
Oil - Field Services - 0.3%
125 Halliburton Co. 5,969
- --------------------------------------------------------------------------------
Telecommunication Services - 1.0%
600 Qwest Communications International, Inc.* 24,450
- --------------------------------------------------------------------------------
Telephone - Integrated - 1.1%
225 Telecomunicacoes Brasileiras S.A. (ADR) 26,550
- --------------------------------------------------------------------------------
Total Common Stocks (cost $302,146) 413,423
- --------------------------------------------------------------------------------
U.S. Government Agency - 80.8%
1,900,000 Federal Home Loan Bank System
5.48%, 9/2/97 (amortized
cost $1,900,000) 1,900,000
- --------------------------------------------------------------------------------
Total Investments - 98.4% (total cost $2,202,146) 2,313,423
- --------------------------------------------------------------------------------
Cash, Receivables and Other Assets, net of Liabilities - 1.6% 37,325
- --------------------------------------------------------------------------------
Net Assets - 100% $2,350,748
- --------------------------------------------------------------------------------
* Non-income producing security
23
<PAGE>
STATEMENT OF OPERATIONS
For the four months ended August 31, 1997 (unaudited)
(all numbers in thousands)
- --------------------------------------------------------------------------------
Investment Income:
- --------------------------------------------------------------------------------
Interest $ 0
Dividends 18
Foreign Tax Withheld 0
- --------------------------------------------------------------------------------
Total Investment Income 18
- --------------------------------------------------------------------------------
Expenses:
Advisory fees 3
Administrative service fee - Retirement Shares 0
Distribution fee - Retirement Shares 0
Registration fees 0
Transfer agent expenses 2
System fees 2
Audit fees 1
Trustees' fees and expenses 0
Other expenses 1
- --------------------------------------------------------------------------------
Total Expenses 9
- --------------------------------------------------------------------------------
Expense and fee offsets (4)
- --------------------------------------------------------------------------------
Net expenses 5
- --------------------------------------------------------------------------------
Net investment income/(loss) 13
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from securities transactions 20
Net realized gain/(loss) from foreign currency transactions 0
Net realized gain/(loss) from futures contracts 0
Change in net unrealized appreciation or depreciation of investments 111
- --------------------------------------------------------------------------------
Net gain/(loss) on investments 131
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations $144
================================================================================
24
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
As of August 31, 1997 (unaudited)
(all numbers in thousands except net asset value per share)
- --------------------------------------------------------------------------------
Assets:
Investments at cost $2,202
================================================================================
Investments at value $2,313
Cash 28
Receivables:
Investments sold 0
Fund shares sold 18
Interest 0
Dividends 0
Foreign Currency Contracts 0
Other assets 0
- --------------------------------------------------------------------------------
Total Assets 2,359
- --------------------------------------------------------------------------------
Liabilities:
Payables:
Investments purchased 6
Fund shares repurchased 0
Advisory fee 1
Distribution fee - Retirement Shares 0
Transfer agent fees and expenses 2
Accrued expenses (1)
Foreign currency contracts 0
- --------------------------------------------------------------------------------
Total Liabilities 8
- --------------------------------------------------------------------------------
Net Assets - Institutional $2,338
Shares Outstanding, $.001 Par Value (unlimited shares authorized) 184
================================================================================
Net Asset Value Per Share $12.70
================================================================================
Net Assets - Retirement $ 13
Shares Outstanding, $.001 Par Value (unlimited shares authorized) 1
================================================================================
Net Asset Value Per Share $12.68
================================================================================
25
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the four months ended August 31, 1997 (unaudited)
(all numbers in thousands)
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
Operations:
Net investment income/(loss) $13
Net realized gain/(loss) from investment transactions 20
Change in unrealized net appreciation or depreciation of investment 111
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations $144
- --------------------------------------------------------------------------------
Dividends and Distributions to Shareholders:
Net investment income 0
Net realized gain from investment transactions 0
- --------------------------------------------------------------------------------
Net decrease from dividends and distributions 0
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares sold
Institutional Shares 3,480
Retirement Shares 10
Reinvested dividends and distributions
Institutional Shares 0
Retirement Shares 0
Shares repurchased
Institutional Shares ( 1,283)
Retirement Shares 0
Net increase/(decrease) from capital share transactions 2,207
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets 2,351
Net Assets:
Beginning of period 0
- --------------------------------------------------------------------------------
End of period $2,351
================================================================================
Net Assets consist of:
Capital (par value and paid-in surplus) 2,207
Undistributed net investment income/(distribution in excess) 13
Undistributed net realized gain/(loss) from investments 20
Unrealized appreciation/(depreciation) of investments 111
- --------------------------------------------------------------------------------
2,351
================================================================================
Transactions in Fund Shares:
Shares sold
Institutional Shares 293
Retirement Shares 1
Reinvested distributions
Institutional Shares 0
Retirement Shares 0
Shares repurchased
Institutional Shares 109
Retirement Shares 0
- --------------------------------------------------------------------------------
Net increase/(decrease) 185
- --------------------------------------------------------------------------------
Shares outstanding beginning of period 0
Shares outstanding end of period 185
================================================================================
Purchases and Sales of Investment Securities:
(excluding Short-Term Securities)
Purchases of Securities $422
Proceeds from Sales of Securities 134
Purchases of Long-Term U.S. Government Obligations 0
Proceeds from Sales of Long-Term Government Obligations 0
================================================================================
26
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Institutional Retirement
For a share outstanding for the four months ended August 31, 1997 (unaudited) Shares Shares
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value beginning of period $10.00 $10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.07 0.10
Net gains or (losses) on securities (both realized and unrealized) 2.63 2.58
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 2.70 2.68
- --------------------------------------------------------------------------------------------------------------
Less distributions
Dividends (from net investment income) 0.00 0.00
Distributions (from capital gains) 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Total distributions 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period 12.70 12.68
==============================================================================================================
Total return* 27.00% 26.80%
==============================================================================================================
Net assets, end of period (in thousands) 2,338 13
Average net assets for the period (in thousands) 1,182 11
Ratio of gross expenses to average net assets**(1) 1.25% 1.79%
Ratio of net expenses to average net assets** 1.25% 1.79%
Ratio of net investment income to average net assets** 3.23% 2.66%
Portfolio turnover rate** 124% 124%
Average commission paid 0.0465 0.0465
</TABLE>
* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 2.40% for Institutional Shares and 2.90% for Retirement
Shares before waiver of certain fees and/or voluntary reduction of the
advisory fee to the effective rate of the corresponding Janus retail fund.
27
<PAGE>
Appendix A
Explanation of Rating Categories
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
Standard & Poor's Ratings Services
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal
and interest.
AA High quality; very strong capacity to pay principal and
interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances
and economic conditions.
BBB Adequate capacity to pay principal and interest; normally
exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances more likely to lead to
a weakened capacity to pay principal and interest than for
higher rated bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's
CCC, CC, C capacity to meet required interest and principal payments.
BB - lowest degree of speculation; C - the highest degree of
speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to
adverse conditions.
D In default.
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Moody's Investors Service, Inc.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate for
the present but certain protective elements may be lacking
or may be unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of
interest and principal payments not well safeguarded during
good and bad times.
B Lack characteristics of desirable investment; potentially
low assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with
respect to principal or interest payments.
Ca Speculative in a high degree; could be in default or have
other marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
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Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
28
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Janus Aspen Series
Capital Appreciation Portfolio
Retirement Shares
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Statement of Additional Information
May 1, 1997 as supplemented October 24, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the Prospectus for the Retirement
Shares (the "Shares") of the Capital Appreciation Portfolio (the "Portfolio"), a
separate series of Janus Aspen Series, a Delaware business trust (the "Trust").
Each series of the Trust represents shares of beneficial interest in a separate
portfolio of securities and other assets with its own objective and policies.
The Portfolio is managed separately by Janus Capital Corporation ("Janus
Capital").
The Shares of the Portfolio may be purchased only by certain participant
directed qualified plans. The Portfolio also offers a second class of shares to
the separate accounts of insurance companies for the purpose of funding variable
life insurance contracts and variable annuity contracts (collectively, "variable
insurance contracts") and certain other qualified
retirement plans.
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus dated May 1, 1997 as supplemented October 24, 1997, which is
incorporated by reference into this SAI and may be obtained from your plan
sponsor. This SAI contains additional and more detailed information about the
Portfolio's operations and activities than the Prospectus.
[Logo] JANUS
<PAGE>
Capital Appreciation Portfolio
Retirement Shares
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 ................................................... 3
Types of Securities and Investment Techniques ............................. 4
Illiquid Investments .................................................... 4
Zero Coupon, Pay-In-Kind and Step Coupon Securities ..................... 4
Pass-Through Securities ................................................. 5
Investment Company Securities ........................................... 6
Depositary Receipts ..................................................... 6
Other Income-Producing Securities ....................................... 6
Repurchase and Reverse Repurchase Agreements ............................ 6
High-Yield/High-Risk Securities ......................................... 7
Futures, Options and Other Derivative Instruments ....................... 7
Investment Adviser .......................................................... 14
Custodian, Transfer Agent and Certain Affiliations .......................... 15
Portfolio Transactions and Brokerage ........................................ 16
Officers and Trustees ....................................................... 17
Shares of the Trust ......................................................... 19
Net Asset Value Determination ............................................ 19
Purchases ................................................................ 19
Distribution Plan ........................................................ 19
Redemptions .............................................................. 20
Income Dividends, Capital Gains Distributions and Tax Status ................ 20
Principal Shareholders ...................................................... 20
Miscellaneous Information ................................................... 20
Shares of the Trust ...................................................... 21
Voting Rights ............................................................ 21
Independent Accountants .................................................. 21
Registration Statement ................................................... 21
Performance Information ..................................................... 21
Financial Statements ........................................................ 22
Appendix A .................................................................. 28
Explanation of Rating Categories ......................................... 28
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Investment Policies, Restrictions and Techniques
Investment Objective
As stated in the Prospectus, the Portfolio's investment objective is
long-term growth of capital. There can be no assurance that the Portfolio will
achieve its objective. The investment objective of the Portfolio is not
fundamental and may be changed by the Trustees without shareholder approval.
Portfolio Policies
The Prospectus discusses the types of securities in which the Portfolio
will invest, portfolio policies of the Portfolio and the investment techniques
of the Portfolio. The Prospectus includes a discussion of portfolio turnover
policies.
Portfolio turnover (total long-term purchases or sales, whichever is less,
divided by the average monthly value of the Portfolio's long-term portfolio
securities) is not anticipated to exceed 200%. The Portfolio's annualized
portfolio turnover rate for the period May 1, 1997 through August 31, 1997 was
124%.
Investment Restrictions
As indicated in the Prospectus, the Portfolio is subject to certain
fundamental policies and restrictions that may not be changed without
shareholder approval. Shareholder approval means approval by the lesser of (i)
more than 50% of the outstanding voting securities of the Trust (or the
Portfolio or class of shares if a matter affects just the Portfolio or class of
shares), or (ii) 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities of the Trust
(or the Portfolio or class of shares) are present or represented by proxy. As
fundamental policies, the Portfolio may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to fifty percent (50%) of the value of its total assets, purchase
the securities of any one issuer (except cash items and "government securities"
as defined under the Investment Company Act of 1940, as amended (the "1940
Act")), if immediately after and as a result of such purchase, the value of the
holdings of the Portfolio in the securities of such issuer exceeds 5% of the
value of the Portfolio's total assets.
(2) Invest 25% or more of the value of its total assets in any particular
industry (other than U.S. government securities).
(3) Invest directly in real estate or interests in real estate; however,
the Portfolio 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 Portfolio from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or repurchase
agreements).
(6) Act as an underwriter of securities issued by others, except to the
extent that the Portfolio may be deemed an underwriter in connection with the
disposition of portfolio securities of the Portfolio.
As a fundamental policy, the 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 objectives, policies and
limitations as the Portfolio.
The Trustees have adopted additional investment restrictions for the
Portfolio. These restrictions are operating policies of the Portfolio and may be
changed by the Trustees without shareholder approval. The additional investment
restrictions adopted by the Trustees to date include the following:
(a) The 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 the
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 the Portfolio's commitments
under outstanding futures contracts positions would exceed the market value of
its total assets.
(b) The Portfolio does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
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<PAGE>
(c) The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities on
margin.
(d) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
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.
(e) The Portfolio may borrow money for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of the 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.
(f) The Portfolio does not currently intend to purchase any security or
enter into a repurchase agreement, if as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees, or the Portfolio's investment
adviser acting pursuant to authority delegated by the Trustees, may determine
that a readily available market exists for securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"),
or any successor to such rule, Section 4(2) commercial paper and municipal lease
obligations. Accordingly, such securities may not be subject to the foregoing
limitation.
(g) The Portfolio may not invest in companies for the purpose of exercising
control of management.
For purposes of the Portfolio's restriction on investing in a particular
industry, the Portfolio will rely primarily on industry classifications as
published by Bloomberg L.P. To the extent that Bloomberg L.P. classifications
are so broad that the primary economic characteristics in a single class are
materially different, the Portfolio may further classify issuers in accordance
with industry classifications as published by the Securities and Exchange
Commission ("SEC").
The Portfolio is seeking permission from the SEC to borrow money from or
lend money to other funds that permit such transactions and for which Janus
Capital serves as investment adviser. All such borrowing and lending will be
subject to the above limits. There is no assurance that such permission will be
granted.
Types of Securities and Investment Techniques
Illiquid Investments
The Portfolio may invest up to 15% of its net assets in illiquid
investments (i.e., securities that are not readily marketable). The Trustees of
the Portfolio have authorized Janus Capital to make liquidity determinations
with respect to its securities, including Rule 144A Securities and commercial
paper. Under the guidelines established by the Trustees, Janus Capital will
consider the following factors: 1) the frequency of trades and quoted prices for
the obligation; 2) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers; 3) the willingness of
dealers to undertake to make a market in the security; and 4) the nature of the
security and the nature of marketplace trades, including the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer. In the case of commercial paper, Janus Capital will also consider
whether the paper is traded flat or in default as to principal and interest and
any ratings of the paper by a nationally recognized statistical rating
organization ("NRSRO"). A foreign security that may be freely traded on or
through the facilities of an offshore exchange or other established offshore
securities market is not deemed to be a restricted security subject to these
procedures.
Zero Coupon, Pay-In-Kind and Step Coupon Securities
The 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.
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<PAGE>
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), the Portfolio must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds. Because the 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 the Portfolio may have to
distribute cash obtained from other sources in order to satisfy the distribution
requirements under the Code. The Portfolio might obtain such cash from selling
other portfolio holdings which might cause the Portfolio to incur capital gains
or losses on the sale. In some circumstances, such sales might be necessary in
order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for the 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 Portfolio 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 Portfolio. The most common
type of pass-through securities are mortgage-backed securities. Government
National Mortgage Association ("GNMA") Certificates are mortgage-backed
securities that evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrowers over the term of the loan rather than returned in a lump sum at
maturity. The 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, 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 Portfolio), 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 the
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 the Portfolio might be
converted to cash and the 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 the 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 or guarantor of the security and interest
and principal payments ultimately depend upon payment of the underlying loans by
individuals. Tax-exempt asset-backed securities include units of beneficial
interests in pools of purchase contracts,
5
<PAGE>
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.
Investment Company Securities
From time to time, the Portfolio may invest in securities of other
investment companies, subject to the provisions of Section 12(d)(1) of the 1940
Act. The Portfolio may invest in securities of money market funds managed by
Janus Capital subject to the terms of an exemptive order obtained by Janus
Capital and the Janus funds which currently provides that the Portfolio will
limit its aggregate investment in a Janus money market fund to the greater of
(i) 5% of the investing Portfolio's total assets or (ii) $2.5 million. The Janus
funds are seeking an amended and restated exemptive order that would permit the
Portfolio to invest in Janus money market funds in excess of the limitations of
Section 12(d)(1) of the 1940 Act. There is no assurance that such amendment will
be granted.
Depositary Receipts
The Portfolio may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depositary of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. The Portfolio may also invest in
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and
in other similar instruments representing securities of foreign companies. EDRs
are receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs. EDRs, in bearer form, are designed for use
in European securities markets.
Other Income-Producing Securities
Other types of income producing securities that the Portfolio may purchase
include, but are not limited to, the following types of securities:
Variable and floating rate obligations. These types of securities have
variable or floating rates of interest and, under certain limited circumstances,
may have varying principal amounts. Variable and floating rate securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). See also "Inverse Floaters."
Standby commitments. These instruments, which are similar to a put, give
the Portfolio the option to obligate a broker, dealer or bank to repurchase a
security held by the 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. Certain variable
rate securities (including certain mortgage-backed securities) pay interest at a
rate that varies inversely to prevailing short-term interest rates (sometimes
referred to as inverse floaters). For example, upon reset the interest rate
payable on a security may go down when the underlying index has risen. The
Portfolio will not invest more than 5% of its assets in inverse floaters.
The Portfolio will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of its portfolio.
Repurchase and Reverse Repurchase Agreements
In a repurchase agreement, the 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." The 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 the Portfolio to suffer a loss if the market value of
such securities declines
6
<PAGE>
before they can be liquidated on the open market. In the event of bankruptcy or
insolvency of the seller, the 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 investments. While
it is not possible to eliminate all risks from these transactions, it is the
policy of the Portfolio to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by Janus Capital.
The 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. In a reverse
repurchase agreement, the 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, the Portfolio will maintain cash and appropriate liquid assets
in a segregated custodial account to cover its obligation under the agreement.
The Portfolio will enter into reverse repurchase agreements only with parties
that Janus Capital deems creditworthy. Using reverse repurchase agreements to
earn additional income involves the risk that the interest earned on the
invested proceeds is less than the expense of the reverse repurchase agreement
transaction. This technique may also have a leveraging effect on the Portfolio,
although the Portfolio's intent to segregate assets in the amount of the reverse
repurchase agreement minimizes this effect.
High-Yield/High-Risk Securities
The Portfolio intends to invest less than 35% of its net assets in debt
securities that are rated below investment grade (e.g., securities rated BB or
lower by Standard & Poor's Ratings Services ("Standard & Poor's") or Ba or lower
by Moody's Investors Service, Inc. ("Moody's")). Lower rated bonds involve a
higher degree of credit risk, which is the risk that the issuer will not make
interest or principal payments when due. In the event of an unanticipated
default, the Portfolio would experience a reduction in its income, and could
expect a decline in the market value of the securities so affected.
The 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. The portfolio
manager will analyze the credit worthiness 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 the Portfolio unless its
portfolio manager deems such securities to be the equivalent of investment grade
securities.
Subject to the above limits, the Portfolio may purchase defaulted
securities only when its portfolio managers believes based upon their analysis
of the financial condition, results of operations and economic outlook of an
issuer that there is potential for resumption of income payments and that the
securities offer an unusual opportunity for capital appreciation.
Notwithstanding the portfolio manager's belief as to the resumption of income,
however, the purchase of any security on which payment of interest or dividends
is suspended involves a high degree of risk. Such risk includes, among other
things, the following:
Financial and Market Risks. Investments in securities that are in default
involve a high degree of financial and market risks that can result in
substantial or, at times, even total losses. Issuers of defaulted securities may
have substantial capital needs and may become involved in bankruptcy or
reorganization proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information about the
condition of such issuers. The market prices of such securities also are subject
to abrupt and erratic movements and above average price volatility and the
spread between the bid and asked prices of such securities may be greater than
normally expected.
Disposition of Portfolio Securities. Although the Portfolio generally will
purchase securities for which its portfolio manager expects an active market to
be maintained, defaulted securities may be less actively traded than other
securities and it may be difficult to dispose of substantial holdings of such
securities at prevailing market prices. The Portfolio will limit holdings of any
such securities to amounts that the portfolio manager believes could be readily
sold and holdings of such securities would, in any event, be limited so as not
to limit the Portfolio's ability to readily dispose of securities to meet
redemptions.
Other. Defaulted securities require active monitoring and may, at times,
require participation in bankruptcy or receivership proceedings on behalf of the
Portfolio.
Futures, Options and Other Derivative Instruments
Futures Contracts. The Portfolio 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.
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<PAGE>
The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain other liquid assets by the Portfolio's custodian for the benefit of the
FCM. Initial margin payments are similar to good faith deposits or performance
bonds. Unlike margin extended by a securities broker, initial margin payments do
not constitute purchasing securities on margin for purposes of the 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 the
Portfolio, the Portfolio may be entitled to return of margin owed to the
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 Portfolio does business and
by depositing margin payments in a segregated account with the Portfolio's
custodian.
The Portfolio intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" adopted by
the CFTC and the National Futures Association, which regulate trading in the
futures markets. The Portfolio will use futures contracts and related options
primarily for bona fide hedging purposes within the meaning of CFTC regulations.
To the extent that the Portfolio holds positions in futures contracts and
related options that do not fall within the definition of bona fide hedging
transactions, the aggregate initial margin and premiums required to establish
such positions will not exceed 5% of the fair market value of the Portfolio's
net assets, after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into.
Although the Portfolio will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to the Portfolio immediately upon closing out the futures position,
while settlement of securities transactions could take several days. However,
because the Portfolio's cash that may otherwise be invested would be held
uninvested or invested in other liquid assets so long as the futures position
remains open, the Portfolio's return could be diminished due to the opportunity
losses of foregoing other potential investments.
The Portfolio's primary purpose in entering into futures contracts is to
protect the 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, the 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 the Portfolio not participating in a market advance.
This technique is sometimes known as an anticipatory hedge. To the extent the
Portfolio enters into futures contracts for this purpose, the segregated assets
maintained to cover the Portfolio's obligations with respect to the futures
contracts will consist of other liquid assets from its portfolio in an amount
equal to the difference between the contract price and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
the futures contracts. Conversely, if the 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. The 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 the Portfolio owns Treasury bonds and the portfolio manager expects
interest rates to increase, the Portfolio may take a short position in interest
rate futures contracts. Taking such a position would have much the same effect
as the 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 the Portfolio's interest rate futures contract will increase, thereby
keeping the net asset value of the Portfolio from declining as much as it may
have otherwise. If, on the other hand, a portfolio manager expects interest
rates to decline, the 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 the 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.
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Futures contracts entail risks. Although the Portfolio believes that use of
such contracts will benefit the Portfolio, the Portfolio's overall performance
could be worse than if the Portfolio had not entered into futures contracts if
the portfolio manager's investment judgement proves incorrect. For example, if
the Portfolio has hedged against the effects of a possible decrease in prices of
securities held in its portfolio and prices increase instead, the 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 the
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 the 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
the Portfolio will not match exactly the Portfolio's current or potential
investments. The 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 the Portfolio's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with the
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 the 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. The 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 the 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 the 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 three days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for the 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, the 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, the Portfolio's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts. The Portfolio may buy and write put and call
options on futures contracts. An option on a future gives the 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 the 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, the
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Portfolio is considering buying. If a call or put option the Portfolio has
written is exercised, the 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, the 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, the Portfolio may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
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The amount of risk the 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 amount for the assets at the time of delivery. The Portfolio may enter
into forward contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
The following discussion summarizes the Portfolio's principal uses of
forward foreign currency exchange contracts ("forward currency contracts"). The
Portfolio may enter into forward currency contracts with stated contract values
of up to the value of the 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). The 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"). The Portfolio also may hedge some or all of its
investments denominated in a foreign currency or exposed to foreign currency
fluctuations against a decline in the value of that currency relative to the
U.S. dollar by entering into forward currency contracts to sell an amount of
that currency (or a proxy currency whose performance is expected to replicate or
exceed the performance of that currency relative to the U.S. dollar)
approximating the value of some or all of its portfolio securities denominated
in that currency ("position hedge") or by participating in options or futures
contracts with respect to the currency. The 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 the 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 the 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 the Portfolio's currency exposure from
one foreign currency to another removes the Portfolio's opportunity to profit
from increases in the value of the original currency and involves a risk of
increased losses to the 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 the Portfolio than if it had
not entered into such contracts.
The Portfolio will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose value is tied
to, the currency underlying the forward contract or the currency being hedged.
To the extent that the Portfolio is not able to cover its forward currency
positions with underlying portfolio securities, the Portfolio's custodian will
segregate cash or other liquid assets having a value equal to the aggregate
amount of the 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, the Portfolio will find alternative cover or segregate additional cash
or liquid assets on a daily basis so that the value of the covered and
segregated assets will be equal to the amount of the Portfolio's commitments
with respect to such contracts. As an alternative to segregating assets, the
Portfolio may buy call options permitting the Portfolio to buy the amount of
foreign currency being hedged by a forward sale contract or the 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 contacts. In such event,
the Portfolio's ability to utilize forward contracts may be restricted. In
addition, the 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 Portfolio may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Portfolio may buy put
options on the foreign currency. If the value of the currency declines, the
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, the 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 the 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, the Portfolio could sustain losses on
transactions in foreign currency options that would require the Portfolio to
forego a portion or all of the benefits of advantageous changes in those rates.
The Portfolio may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, the
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 decline in value of portfolio securities will be offset
by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the Portfolio
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the 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 the 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, the Portfolio also may lose all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
The Portfolio may write covered call options on foreign currencies. A call
option written on a foreign currency by the Portfolio is "covered" if the
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 the 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 the Portfolio in cash or other
liquid assets in a segregated account with the Portfolio's custodian.
The Portfolio also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
the 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, the Portfolio will collateralize the option by segregating cash
or other liquid assets in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Options on Securities. In an effort to increase current income and to
reduce fluctuations in net asset value, the Portfolio 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
Portfolio may write and buy options on the same types of securities that the
Portfolio may purchase directly.
A put option written by the Portfolio is "covered" if the Portfolio (i)
segregates cash not available for investment or other liquid assets with a value
equal to the exercise price of the put with the Portfolio's custodian or (ii)
holds a put on the same security and in the same principal amount as the put
written and the exercise price of the put held is equal to or greater than the
exercise price of the put written. The premium paid by the buyer of an option
will reflect, among other things, the relationship of the exercise price to the
market price and the volatility of the underlying security, the remaining term
of the option, supply and demand and interest rates.
A call option written by the Portfolio is "covered" if the 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 Portfolio's
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if the 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 than the exercise price of
the call written if the difference is maintained by the Portfolio in cash and
other liquid assets in a segregated account with its custodian.
The Portfolio also may write call options that are not covered for
cross-hedging purposes. The Portfolio collateralizes its obligation under a
written call option for cross-hedging purposes by segregating cash or other
liquid assets in an amount not less than the market value of the underlying
security, marked to market daily. The 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.
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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 the 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 the Portfolio to write
another put option to the extent that the exercise price is secured by other
liquid assets. Effecting a closing transaction also will permit the Portfolio to
use the cash or proceeds from the concurrent sale of any securities subject to
the option for other investments. If the Portfolio desires to sell a particular
security from its portfolio on which it has written a call option, the Portfolio
will effect a closing transaction prior to or concurrent with the sale of the
security.
The 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. The 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 the 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 the 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.
The Portfolio may write options in connection with buy-and-write
transactions. In other words, the 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, the Portfolio's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between the 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 the Portfolio's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise
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is below the exercise price, the Portfolio may elect to close the position or
take delivery of the security at the exercise price and the 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.
The Portfolio may buy put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the 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.
The 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
the Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Portfolio.
Eurodollar Instruments. The 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 portfolios and sellers to obtain a fixed rate for
borrowings. The 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. The 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 the 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 the 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
other liquid assets having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Portfolio's
custodian. If the 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. The 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 NRSRO at the
time of entering into such transaction. Janus Capital will monitor the
creditworthiness of all counterparties on an ongoing basis. If there is a
default by the other party to such a transaction, the 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, accordingly, they are less liquid than swaps. To the extent the
Portfolio sells (i.e., writes) caps and floors, it will segregate cash or other
liquid assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the 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 the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
The 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 Portfolio 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
13
<PAGE>
the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting the 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 the
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.
Investment Adviser
As stated in the Prospectus, the Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928.
The Advisory Agreement provides that Janus Capital will furnish continuous
advice and recommendations concerning the Portfolio's investments, provide
office space for the Portfolio and pay the salaries, fees and expenses of all
Portfolio officers and of those Trustees who are affiliated with Janus Capital.
Janus Capital also may make payments to selected broker-dealer firms or
institutions which were instrumental in the acquisition of shareholders for the
Portfolio or other Janus Funds or which performed recordkeeping or other
services with respect to shareholder accounts. The minimum aggregate size
required for eligibility for such payments, and the factors in selecting the
broker-dealer firms and institutions to which they will be made, are determined
from time to time by Janus Capital. Janus Capital is also authorized to perform
the management and administrative services necessary for the operation of the
Portfolio.
The Portfolio pays custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in connection with
the execution of portfolio transactions, legal and accounting expenses, interest
and taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not affiliated with Janus
Capital, and other costs of complying with applicable laws regulating the sale
of Portfolio shares. Pursuant to the Advisory Agreement, Janus Capital furnishes
certain other services, including net asset value determination, portfolio
accounting and recordkeeping, for which the Portfolio may reimburse Janus
Capital for its costs.
The Portfolio has agreed to compensate Janus Capital for its services by
the monthly payment of a fee at the annual rate of 0.75% of the first $300
million of the average daily net assets of the Portfolio, 0.70% of the next $200
million of the average daily net assets of the Portfolio and 0.65% of the
average daily net assets of the Portfolio in excess of $500 million. The
advisory fee is calculated and payable daily. Janus Capital has voluntarily
agreed to cap the advisory fee of the Portfolio at the effective rate of Janus
Olympus Fund (the "retail fund"). The effective rate of the 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 the
Portfolio as of the last day of any calendar quarter, then the advisory fee
payable by the Portfolio for the following calendar quarter will be a flat rate
equal to such effective rate. The effective rate (annualized) of Janus Olympus
Fund was .74% for the quarter ended September 30, 1997. Janus Capital may
terminate this fee reduction at any time upon at least 90 days' notice to the
Trustees.
For the period ended August 31, 1997, the investment advisory fee was
$2,973 prior to waiver by Janus Capital. The advisory fee was $0 after waiver
for this period.
In addition, Janus Capital has agreed to reimburse the Portfolio by 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 the distribution fee and participant administration fee described
below, brokerage commissions, interest, taxes and extraordinary expenses, exceed
an annual rate of 1.25% of the average daily net assets of the Portfolio through
at least April 30, 1998.
The current Advisory Agreement became effective on December 10, 1996, and
it will continue in effect until June 16, 1998, and thereafter from year to year
so long as such continuance is approved annually by a majority of the
Portfolio's Trustees who
14
<PAGE>
are not parties to the Advisory Agreement or interested persons of any such
party, and by either a majority of the outstanding voting shares of the
Portfolio or the Trustees. The Advisory Agreement i) may be terminated without
the payment of any penalty by the 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, including the Trustees who are not interested persons of the Portfolio
or Janus Capital and, to the extent required by the 1940 Act, the vote of a
majority of the outstanding voting securities of the 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
Portfolio, are made independently from those for any other account that is or
may in the future become managed by Janus Capital or its affiliates. If,
however, a number of accounts managed by Janus Capital are contemporaneously
engaged in the purchase or sale of the same security, the orders may be
aggregated and/or the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect the
price paid or received by an account or the size of the position obtained or
liquidated for an account. Pursuant to an exemptive order granted by the SEC,
the Portfolio and other portfolios advised by Janus Capital may also transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating portfolios on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
policies and is managed accordingly by a particular portfolio manager or team of
portfolio managers. As a result, from time to time two or more different managed
accounts may pursue divergent investment strategies with respect to investments
or categories of investments.
As indicated in the Prospectus, Janus Capital does not permit the portfolio
manager to purchase and sell securities for his own accounts except under the
limited circumstances contained in Janus Capital's policy regarding personal
investing by directors/ Trustees, officers and employees of Janus Capital and
the Trust. The policy requires investment personnel and officers of Janus
Capital, inside directors/Trustees of Janus Capital and the Trust 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 Portfolio.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Trust to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI"), owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns
approximately 12% of its voting stock and, by agreement with KCSI, selects a
majority of Janus Capital's Board.
Custodian, Transfer Agent and Certain Affiliations
State Street Bank and Trust Company ("State Street"), P.O. Box 0351,
Boston, Massachusetts 02117-0351 is the custodian of the domestic securities and
cash of the Portfolio. State Street and the foreign subcustodians it selects
have custody of the assets of the Portfolio held outside the U.S. and cash
incidental thereto. The custodian and subcustodians hold the Portfolio's assets
in safekeeping and collect and remit the income thereon, subject to the
instructions of the Portfolio.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the
Portfolio's transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the
Portfolio. Janus Service receives a participant administration fee at an annual
rate of up to .25% of the average daily net assets of the Shares of the
Portfolio for providing or procuring recordkeeping, subaccounting and other
administrative services to plan participants who invest in the Shares. Janus
Service expects to use substantially all of this fee to compensate qualified
plan service providers for providing these services (at and annual rate of up to
.25% of the average daily net assets of the Shares attributable to plan
participants receiving services from each service provider). Services provided
by qualified plan service providers may include but are not limited to
participant recordkeeping, processing and aggregating purchase and redemption
transactions, providing periodic statements, forwarding prospectuses,
shareholder reports and other materials to existing plan participants, and other
participant administrative services.
The Portfolio pays DST Systems, Inc. ("DST"), a subsidiary of KCSI, license
fees for the use of its portfolio and fund accounting system a monthly base fee
of $250 to $1,250 per month based on the number of Janus funds using the system
and an asset charge of $1 per million (not to exceed $500 per month).
15
<PAGE>
The Trustees have authorized the Portfolio to use another affiliate of DST
as introducing broker for certain Portfolio transactions as a means to reduce
Portfolio expenses through credits against the charges of DST and its affiliates
with regard to commissions earned by such affiliate. See "Portfolio Transactions
and Brokerage."
Janus Distributors, Inc. ("Janus Distributors"), 100 Fillmore Street,
Denver, Colorado 80206-4928, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Shares. Janus Distributors is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. Janus Distributors acts
as the agent of the Shares in connection with the sale of the Shares in all
states in which the Shares are registered and in which Janus Distributors is
qualified as a broker-dealer. Under the Distribution Agreement, Janus
Distributors continuously offers the Portfolio's Shares and accepts orders at
net asset value. No sales charges are paid by investors.
Portfolio Transactions and Brokerage
Decisions as to the assignment of portfolio business for the Portfolio 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 Portfolio may trade foreign
securities in foreign countries because the best available market for these
securities is often on foreign exchanges. In transactions on foreign stock
exchanges, brokers' commissions are frequently fixed and are often higher than
in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to the 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
commission was reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of Janus Capital. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services, and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities.
Most broker dealers used by Janus Capital provide research and other
services described above. For the period ended August 31, 1997, the Portfolio
paid $95 of its total brokerage commissions to brokers and dealers in
transactions identified for execution primarily on the basis of research and
other services provided to the Portfolio on transactions of $65,741. Research
received from brokers or dealers is supplemental to Janus Capital's own research
efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to the Portfolio. 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
Portfolio. Research products and services incidental to effecting securities
transactions furnished by brokers or dealers may be used in servicing any or all
of Janus Capital's clients and such research may not necessarily be used by
Janus Capital in connection with the accounts which paid commissions to the
broker-dealer providing such research products and services.
Janus Capital may consider sales of Portfolio shares 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 the Portfolio i) to the Portfolio or ii) to
16
<PAGE>
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 Portfolio purchases or sells a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where in the opinion
of Janus Capital better prices and executions will be achieved through the use
of a broker.
The Portfolio's Trustees have authorized Janus Capital to place
transactions with DST Securities, Inc. ("DSTS"), a wholly-owned broker-dealer
subsidiary of DST. Janus Capital may do so if it reasonably believes that the
quality of the transaction and the associated commission are fair and reasonable
and if, overall, the associated transaction costs, net of any credits described
above under "Custodian, Transfer Agent and Certain Affiliations," are lower than
those that would otherwise be incurred.
During the period ended August 31, 1997, the Portfolio paid brokerage
commissions of $340. There were no commissions paid through DSTS.
As of August 31, 1997, the Portfolio owned securities of $35,670 of Merrill
Lynch & Co., Inc.
Officers and Trustees
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street
Denver, CO 80206-4928
Trustee, Chairman and President of Janus Investment Fund+. Chairman, Chief
Executive Officer, Director and President of Janus Capital. Chairman and
Director of IDEX Management, Inc., Largo, Florida (50% subsidiary of Janus
Capital and investment adviser to a group of mutual funds) ("IDEX").
James P. Craig, III*# - Trustee and Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Trustee of Janus Investment Fund+. Chief
Investment Officer, Vice President, and Director of Janus Capital.
Scott W. Schoelzel* - Executive Vice President and Portfolio Manager
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund+.
Vice President of Janus Capital. From 1991 to 1993, a Portfolio Manager
with Founders Asset Management, Denver, Colorado. Prior to 1991, a general
partner of Ivy Lane Investments, Denver, Colorado (a real estate investment
partnership).
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
Vice President and Chief Financial Officer of Janus Investment Fund+. Vice
President of Finance, Treasurer and Chief Financial Officer of Janus
Service, Janus Distributors and Janus Capital. Director of IDEX Janus
Service and Janus Distributors. Director, Treasurer and Vice President of
Finance of Janus Capital International Ltd. Formerly (1992-1996), Treasurer
of Janus Investment Fund and Janus Aspen Series.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street
Denver, CO 80206-4928
Treasurer and Chief Accounting Officer of Janus Investment Fund. Director
of Fund Accounting of Janus Capital.
Kelley Abbott Howes* - Secretary
100 Fillmore Street
Denver, CO 80206-4928
Secretary of Janus Investment Fund. Director and President, Janus
Distributors, Inc. Associate Counsel of Janus Capital. Formerly (1990 to
1994) with The Boston Company Advisors, Inc., Boston, Massachusetts (mutual
fund administration services).
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
+ Includes comparable office with various Janus funds that were reorganized into
Janus Investment Fund on August 7, 1992.
17
<PAGE>
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Investment Fund+. President of HPS Division of MKS
Instruments, Boulder, Colorado (manufacturer of vacuum fittings and
valves).
Gary O. Loo# - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments).
Dennis B. Mullen - Trustee
14103 Denver West Parkway
Golden, CO 80401
Trustee of Janus Investment Fund+. Chief Financial Officer of Boston Market
Concepts, Golden, Colorado (restaurant chain). Formerly (1993-1997),
President and Chief Officer of BC Northwest L.P., a franchise of Boston
Chicken, Inc., Bellevue, Washington (restaurant chain); (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. Formerly (1989 to
1993), 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).
James T. Rothe - Trustee
102 South Tejon Street, Suite 1100
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. Professor of Business, University of
Colorado, Colorado Springs, Colorado. Principal, Phillips-Smith Retail
Group, Colorado Springs, Colorado (a venture capital firm). Formerly
(1986-1994), Dean of the College of Business, University of Colorado,
Colorado Springs, Colorado.
- --------------------------------------------------------------------------------
* 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.
The Trustees are responsible for major decisions relating to the
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolio 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 Portfolio described in this SAI and all funds advised and sponsored by
Janus Capital (collectively, the "Janus Funds") for the periods indicated. None
of the Trustees receive any pension or retirement benefits from the Portfolio or
the Janus Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the
from the Portfolio for fiscal year Janus Funds for calendar year
Name of Person, Position ended December 31, 1996** ended December 31, 1996***
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, Trustee* $0 $0
John W. Shepardson, Trustee+ $0 $73,000
William D. Stewart, Trustee $0 $70,000
Gary O. Loo, Trustee $0 $70,000
Dennis B. Mullen, Trustee $0 $67,000
Martin H. Waldinger, Trustee $0 $73,000
James T. Rothe, Trustee++ $0 $0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* An interested person of the Portfolio and of Janus Capital. Compensated by
Janus Capital and not the Portfolio.
** The Portfolio had not commenced operations as of December 31, 1996.
*** As of December 31, 1996, Janus Funds consisted of two registered investment
companies comprised of a total of 29 funds.
+ Mr. Shepardson retired on March 31, 1997.
++ Mr. Rothe began serving as Trustee on January 1, 1997.
18
<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, Martin Luther King Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
The per share NAV of the Portfolio's Shares is determined by dividing the total
value of the Portfolio's securities and other assets, less liabilities,
attributable to the Shares, 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 Portfolio are traded primarily in the over-the-counter
market. Valuations of such securities are furnished by one or more pricing
services employed by the Portfolio and are based upon a computerized matrix
system or appraisals obtained by a pricing service, in each case in reliance
upon information concerning market transactions and quotations from recognized
municipal securities dealers. Other securities that are traded on the
over-the-counter market are valued at their closing bid prices. Foreign
securities and currencies are converted to U.S. dollars using the exchange rate
in effect at the close of the NYSE. The 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 securities maturing within 60 days are valued on the
amortized cost basis. Securities for which quotations are not readily available,
and other assets, are valued at fair values determined in good faith under
procedures established by and under the supervision of the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which the Portfolio's NAV is not calculated. The 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 Portfolio can be purchased only by certain participant
directed qualified plans. Shares of the Portfolio are purchased at the NAV per
Share as determined at the close of the regular trading session of the NYSE next
occurring after a purchase order is received and accepted by the Portfolio or
its authorized agent. Your plan documents contain detailed information about
investing in the Portfolio.
Distribution Plan
Under a distribution plan ("Plan") adopted in accordance with Rule 12b-1
under the 1940 Act, the Shares may pay Janus Distributors, Inc. ("JDI"), the
distributor of the Retirement Shares, a fee at an annual rate of up to 0.25% of
the average daily net assets of the Shares of the Portfolio. Under the terms of
the Plan, the Trust is authorized to make payments to JDI for remittance to
qualified plan service providers as compensation for distribution and
shareholder servicing performed by such service providers. The Plan is a
compensation type plan and permits the payment at an annual rate of up to 0.25%
of the average daily net assets of the Shares of a Portfolio for activities
which are primarily intended to result in sales of the Shares, including but not
limited to preparing, printing and distributing prospectuses, Statements of
Additional Information, shareholder reports, and educational materials to
prospective and existing plan participants; responding to inquiries by qualified
plan participants; receiving and answering correspondence and similar
activities. On December 10, 1996, the Trustees unanimously approved the Plan
which became effective May 1, 1997. The Plan and any Rule 12b-1 related
agreement that is entered into by the Portfolio or JDI in connection with the
Plan will continue in effect for a period of more than one year only so long as
continuance is specifically approved at least annually by a vote of a majority
of the Trustees, and of majority to the Trustees who are not interested persons
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the plan or any related agreements
("12b-1 Trustees"). All material amendments to the Plan must be approved by a
majority vote of the Trustees, including a majority of the 12b-1 Trustees, at a
meeting called for that purpose. In addition, the Plan may be terminated at any
time, without penalty, by vote of a majority of the outstanding Shares of the
Portfolio or by vote of a majority of 12b-1 Trustees.
19
<PAGE>
Redemptions
Redemptions, like purchases, may only be effected through certain
participant directed qualified plans. Shares normally will be redeemed for cash,
although the 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 Portfolio is governed by Rule 18f-1 under the 1940 Act,
which requires the Portfolio to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the NAV of the Portfolio during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such limitation, the
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.
The right to require the Portfolio 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 Shares of the Portfolio to make semiannual
distributions in June and December of substantially all of its investment income
and an annual distribution in June of their net realized capital gains, if any.
It is also a policy of the Portfolio to qualify as regulated investment company
by satisfying certain requirements prescribed by Subchapter M of the Code. In
addition, because a class of shares of the Portfolio is sold in connection with
variable insurance contracts, the 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 the
Portfolio's shares are reinvested automatically in additional shares of the
Portfolio at the NAV determined on the first business day following the record
date.
The Portfolio may purchase the securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS. In order to
avoid taxes and interest that must be paid by the Portfolio if these investments
are profitable, the Portfolio may make various elections permitted by the tax
laws. However, these elections could require that the Portfolio recognize
taxable income, which in turn must be distributed, before the securities are
sold and before cash is received to pay the distributions.
Some foreign securities purchased by the Portfolio may be subject to
foreign taxes which could reduce the yield on such securities. The amount of
such foreign taxes is expected to be insignificant. The Portfolio may from year
to year make the election permitted under section 853 of the Code to pass
through such taxes to shareholders as a foreign tax credit. If such an election
is not made, 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 Portfolio can only be purchased through 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 plans. See the plan documents for additional information.
Principal Shareholders
The officers and Trustees of the Portfolio cannot directly own Shares of
the Portfolio without purchasing through one of the participating qualified
plans. As a result, such officers and Trustees as a group own less than 1% of
the outstanding Shares of the Portfolio. As of August 31, 1997, all of the
outstanding Shares of the Portfolio were owned by Janus Capital, which provided
seed capital for the Portfolio.
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. As of the
date of this SAI, the Trust offers eleven series of shares, known as
"portfolios," in two classes. Additional series and/or classes may be created
from time to time.
20
<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 the Portfolio are fully paid and nonassessable when issued. The
Shares of the Portfolio participate equally in dividends and other distributions
by the Shares of the Portfolio, and in residual assets of the Portfolio in the
event of liquidation. Shares of the Portfolio have no preemptive, conversion or
subscription rights.
The Portfolio currently offers two classes of shares. The Shares discussed
in this SAI are offered only in connection with certain participant directed
qualified plans. A second class of shares, Institutional Shares, is offered only
in connection with investments in and payments to variable insurance contracts
as well as certain qualified retirement plans.
Voting Rights
The Trustees are responsible for major decisions relating to the
Portfolio's policies and objectives; the Trustees oversee the operation of the
Portfolio by its officers and review the investment decisions of the officers.
The present Trustees were elected by the initial trustee of the Trust on
May 25, 1993, with the exception of Mr. Craig and Mr. Rothe who were appointed
by the Trustees as of June 30, 1995 and as of January 1, 1997, respectively.
Under the Trust Instrument, each Trustee will continue in office until the
termination of the Trust or his earlier death, retirement, resignation,
bankruptcy, incapacity or removal. Vacancies will be filled by a majority of the
remaining Trustees, subject to the 1940 Act. Therefore, no annual or regular
meetings of shareholders normally will be held, unless otherwise required by the
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 the
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 portfolio of the Trust has one vote (and fractional
votes for fractional shares). Shares of all portfolios of the Trust have
noncumulative voting rights, which means that the holders of more than 50% of
the shares of all portfolios 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
portfolio of the Trust will vote separately only with respect to those matters
that affect only that portfolio or class or if an interest of a portfolio or
class in a matter differs from the interests of other portfolios or classes of
the Trust.
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Portfolio, audit the Portfolio's annual
financial statements and prepare its tax returns.
Registration Statement
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this SAI relates. If further information is desired with
respect to the Portfolio or such securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
Performance Information
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for the Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the 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 Portfolio was made available for sale on May 1, 1997. The lifetime
total return of the Shares for the period May 1, 1997 through August 31, 1997
was 26.8%.
Yield quotations for the Portfolio's Shares 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
21
<PAGE>
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
From time to time in advertisements or sales material, the Portfolio may
discuss its performance ratings or other information as published by recognized
mutual fund statistical rating services, including, but not limited to, Lipper
Analytical Services, Inc., Ibbotson Associates, Micropal or Morningstar, Inc. or
by publications of general interest such as Forbes, Money, The Wall Street
Journal, Mutual Funds Magazine, Kiplinger's, or Smart Money. The Portfolio may
also compare its performance to that of other selected mutual funds, mutual fund
averages or recognized stock market indicators, including, but not limited to,
the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Russell 2000 Index and the NASDAQ composite. In addition, the
Portfolio may compare its total return to the yield on U.S. Treasury obligations
and to the percentage change in the Consumer Price Index. Such performance
ratings or comparisons may be made with funds that may have different investment
restrictions, objectives, policies or techniques than the Portfolio and such
other funds or market indicators may be comprised of securities that differ
significantly from the Portfolio's investments.
Financial Statements
The following unaudited financial statements for the period ended August
31, 1997 are included in this SAI.
Schedule of Investments as of August 31, 1997
Statement of Operations for the period May 1, 1997 to August 31, 1997
Statement of Assets and Liabilities as of August 31, 1997
Statement of Changes in Net Assets for the period May 1, 1997 to August 31,
1997
Financial Highlights for the period May 1, 1997 to August 31, 1997
22
<PAGE>
JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO SCHEDULE OF INVESTMENTS
AUGUST 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares or
Principal Amount Market Value
- --------------------------------------------------------------------------------
Common Stock - 17.6%
- --------------------------------------------------------------------------------
Computer Software - 3.7%
160 Microsoft Corp.* $21,150
2,000 Peritus Software Services, Inc.* 50,000
350 Wind River Systems* 15,006
- --------------------------------------------------------------------------------
86,156
- --------------------------------------------------------------------------------
Computers - Micro - 0.7%
192 Dell Computer Corp.* 15,756
- --------------------------------------------------------------------------------
Data Processing and Management - 2.1%
1,000 LHS Group, Inc.* 50,000
- --------------------------------------------------------------------------------
Electronic Components - 4.0%
400 Intel Corp. 36,850
1,000 Lam Research Corp.* 56,500
- --------------------------------------------------------------------------------
93,350
- --------------------------------------------------------------------------------
Finance - Investment Banker/Broker - 1.5%
580 Merrill Lynch & Co., Inc. 35,670
- --------------------------------------------------------------------------------
Life and Health Insurance - 0.1%
44 SunAmerica, Inc. 2,370
- --------------------------------------------------------------------------------
Medical - Drugs - 1.5%
100 Eli Lily & Co. 10,463
196 Pfizer, Inc. 10,854
102 Warner-Lambert Co. 12,960
- --------------------------------------------------------------------------------
34,277
- --------------------------------------------------------------------------------
Medical - HMO - 0.2%
70 Oxford Health Plans, Inc.* 5,119
- --------------------------------------------------------------------------------
Money Center Banks - 1.1%
240 BankAmerica Corp. 15,795
87 Citicorp 11,103
- --------------------------------------------------------------------------------
26,898
- --------------------------------------------------------------------------------
Multi-Line Insurance - 0.3%
108 Travelers Group, Inc. 6,858
- --------------------------------------------------------------------------------
Oil - Field Services - 0.3%
125 Halliburton Co. 5,969
- --------------------------------------------------------------------------------
Telecommunication Services - 1.0%
600 Qwest Communications International, Inc.* 24,450
- --------------------------------------------------------------------------------
Telephone - Integrated - 1.1%
225 Telecomunicacoes Brasileiras S.A. (ADR) 26,550
- --------------------------------------------------------------------------------
Total Common Stocks (cost $302,146) 413,423
- --------------------------------------------------------------------------------
U.S. Government Agency - 80.8%
1,900,000 Federal Home Loan Bank System
5.48%, 9/2/97 (amortized
cost $1,900,000) 1,900,000
- --------------------------------------------------------------------------------
Total Investments - 98.4% (total cost $2,202,146) 2,313,423
- --------------------------------------------------------------------------------
Cash, Receivables and Other Assets, net of Liabilities - 1.6% 37,325
- --------------------------------------------------------------------------------
Net Assets - 100% $2,350,748
- --------------------------------------------------------------------------------
* Non-income producing security
23
<PAGE>
STATEMENT OF OPERATIONS
For the four months ended August 31, 1997 (unaudited)
(all numbers in thousands)
- --------------------------------------------------------------------------------
Investment Income:
- --------------------------------------------------------------------------------
Interest $ 0
Dividends 18
Foreign Tax Withheld 0
- --------------------------------------------------------------------------------
Total Investment Income 18
- --------------------------------------------------------------------------------
Expenses:
Advisory fees 3
Administrative service fee - Retirement Shares 0
Distribution fee - Retirement Shares 0
Registration fees 0
Transfer agent expenses 2
System fees 2
Audit fees 1
Trustees' fees and expenses 0
Other expenses 1
- --------------------------------------------------------------------------------
Total Expenses 9
- --------------------------------------------------------------------------------
Expense and fee offsets (4)
- --------------------------------------------------------------------------------
Net expenses 5
- --------------------------------------------------------------------------------
Net investment income/(loss) 13
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from securities transactions 20
Net realized gain/(loss) from foreign currency transactions 0
Net realized gain/(loss) from futures contracts 0
Change in net unrealized appreciation or depreciation of investments 111
- --------------------------------------------------------------------------------
Net gain/(loss) on investments 131
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations $144
================================================================================
24
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of August 31, 1997 (unaudited)
(all numbers in thousands except net asset value per share)
- --------------------------------------------------------------------------------
Assets:
Investments at cost $2,202
================================================================================
Investments at value $2,313
Cash 28
Receivables:
Investments sold 0
Fund shares sold 18
Interest 0
Dividends 0
Foreign Currency Contracts 0
Other assets 0
- --------------------------------------------------------------------------------
Total Assets 2,359
- --------------------------------------------------------------------------------
Liabilities:
Payables:
Investments purchased 6
Fund shares repurchased 0
Advisory fee 1
Distribution fee - Retirement Shares 0
Transfer agent fees and expenses 2
Accrued expenses (1)
Foreign currency contracts 0
- --------------------------------------------------------------------------------
Total Liabilities 8
- --------------------------------------------------------------------------------
Net Assets - Institutional $2,338
Shares Outstanding, $.001 Par Value (unlimited shares authorized) 184
================================================================================
Net Asset Value Per Share $12.70
================================================================================
Net Assets - Retirement $ 13
Shares Outstanding, $.001 Par Value (unlimited shares authorized) 1
================================================================================
Net Asset Value Per Share $12.68
================================================================================
25
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the four months ended August 31, 1997 (unaudited) (all numbers in thousands)
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
Operations:
Net investment income/(loss) $13
Net realized gain/(loss) from investment transactions 20
Change in unrealized net appreciation or depreciation of investment 111
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations $144
- --------------------------------------------------------------------------------
Dividends and Distributions to Shareholders:
Net investment income 0
Net realized gain from investment transactions 0
- --------------------------------------------------------------------------------
Net decrease from dividends and distributions 0
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares sold
Institutional Shares 3,480
Retirement Shares 10
Reinvested dividends and distributions
Institutional Shares 0
Retirement Shares 0
Shares repurchased
Institutional Shares (1,283)
Retirement Shares 0
Net increase/(decrease) from capital share transactions 2,207
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets 2,351
Net Assets:
Beginning of period 0
- --------------------------------------------------------------------------------
End of period $2,351
================================================================================
Net Assets consist of:
Capital (par value and paid-in surplus) 2,207
Undistributed net investment income/(distribution in excess) 13
Undistributed net realized gain/(loss) from investments 20
Unrealized appreciation/(depreciation) of investments 111
- --------------------------------------------------------------------------------
2,351
================================================================================
Transactions in Fund Shares:
Shares sold
Institutional Shares 293
Retirement Shares 1
Reinvested distributions
Institutional Shares 0
Retirement Shares 0
Shares repurchased
Institutional Shares 109
Retirement Shares 0
- --------------------------------------------------------------------------------
Net increase/(decrease) 185
- --------------------------------------------------------------------------------
Shares outstanding beginning of period 0
Shares outstanding end of period 185
================================================================================
Purchases and Sales of Investment Securities:
(excluding Short-Term Securities)
Purchases of Securities $422
Proceeds from Sales of Securities 134
Purchases of Long-Term U.S. Government Obligations 0
Proceeds from Sales of Long-Term Government Obligations 0
================================================================================
26
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Institutional Retirement
For a share outstanding for the four months ended August 31, 1997 (unaudited) Shares Shares
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value beginning of period $10.00 $10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.07 0.10
Net gains or (losses) on securities (both realized and unrealized) 2.63 2.58
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 2.70 2.68
- --------------------------------------------------------------------------------------------------------------
Less distributions
Dividends (from net investment income) 0.00 0.00
Distributions (from capital gains) 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Total distributions 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period 12.70 12.68
==============================================================================================================
Total return* 27.00% 26.80%
==============================================================================================================
Net assets, end of period (in thousands) 2,338 13
Average net assets for the period (in thousands) 1,182 11
Ratio of gross expenses to average net assets**(1) 1.25% 1.79%
Ratio of net expenses to average net assets** 1.25% 1.79%
Ratio of net investment income to average net assets** 3.23% 2.66%
Portfolio turnover rate** 124% 124%
Average commission paid 0.0465 0.0465
</TABLE>
* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 2.40% for Institutional Shares and 2.90% for Retirement
Shares before waiver of certain fees and/or voluntary reduction of the
advisory fee to the effective rate of the corresponding Janus retail fund.
27
<PAGE>
Appendix A
Explanation of Rating Categories
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
Standard & Poor's Ratings Services
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal
and interest.
AA High quality; very strong capacity to pay principal and
interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances
and economic conditions.
BBB Adequate capacity to pay principal and interest; normally
exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances more likely to lead to
a weakened capacity to pay principal and interest than for
higher rated bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's
CCC, CC, C capacity to meet required interest and principal payments.
BB - lowest degree of speculation; C - the highest degree of
speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to
adverse conditions.
D In default.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate for
the present but certain protective elements may be lacking
or may be unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of
interest and principal payments not well safeguarded during
good and bad times.
B Lack characteristics of desirable investment; potentially
low assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with
respect to principal or interest payments.
Ca Speculative in a high degree; could be in default or have
other marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
28
<PAGE>
Janus Aspen Series
Equity Income Portfolio
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 1997 as supplemented October 24, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus for the
Institutional Shares (the "Shares") of Equity Income Portfolio (the
"Portfolio"), a separate series of Janus Aspen Series, a Delaware business trust
(the "Trust"). The Shares are sold under the name "Janus Aspen Series." Each
series of the Trust represents shares of beneficial interest in a separate
portfolio of securities and other assets with its own objective and policies.
The Portfolio is managed separately by Janus Capital Corporation ("Janus
Capital").
The Shares of the Portfolio 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. The Portfolio also offers
a second class of shares to certain participant directed qualified plans.
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus dated May 1, 1997 as supplemented October 24, 1997, which is
incorporated by reference into this SAI and may be obtained from your insurance
company. This SAI contains additional and more detailed information about the
Portfolio's operations and activities than the Prospectus.
[Logo] JANUS
<PAGE>
Equity Income Portfolio
Statement of Additional Information
Table of Contents
Page
- --------------------------------------------------------------------------------
Investment Policies, Restrictions and Techniques ............................. 3
Investment Objective ...................................................... 3
Portfolio Policies ........................................................ 3
Investment Restrictions ................................................... 3
Types of Securities and Investment Techniques ............................. 4
Illiquid Investments .................................................... 4
Zero Coupon, Pay-In-Kind and Step Coupon Securities ..................... 4
Pass-Through Securities ................................................. 5
Investment Company Securities ........................................... 6
Depositary Receipts ..................................................... 6
Other Income-Producing Securities ....................................... 6
Repurchase and Reverse Repurchase Agreements ............................ 6
High-Yield/High-Risk Securities ......................................... 7
Futures, Options and Other Derivative Instruments ....................... 7
Investment Adviser .......................................................... 14
Custodian, Transfer Agent and Certain Affiliations .......................... 15
Portfolio Transactions and Brokerage ........................................ 16
Officers and Trustees ....................................................... 17
Shares of the Trust ......................................................... 18
Net Asset Value Determination ............................................ 18
Purchases ................................................................ 19
Redemptions .............................................................. 19
Income Dividends, Capital Gains Distributions and Tax Status ................ 19
Principal Shareholders ...................................................... 20
Miscellaneous Information ................................................... 20
Shares of the Trust ...................................................... 20
Voting Rights ............................................................ 20
Independent Accountants .................................................. 21
Registration Statement ................................................... 21
Performance Information ..................................................... 21
Financial Statements ........................................................ 22
Appendix A .................................................................. 29
Explanation of Rating Categories ......................................... 29
- --------------------------------------------------------------------------------
2
<PAGE>
Investment Policies, Restrictions and Techniques
Investment Objective
As stated in the Prospectus, the Portfolio's investment objective is
current income and long-term growth of capital. There can be no assurance that
the Portfolio will achieve its objective. The investment objective of the
Portfolio is not fundamental and may be changed by the Trustees without
shareholder approval.
Portfolio Policies
The Prospectus discusses the types of securities in which the Portfolio
will invest, portfolio policies of the Portfolio and the investment techniques
of the Portfolio. The Prospectus includes a discussion of portfolio turnover
policies.
Portfolio turnover (total long-term purchases or sales, whichever is less,
divided by the average monthly value of the Portfolio's long-term portfolio
securities) is not anticipated to exceed 200%. The Portfolio's annualized
portfolio turnover rate for the period May 1, 1997 through August 31, 1997 was
131%.
Investment Restrictions
As indicated in the Prospectus, the Portfolio is subject to certain
fundamental policies and restrictions that may not be changed without
shareholder approval. Shareholder approval means approval by the lesser of (i)
more than 50% of the outstanding voting securities of the Trust (or the
Portfolio or class of shares if a matter affects just the Portfolio or class of
shares), or (ii) 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities of the Trust
(or the Portfolio or class of shares) are present or represented by proxy. As
fundamental policies, the Portfolio may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to seventy-five percent (75%) of the value of its total assets,
purchase the securities of any one issuer (except cash items and "government
securities" as defined under the Investment Company Act of 1940, as amended (the
"1940 Act")), if immediately after and as a result of such purchase, the value
of the holdings of the Portfolio in the securities of such issuer exceeds 5% of
the value of the Portfolio's total assets.
(2) Invest 25% or more of the value of its total assets in any particular
industry (other than U.S. government securities).
(3) Invest directly in real estate or interests in real estate; however,
the Portfolio 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 Portfolio from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or repurchase
agreements).
(6) Act as an underwriter of securities issued by others, except to the
extent that the Portfolio may be deemed an underwriter in connection with the
disposition of portfolio securities of the Portfolio.
As a fundamental policy, the 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 objectives, policies and
limitations as the Portfolio.
The Trustees have adopted additional investment restrictions for the
Portfolio. These restrictions are operating policies of the Portfolio and may be
changed by the Trustees without shareholder approval. The additional investment
restrictions adopted by the Trustees to date include the following:
(a) The 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 the
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 the Portfolio's commitments
under outstanding futures contracts positions would exceed the market value of
its total assets.
(b) The Portfolio does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
3
<PAGE>
(c) The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities on
margin.
(d) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
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.
(e) The Portfolio may borrow money for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of the 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.
(f) The Portfolio does not currently intend to purchase any security or
enter into a repurchase agreement, if as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees, or the Portfolio's investment
adviser acting pursuant to authority delegated by the Trustees, may determine
that a readily available market exists for securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"),
or any successor to such rule, Section 4(2) commercial paper and municipal lease
obligations. Accordingly, such securities may not be subject to the foregoing
limitation.
(g) The Portfolio may not invest in companies for the purpose of exercising
control of management.
For purposes of the Portfolio's restriction on investing in a particular
industry, the Portfolio will rely primarily on industry classifications as
published by Bloomberg L.P. To the extent that Bloomberg L.P. classifications
are so broad that the primary economic characteristics in a single class are
materially different, the Portfolio may further classify issuers in accordance
with industry classifications as published by the Securities and Exchange
Commission ("SEC").
The Portfolio is seeking permission from the SEC to borrow money from or
lend money to other funds that permit such transactions and for which Janus
Capital serves as investment adviser. All such borrowing and lending will be
subject to the above limits. There is no assurance that such permission will be
granted.
Types of Securities and Investment Techniques
Illiquid Investments
The Portfolio may invest up to 15% of its net assets in illiquid
investments (i.e., securities that are not readily marketable). The Trustees of
the Portfolio have authorized Janus Capital to make liquidity determinations
with respect to its securities, including Rule 144A Securities and commercial
paper. Under the guidelines established by the Trustees, Janus Capital will
consider the following factors: 1) the frequency of trades and quoted prices for
the obligation; 2) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers; 3) the willingness of
dealers to undertake to make a market in the security; and 4) the nature of the
security and the nature of marketplace trades, including the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer. In the case of commercial paper, Janus Capital will also consider
whether the paper is traded flat or in default as to principal and interest and
any ratings of the paper by a nationally recognized statistical rating
organization ("NRSRO"). A foreign security that may be freely traded on or
through the facilities of an offshore exchange or other established offshore
securities market is not deemed to be a restricted security subject to these
procedures.
Zero Coupon, Pay-In-Kind and Step Coupon Securities
The 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.
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Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), the Portfolio must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds. Because the 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 the Portfolio may have to
distribute cash obtained from other sources in order to satisfy the distribution
requirements under the Code. The Portfolio might obtain such cash from selling
other portfolio holdings which might cause the Portfolio to incur capital gains
or losses on the sale. In some circumstances, such sales might be necessary in
order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for the 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 Portfolio 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 Portfolio. The most common
type of pass-through securities are mortgage-backed securities. Government
National Mortgage Association ("GNMA") Certificates are mortgage-backed
securities that evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrowers over the term of the loan rather than returned in a lump sum at
maturity. The 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, 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 Portfolio), 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 the
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 the Portfolio might be
converted to cash and the 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 the 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 or guarantor of the security and interest
and principal payments ultimately depend upon payment of the underlying loans by
individuals. Tax-exempt asset-backed securities include units of beneficial
interests in pools of purchase contracts,
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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.
Investment Company Securities
From time to time, the Portfolio may invest in securities of other
investment companies, subject to the provisions of Section 12(d)(1) of the 1940
Act. The Portfolio may invest in securities of money market funds managed by
Janus Capital subject to the terms of an exemptive order obtained by Janus
Capital and the Janus funds which currently provides that the Portfolio will
limit its aggregate investment in a Janus money market fund to the greater of
(i) 5% of the investing Portfolio's total assets or (ii) $2.5 million. The Janus
funds are seeking an amended and restated exemptive order that would permit the
Portfolio to invest in Janus money market funds in excess of the limitations of
Section 12(d)(1) of the 1940 Act. There is no assurance that such amendment will
be granted.
Depositary Receipts
The Portfolio may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depositary of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. The Portfolio may also invest in
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and
in other similar instruments representing securities of foreign companies. EDRs
are receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs. EDRs, in bearer form, are designed for use
in European securities markets.
Other Income-Producing Securities
Other types of income producing securities that the Portfolio may purchase
include, but are not limited to, the following types of securities:
Variable and floating rate obligations. These types of securities have
variable or floating rates of interest and, under certain limited circumstances,
may have varying principal amounts. Variable and floating rate securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). See also "Inverse Floaters."
Standby commitments. These instruments, which are similar to a put, give
the Portfolio the option to obligate a broker, dealer or bank to repurchase a
security held by the Portfolio at a specified price.
Tender option bonds. Tender option bonds are generally long-term securities
that are coupled with the agreement of a third party (such as a broker, dealer
or bank) to grant the holders of such securities the option to tender the
securities to the institution at periodic intervals.
Inverse floaters. Inverse floaters are debt instruments whose interest
bears an inverse relationship to the interest rate on another security. Certain
variable rate securities (including certain mortgage-backed securities) pay
interest at a rate that varies inversely to prevailing short-term interest rates
(sometimes referred to as inverse floaters). For example, upon reset the
interest rate payable on a security may go down when the underlying index has
risen. The Portfolio will not invest more than 5% of its assets in inverse
floaters.
The Portfolio will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of its portfolio.
Repurchase and Reverse Repurchase Agreements
In a repurchase agreement, the 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." The 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 the Portfolio to suffer a loss if the market value of
such securities declines before
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they can be liquidated on the open market. In the event of bankruptcy or
insolvency of the seller, the 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 investments. While
it is not possible to eliminate all risks from these transactions, it is the
policy of the Portfolio to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by Janus Capital.
The 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. In a reverse
repurchase agreement, the 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, the Portfolio will maintain cash and appropriate liquid assets
in a segregated custodial account to cover its obligation under the agreement.
The Portfolio will enter into reverse repurchase agreements only with parties
that Janus Capital deems creditworthy. Using reverse repurchase agreements to
earn additional income involves the risk that the interest earned on the
invested proceeds is less than the expense of the reverse repurchase agreement
transaction. This technique may also have a leveraging effect on the Portfolio,
although the Portfolio's intent to segregate assets in the amount of the reverse
repurchase agreement minimizes this effect.
High-Yield/High-Risk Securities
The Portfolio intends to invest less than 35% of its net assets in debt
securities that are rated below investment grade (e.g., securities rated BB or
lower by Standard & Poor's Ratings Services ("Standard & Poor's") or Ba or lower
by Moody's Investors Service, Inc. ("Moody's")). Lower rated bonds involve a
higher degree of credit risk, which is the risk that the issuer will not make
interest or principal payments when due. In the event of an unanticipated
default, the Portfolio would experience a reduction in its income, and could
expect a decline in the market value of the securities so affected.
The 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. The portfolio
manager will analyze the credit worthiness 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 the Portfolio unless the
portfolio managers deem such securities to be the equivalent of investment grade
securities.
Subject to the above limits, the Portfolio may purchase defaulted
securities only when its portfolio manager believes, based upon their analysis
of the financial condition, results of operations and economic outlook of an
issuer, that there is potential for resumption of income payments and that the
securities offer an unusual opportunity for capital appreciation.
Notwithstanding the portfolio manager's belief as to the resumption of income,
however, the purchase of any security on which payment of interest or dividends
is suspended involves a high degree of risk. Such risk includes, among other
things, the following:
Financial and Market Risks. Investments in securities that are in default
involve a high degree of financial and market risks that can result in
substantial or, at times, even total losses. Issuers of defaulted securities may
have substantial capital needs and may become involved in bankruptcy or
reorganization proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information about the
condition of such issuers. The market prices of such securities also are subject
to abrupt and erratic movements and above average price volatility, and the
spread between the bid and asked prices of such securities may be greater than
normally expected.
Disposition of Portfolio Securities. Although the Portfolio generally will
purchase securities for which its portfolio manager expects an active market to
be maintained, defaulted securities may be less actively traded than other
securities and it may be difficult to dispose of substantial holdings of such
securities at prevailing market prices. The Portfolio will limit holdings of any
such securities to amounts that the portfolio manager believes could be readily
sold, and holdings of such securities would, in any event, be limited so as not
to limit the Portfolio's ability to readily dispose of securities to meet
redemptions.
Other. Defaulted securities require active monitoring and may, at times,
require participation in bankruptcy or receivership proceedings on behalf of the
Portfolio.
Futures, Options and Other Derivative Instruments
Futures Contracts. The Portfolio 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.
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The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain other liquid assets by the Portfolio's custodian for the benefit of the
FCM. Initial margin payments are similar to good faith deposits or performance
bonds. Unlike margin extended by a securities broker, initial margin payments do
not constitute purchasing securities on margin for purposes of the 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 the
Portfolio, the Portfolio may be entitled to return of margin owed to the
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 Portfolio does business and
by depositing margin payments in a segregated account with the Portfolio's
custodian.
The Portfolio intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" adopted by
the CFTC and the National Futures Association, which regulate trading in the
futures markets. The Portfolio will use futures contracts and related options
primarily for bona fide hedging purposes within the meaning of CFTC regulations.
To the extent that the Portfolio holds positions in futures contracts and
related options that do not fall within the definition of bona fide hedging
transactions, the aggregate initial margin and premiums required to establish
such positions will not exceed 5% of the fair market value of the Portfolio's
net assets, after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into.
Although the Portfolio will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to the Portfolio immediately upon closing out the futures position,
while settlement of securities transactions could take several days. However,
because the Portfolio's cash that may otherwise be invested would be held
uninvested or invested in other liquid assets so long as the futures position
remains open, the Portfolio's return could be diminished due to the opportunity
losses of foregoing other potential investments.
The Portfolio's primary purpose in entering into futures contracts is to
protect the 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, the 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 the Portfolio not participating in a market advance.
This technique is sometimes known as an anticipatory hedge. To the extent the
Portfolio enters into futures contracts for this purpose, the segregated assets
maintained to cover the Portfolio's obligations with respect to the futures
contracts will consist of other liquid assets from its portfolio in an amount
equal to the difference between the contract price and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
the futures contracts. Conversely, if the 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. The 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 the Portfolio owns Treasury bonds and the portfolio manager expects
interest rates to increase, the Portfolio may take a short position in interest
rate futures contracts. Taking such a position would have much the same effect
as the 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 the Portfolio's interest rate futures contract will increase, thereby
keeping the net asset value of the Portfolio from declining as much as it may
have otherwise. If, on the other hand, a portfolio manager expects interest
rates to decline, the 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 the 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.
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Futures contracts entail risks. Although the Portfolio believes that use of
such contracts will benefit the Portfolio, the Portfolio's overall performance
could be worse than if the Portfolio had not entered into futures contracts if
the portfolio manager's investment judgement proves incorrect. For example, if
the Portfolio has hedged against the effects of a possible decrease in prices of
securities held in its portfolio and prices increase instead, the 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 the
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 the 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
the Portfolio will not match exactly the Portfolio's current or potential
investments. The 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 the Portfolio's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with the
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 the 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. The 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 the 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 the 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 three days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for the 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, the 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, the Portfolio's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts. The Portfolio may buy and write put and call
options on futures contracts. An option on a future gives the 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 the 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, the
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Portfolio is considering buying. If a call or put option the Portfolio has
written is exercised, the 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, the 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, the Portfolio may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
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The amount of risk the 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 amount for the assets at the time of delivery. The Portfolio may enter
into forward contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
The following discussion summarizes the Portfolio's principal uses of
forward foreign currency exchange contracts ("forward currency contracts"). The
Portfolio may enter into forward currency contracts with stated contract values
of up to the value of the 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). The 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"). The Portfolio also may hedge some or all of its
investments denominated in a foreign currency or exposed to foreign currency
fluctuations against a decline in the value of that currency relative to the
U.S. dollar by entering into forward currency contracts to sell an amount of
that currency (or a proxy currency whose performance is expected to replicate or
exceed the performance of that currency relative to the U.S. dollar)
approximating the value of some or all of its portfolio securities denominated
in that currency ("position hedge") or by participating in options or futures
contracts with respect to the currency. The 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 the 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 the 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 the Portfolio's currency exposure from
one foreign currency to another removes the Portfolio's opportunity to profit
from increases in the value of the original currency and involves a risk of
increased losses to the 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 the Portfolio than if it had
not entered into such contracts.
The Portfolio will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose value is tied
to, the currency underlying the forward contract or the currency being hedged.
To the extent that the Portfolio is not able to cover its forward currency
positions with underlying portfolio securities, the Portfolio's custodian will
segregate cash or other liquid assets having a value equal to the aggregate
amount of the 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, the Portfolio will find alternative cover or segregate additional cash
or liquid assets on a daily basis so that the value of the covered and
segregated assets will be equal to the amount of the Portfolio's commitments
with respect to such contracts. As an alternative to segregating assets, the
Portfolio may buy call options permitting the Portfolio to buy the amount of
foreign currency being hedged by a forward sale contract or the 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 contacts. In such event,
the Portfolio's ability to utilize forward contracts may be restricted. In
addition, the 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 Portfolio may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Portfolio may buy put
options on the foreign currency. If the value of the currency declines, the
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, the 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 the 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, the Portfolio could sustain losses on
transactions in foreign currency options that would require the Portfolio to
forego a portion or all of the benefits of advantageous changes in those rates.
The Portfolio may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, the
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 decline in value of portfolio securities will be offset
by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the Portfolio
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the 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 the 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, the Portfolio also may lose all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
The Portfolio may write covered call options on foreign currencies. A call
option written on a foreign currency by the Portfolio is "covered" if the
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 the 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 the Portfolio in cash or other
liquid assets in a segregated account with the Portfolio's custodian.
The Portfolio also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
the 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, the Portfolio will collateralize the option by segregating cash
or other liquid assets in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Options on Securities. In an effort to increase current income and to
reduce fluctuations in net asset value, the Portfolio 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
Portfolio may write and buy options on the same types of securities that the
Portfolio may purchase directly.
A put option written by the Portfolio is "covered" if the Portfolio (i)
segregates cash not available for investment or other liquid assets with a value
equal to the exercise price of the put with the Portfolio's custodian or (ii)
holds a put on the same security and in the same principal amount as the put
written and the exercise price of the put held is equal to or greater than the
exercise price of the put written. The premium paid by the buyer of an option
will reflect, among other things, the relationship of the exercise price to the
market price and the volatility of the underlying security, the remaining term
of the option, supply and demand and interest rates.
A call option written by the Portfolio is "covered" if the 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 Portfolio's
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if the 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 than the exercise price of
the call written if the difference is maintained by the Portfolio in cash and
other liquid assets in a segregated account with its custodian.
The Portfolio also may write call options that are not covered for
cross-hedging purposes. The Portfolio collateralizes its obligation under a
written call option for cross-hedging purposes by segregating cash or other
liquid assets in an amount not less than the market value of the underlying
security, marked to market daily. The 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.
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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 the 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 the Portfolio to write
another put option to the extent that the exercise price is secured by other
liquid assets. Effecting a closing transaction also will permit the Portfolio to
use the cash or proceeds from the concurrent sale of any securities subject to
the option for other investments. If the Portfolio desires to sell a particular
security from its portfolio on which it has written a call option, the Portfolio
will effect a closing transaction prior to or concurrent with the sale of the
security.
The 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. The 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 the 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 the 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.
The Portfolio may write options in connection with buy-and-write
transactions. In other words, the 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, the Portfolio's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between the 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 the 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, the Portfolio may elect to close the
position or take delivery of the security at the exercise price
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and the 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.
The Portfolio may buy put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the 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.
The 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
the Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Portfolio.
Eurodollar Instruments. The 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 portfolios and sellers to obtain a fixed rate for
borrowings. The 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. The 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 the 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 the 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
other liquid assets having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Portfolio's
custodian. If the 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. The 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 NRSRO at the
time of entering into such transaction. Janus Capital will monitor the
creditworthiness of all counterparties on an ongoing basis. If there is a
default by the other party to such a transaction, the 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, accordingly, they are less liquid than swaps. To the extent the
Portfolio sells (i.e., writes) caps and floors, it will segregate cash or other
liquid assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the 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 the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
The 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 Portfolio 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
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be more readily available than in the over-the-counter market, potentially
permitting the 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 the
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.
Investment Adviser
As stated in the Prospectus, the Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928.
The Advisory Agreement provides that Janus Capital will furnish continuous
advice and recommendations concerning the Portfolio's investments, provide
office space for the Portfolio and pay the salaries, fees and expenses of all
Portfolio officers and of those Trustees who are affiliated with Janus Capital.
Janus Capital also may make payments to selected broker-dealer firms or
institutions which were instrumental in the acquisition of shareholders for the
Portfolio or other Janus Funds or which performed recordkeeping or other
services with respect to shareholder accounts. The minimum aggregate size
required for eligibility for such payments, and the factors in selecting the
broker-dealer firms and institutions to which they will be made, are determined
from time to time by Janus Capital. Janus Capital is also authorized to perform
the management and administrative services necessary for the operation of the
Portfolio.
The Portfolio pays custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in connection with
the execution of portfolio transactions, legal and accounting expenses, interest
and taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not affiliated with Janus
Capital, and other costs of complying with applicable laws regulating the sale
of Portfolio shares. Pursuant to the Advisory Agreement, Janus Capital furnishes
certain other services, including net asset value determination, portfolio
accounting and recordkeeping, for which the Portfolio may reimburse Janus
Capital for its costs.
The Portfolio has agreed to compensate Janus Capital for its services by
the monthly payment of a fee at the annual rate of 0.75% of the first $300
million of the average daily net assets of the Portfolio, 0.70% of the next $200
million of the average daily net assets of the Portfolio and 0.65% of the
average daily net assets of the Portfolio in excess of $500 million. The
advisory fee is calculated and payable daily. Janus Capital has voluntarily
agreed to cap the advisory fee of the Portfolio at the effective rate of Janus
Equity Income Fund (the "retail fund"). The effective rate of the 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 the
Portfolio as of the last day of any calendar quarter, then the advisory fee
payable by the Portfolio for the following calendar quarter will be a flat rate
equal to such effective rate. The effective rate (annualized) of Janus Equity
Income Fund was .90% for the quarter ended September 30, 1997. Janus Capital may
terminate this fee reduction at any time upon at least 90 days' notice to the
Trustees.
For the period ended August 31, 1997, the investment advisory fee was
$1,351 prior to waiver by Janus Capital. The advisory fee was $0 after waiver
for this period.
In addition, Janus Capital has agreed to reimburse the Portfolio by 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 an annual rate of 1.25% of the average daily net assets of the Portfolio
through at least April 30, 1998. Mortality risk, expense risk and other charges
imposed by participating insurance companies are excluded from the above expense
limitation.
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The current Advisory Agreement became effective on December 10, 1996, and
it will continue in effect until June 16, 1998, and thereafter from year to year
so long as such continuance is approved annually by a majority of the
Portfolio's Trustees who are not parties to the Advisory Agreement or interested
persons of any such party, and by either a majority of the outstanding voting
shares of the Portfolio or the Trustees. The Advisory Agreement i) may be
terminated without the payment of any penalty by the 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, including the Trustees who are not interested
persons of the Portfolio or Janus Capital and, to the extent required by the
1940 Act, the vote of a majority of the outstanding voting securities of the
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
Portfolio, are made independently from those for any other account that is or
may in the future become managed by Janus Capital or its affiliates. If,
however, a number of accounts managed by Janus Capital are contemporaneously
engaged in the purchase or sale of the same security, the orders may be
aggregated and/or the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect the
price paid or received by an account or the size of the position obtained or
liquidated for an account. Pursuant to an exemptive order granted by the SEC,
the Portfolio and other portfolios advised by Janus Capital may also transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating portfolios on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
policies and is managed accordingly by a particular portfolio manager or team of
portfolio managers. As a result, from time to time two or more different managed
accounts may pursue divergent investment strategies with respect to investments
or categories of investments.
As indicated in the Prospectus, Janus Capital does not permit the portfolio
manager to purchase and sell securities for his own accounts except under the
limited circumstances contained in Janus Capital's policy regarding personal
investing by directors/ Trustees, officers and employees of Janus Capital and
the Trust. The policy requires investment personnel and officers of Janus
Capital, inside directors/Trustees of Janus Capital and the Trust 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 Portfolio.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/ Trustees of Janus Capital
and the Trust to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI"), owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns
approximately 12% of its voting stock and, by agreement with KCSI, selects a
majority of Janus Capital's Board.
Custodian, Transfer Agent and Certain Affiliations
State Street Bank and Trust Company ("State Street"), P.O. Box 0351,
Boston, Massachusetts 02117-0351 is the custodian of the domestic securities and
cash of the Portfolio. State Street and the foreign subcustodians it selects,
have custody of the assets of the Portfolio held outside the U.S. and cash
incidental thereto. The custodian and subcustodians hold the Portfolio's assets
in safekeeping and collect and remit the income thereon, subject to the
instructions of the Portfolio.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the
Portfolio's transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the
Portfolio. Janus Service is not compensated for its services related to the
Shares, except for out-of-pocket costs.
The Portfolio pays DST Systems, Inc. ("DST"), a subsidiary of KCSI, license
fees for the use of its portfolio and fund accounting system a monthly base fee
of $250 to $1,250 per month based on the number of Janus funds using the system
and an asset charge of $1 per million (not to exceed $500 per month).
The Trustees have authorized the Portfolio to use another affiliate of DST
as introducing broker for certain Portfolio transactions as a means to reduce
Portfolio expenses through credits against the charges of DST and its affiliates
with regard to commissions earned by such affiliate. See "Portfolio Transactions
and Brokerage."
15
<PAGE>
Portfolio Transactions and Brokerage
Decisions as to the assignment of portfolio business for the Portfolio 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 Portfolio may trade foreign
securities in foreign countries because the best available market for these
securities is often on foreign exchanges. In transactions on foreign stock
exchanges, brokers' commissions are frequently fixed and are often higher than
in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to the 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
commission was reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of Janus Capital. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services, and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities.
Most broker dealers used by Janus Capital provide research and other
services described above. For the period ended August 31, 1997, the Portfolio
paid $159 of its total brokerage commissions to brokers and dealers in
transactions identified for execution primarily on the basis of research and
other services provided to the Portfolio on transactions of $135,595. Research
received from brokers or dealers is supplemental to Janus Capital's own research
efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to the Portfolio. 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
Portfolio. Research products and services incidental to effecting securities
transactions furnished by brokers or dealers may be used in servicing any or all
of Janus Capital's clients and such research may not necessarily be used by
Janus Capital in connection with the accounts which paid commissions to the
broker-dealer providing such research products and services.
Janus Capital may consider sales of Portfolio shares 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 the 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 Portfolio purchases or sells a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where in the opinion
of Janus Capital better prices and executions will be achieved through the use
of a broker.
The Portfolio's Trustees have authorized Janus Capital to place
transactions with DST Securities, Inc. ("DSTS"), a wholly-owned broker-dealer
subsidiary of DST. Janus Capital may do so if it reasonably believes that the
quality of the transaction and the associated commission are fair and reasonable
and if, overall, the associated transaction costs, net of any credits described
above under "Custodian, Transfer Agent and Certain Affiliations," are lower than
those that would otherwise be incurred.
16
<PAGE>
During the period ended August 31, 1997, the Portfolio paid brokerage
commissions of $1,394. There were no commissions paid through DSTS.
As of August 31, 1997, the Portfolio owned securities of $13,792 of Charles
Schwab Corp.
Officers and Trustees
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street
Denver, CO 80206-4928
Trustee, Chairman and President of Janus Investment Fund+. Chairman, Chief
Executive Officer, Director and President of Janus Capital. Chairman and
Director of IDEX Management, Inc., Largo, Florida (50% subsidiary of Janus
Capital and investment adviser to a group of mutual funds) ("IDEX").
James P. Craig, III*# - Trustee and Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Trustee of Janus Investment Fund+. Chief
Investment Officer, Vice President, and Director of Janus Capital.
Blaine P. Rollins* - Executive Vice President and Portfolio Manager
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund+.
Formerly, fixed-income trader and equity securities analyst at Janus
Capital (1990-1995).
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
Vice President and Chief Financial Officer of Janus Investment Fund+. Vice
President of Finance, Treasurer and Chief Financial Officer of Janus
Service, Janus Distributors and Janus Capital. Director of IDEX Janus
Service and Janus Distributors. Director, Treasurer and Vice President of
Finance of Janus Capital International Ltd. Formerly (1992-1996), Treasurer
of Janus Investment Fund and Janus Aspen Series.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street
Denver, CO 80206-4928
Treasurer and Chief Accounting Officer of Janus Investment Fund. Director
of Fund Accounting of Janus Capital.
Kelley Abbott Howes* - Secretary
100 Fillmore Street
Denver, CO 80206-4928
Secretary of Janus Investment Fund. Director and President, Janus
Distributors, Inc. Associate Counsel of Janus Capital. Formerly (1990 to
1994) with The Boston Company Advisors, Inc., Boston, Massachusetts (mutual
fund administration services).
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Investment Fund+. President of HPS Division of MKS
Instruments, Boulder, Colorado (manufacturer of vacuum fittings and
valves).
Gary O. Loo# - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (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.
17
<PAGE>
Dennis B. Mullen - Trustee
14103 Denver West Parkway
Golden, CO 80401
Trustee of Janus Investment Fund+. Chief Financial Officer of Boston Market
Concepts, Golden, Colorado (restaurant chain). Formerly (1993-1997),
President and Chief Officer of BC Northwest L.P., a franchise of Boston
Chicken, Inc., Bellevue, Washington (restaurant chain); (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. Formerly (1989 to
1993), 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).
James T. Rothe - Trustee
102 South Tejon Street, Suite 1100
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. Professor of Business, University of
Colorado, Colorado Springs, Colorado. Principal, Phillips-Smith Retail
Group, Colorado Springs, Colorado (a venture capital firm). Formerly
(1986-1994), Dean of the College of Business, University of Colorado,
Colorado Springs, Colorado.
- --------------------------------------------------------------------------------
+ Includes comparable office with various Janus Funds that were reorganized into
Janus Investment Fund on August 7, 1992.
The Trustees are responsible for major decisions relating to the
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolio 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 Portfolio described in this SAI and all funds advised and sponsored by
Janus Capital (collectively, the "Janus Funds") for the periods indicated. None
of the Trustees receive any pension or retirement benefits from the Portfolio or
the Janus Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the
from the Portfolio for fiscal year Janus Funds for calendar year
Name of Person, Position ended December 31, 1996** ended December 31, 1996***
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, Trustee* $0 $0
John W. Shepardson, Trustee+ $0 $73,000
William D. Stewart, Trustee $0 $70,000
Gary O. Loo, Trustee $0 $70,000
Dennis B. Mullen, Trustee $0 $67,000
Martin H. Waldinger, Trustee $0 $73,000
James T. Rothe, Trustee++ $0 $0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* An interested person of the Portfolio and of Janus Capital. Compensated by
Janus Capital and not the Portfolio.
** The Portfolio had not commenced operations as of December 31, 1996.
*** As of December 31, 1996, Janus Funds consisted of two registered investment
companies comprised of a total of 29 funds.
+ Mr. Shepardson retired on March 31, 1997.
++ Mr. Rothe began serving as Trustee on January 1, 1997.
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, Martin Luther King Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
The per Share NAV of the Portfolio's Shares is determined by dividing the total
value of the Portfolio's securities and other assets, less liabilities
attributable to the Shares of the Portfolio, by the total number of Shares
outstanding. In determining NAV, securities listed on an exchange, the NASDAQ
National
18
<PAGE>
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 Portfolio are traded primarily in the
over-the-counter market. Valuations of such securities are furnished by one or
more pricing services employed by the Portfolio and are based upon a
computerized matrix system or appraisals obtained by a pricing service, in each
case in reliance upon information concerning market transactions and quotations
from recognized municipal securities dealers. Other securities that are traded
on the over-the-counter market are valued at their closing bid prices. Foreign
securities and currencies are converted to U.S. dollars using the exchange rate
in effect at the close of the NYSE. The 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 securities maturing within 60 days are valued on the
amortized cost basis. Securities for which quotations are not readily available,
and other assets, are valued at fair values determined in good faith under
procedures established by and under the supervision of the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which the Portfolio's NAV is not calculated. The 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 Portfolio 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
Portfolio are purchased at the NAV per Share as determined at the close of the
regular trading session of the NYSE next occurring after a purchase order is
received and accepted by the 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 Portfolio.
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 the 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 Portfolio is governed
by Rule 18f-1 under the 1940 Act, which requires the Portfolio to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the NAV of the Portfolio
during any 90-day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation, the 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.
The right to require the Portfolio 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 Shares of the Portfolio to make semiannual
distributions in June and December of substantially all of their investment
income and an annual distribution in June of their net realized capital gains,
if any. It is also a policy of the Portfolio to qualify as regulated investment
company by satisfying certain requirements prescribed by Subchapter M of the
Code. In addition, the 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 the
Portfolio's Shares are reinvested automatically in additional Shares of the
Portfolio at the NAV determined on the first business day following the record
date.
The Portfolio may purchase the securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS. In order to
avoid taxes and interest that must be paid by the Portfolio if these investments
are profitable,
19
<PAGE>
the Portfolio may make various elections permitted by the tax laws. However,
these elections could require that the Portfolio recognize taxable income, which
in turn must be distributed, before the securities are sold and before cash is
received to pay the distributions.
Some foreign securities purchased by the Portfolio may be subject to
foreign taxes which could reduce the yield on such securities. The amount of
such foreign taxes is expected to be insignificant. The Portfolio, may from year
to year make the election permitted under section 853 of the Code to pass
through such taxes to shareholders as a foreign tax credit. If such an election
is not made, 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 Portfolio 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 Portfolio cannot directly own Shares of
the Portfolio 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 the Portfolio. As of August
31, 1997, all of the outstanding Shares of the Portfolio were owned by certain
insurance company separate accounts and by Janus Capital, which provided seed
capital for the Portfolio. The percentage ownership of Janus Capital and of each
separate account owning more than 5% of the Portfolio's Shares is as follows:
Western Reserve Life - 89.10%
Janus Capital - 10.90%
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.
As of the date of this SAI, the Trust is offering eleven series of shares, known
as "portfolios," in two classes. Additional series and/or classes may be created
from time to time.
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 the Portfolio are fully paid and nonassessable when issued. All
Shares of the Portfolio participate equally in dividends and other distributions
by the Shares of the Portfolio, and in residual assets of the Portfolio in the
event of liquidation. The Shares of the Portfolio have no preemptive, conversion
or subscription rights.
The Portfolio currently offers two classes of shares. The Shares discussed
in this SAI are offered only in connection with investment in and payments under
variable insurance contracts, as well as certain qualified retirement plans. A
second class of shares, Retirement Shares, are offered only to certain
participant directed qualified plans whose service providers require a fee from
Trust assets for providing certain services to plan participants.
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 Trustees are responsible for major decisions relating to the
Portfolio's policies and objectives; the Trustees oversee the operation of the
Portfolio by its officers and review the investment decisions of the officers.
The present Trustees were elected by the initial trustee of the Trust on
May 25, 1993, with the exception of Mr. Craig and Mr. Rothe who were appointed
by the Trustees as of June 30, 1995 and as of January 1, 1997, respectively.
Under the Trust Instrument, each Trustee will continue in office until the
termination of the Trust or his earlier death, retirement, resignation,
bankruptcy, incapacity or removal. Vacancies will be filled by a majority of the
remaining Trustees, subject to the 1940 Act.
20
<PAGE>
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 the 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 portfolio of the Trust has one vote (and fractional
votes for fractional shares). Shares of all portfolios of the Trust have
noncumulative voting rights, which means that the holders of more than 50% of
the shares of all portfolios 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
portfolio or class of the Trust will vote separately only with respect to those
matters that affect only that portfolio or class or if an interest of a
portfolio or class in a matter differs from the interests of other portfolios or
classes of the Trust.
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Portfolio, audit the Portfolio's annual
financial statements and prepare its tax returns.
Registration Statement
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this SAI relates. If further information is desired with
respect to the Portfolio or such securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
Performance Information
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for the Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the 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 Portfolio was made available for sale on May 1, 1997. The lifetime
total return of the Shares for the period May 1, 1997 through August 31, 1997
was 24%.
Yield quotations of the Portfolio's Shares 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
Quotations of yield or total return for the Portfolio will not take into
account charges and deductions against any variable annuity contracts and
variable life insurance contracts to which the Portfolio shares are sold. The
Portfolio's yield and total return should not be compared with other mutual
funds that sell their shares directly to the public since the figures provided
do not reflect charges against the variable annuity contracts and variable life
insurance contracts.
From time to time in advertisements or sales material, the Portfolio may
discuss its performance ratings or other information as published by recognized
mutual fund statistical rating services, including, but not limited to, Lipper
Analytical Services, Inc., Ibbotson Associates, Micropal or Morningstar, Inc. or
by publications of general interest such as Forbes, Money, The Wall Street
Journal, Mutual Funds Magazine, Kiplinger's, or Smart Money. The Portfolio may
also compare its performance to that of other selected mutual funds, mutual fund
averages or recognized stock market indicators, including, but not limited to,
the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Russell 2000 Index and the NASDAQ composite.
21
<PAGE>
In addition, the Portfolio may compare its total return to the yield on U.S.
Treasury obligations and to the percentage change in the Consumer Price Index.
Such performance ratings or comparisons may be made with funds that may have
different investment restrictions, objectives, policies or techniques than the
Portfolio and such other funds or market indicators may be comprised of
securities that differ significantly from the Portfolio's investments.
Financial Statements
The following unaudited financial statements for the period ended August
31, 1997 are included in this SAI.
Schedule of Investments as of August 31, 1997
Statement of Operations for the period May 1, 1997 to August 31, 1997
Statement of Assets and Liabilities as of August 31, 1997
Statement of Changes in Net Assets for the period May 1, 1997 to August 31,
1997
Financial Highlights for the period May 1, 1997 to August 31, 1997
22
<PAGE>
JANUS ASPEN EQUITY INCOME PORTFOLIO SCHEDULE OF INVESTMENTS
AUGUST 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares or
Principal Amount Market Value
- --------------------------------------------------------------------------------
Common Stock - 97.7%
- --------------------------------------------------------------------------------
Advertising Sales - 0.9%
31 Publicitas Holding S.A. $6,726
- --------------------------------------------------------------------------------
Aerospace and Defense - 0.9%
275 DONCASTERS PLC* 7,081
- --------------------------------------------------------------------------------
Airlines - 2.2%
600 Ryanair Holdings PLC (ADR)* 16,500
- --------------------------------------------------------------------------------
Apparel Manufacturers - 0.2%
100 TAG Heuer International S.A. (ADR)* 1,375
- --------------------------------------------------------------------------------
Building and Construction - 0.3%
24 Suez Lyonnaise des Eaux 2,418
- --------------------------------------------------------------------------------
Cable Television - 1.9%
225 Houston Industries, Inc.* 11,419
175 Tele-Communications, Inc. - Class A* 3,062
- --------------------------------------------------------------------------------
14,481
- --------------------------------------------------------------------------------
Chemicals - Diversified - 4.2%
267 BOC Group PLC 4,609
40 E.I. du Pont de Nemours and Co. 2,493
616 Imperial Chemical Industries PLC* 9,970
250 Monsanto Co. 10,984
200 Solutia, Inc.* 3,787
- --------------------------------------------------------------------------------
31,843
- --------------------------------------------------------------------------------
Commercial Banks - 0.4%
75 Star Banc Corp. 3,389
- --------------------------------------------------------------------------------
Computer Services - 2.1%
1,374 Delphi Group PLC 15,955
- --------------------------------------------------------------------------------
Computer Software - 5.1%
141 BETA Systems Software A.G.* 13,472
250 Parametric Technology Co.* 11,609
525 Peritus Software Services, Inc.* 13,125
- --------------------------------------------------------------------------------
38,206
- --------------------------------------------------------------------------------
Computers - Information Technology - 2.1%
800 RWD Technologies, Inc.* 15,400
- --------------------------------------------------------------------------------
Computers - Micro - 0.6%
50 Dell Computer Corp.* 4,103
- --------------------------------------------------------------------------------
Cosmetics and Toiletries - 1.7%
200 Avon Products, Inc. 12,812
- --------------------------------------------------------------------------------
Cruise Lines - 3.2%
215 Carnival Corp. - Class A 9,420
350 Royal Caribbean Cruises, Ltd. 14,306
- --------------------------------------------------------------------------------
23,726
- --------------------------------------------------------------------------------
Diversified Operations - 6.3%
202 Asko Oy 3,440
170 Minnesota Mining and Manufacturing Co. 15,279
361 Siebe PLC 6,294
30 Unilever N.V. - N.Y. Shares 6,038
25 Westinghouse Electric Corp. 644
859 Williams PLC 4,855
13 Zellweger Luwa A.G. 10,695
- --------------------------------------------------------------------------------
47,245
- --------------------------------------------------------------------------------
Electronic Components - 3.1%
800 Philips Electronics N.V. 7,783
135 Texas Instruments, Inc. 15,339
- --------------------------------------------------------------------------------
23,122
- --------------------------------------------------------------------------------
Electronic Measuring Instruments - 0.6%
42 Simac Techniek N.V. 4,560
- --------------------------------------------------------------------------------
Electronic Safety Devices - 0.7%
90 Pittway Corp. - Class A 5,428
- --------------------------------------------------------------------------------
Finance - Consumer Loan - 0.4%
25 SLM Holding Corp. 3,387
- --------------------------------------------------------------------------------
Finance - Investment Banker/Broker - 1.8%
325 Charles Schwab Corp. 13,792
- --------------------------------------------------------------------------------
Finance - Other Services - 0.6%
175 HealthCare Financial Partners, Inc.* 4,419
- --------------------------------------------------------------------------------
Food Retail - 1.9%
400 Kroger Co.* 12,050
50 Safeway, Inc.* 2,547
- --------------------------------------------------------------------------------
14,597
- --------------------------------------------------------------------------------
Glass Products - 2.0%
6,231 Pilkington PLC 14,703
- --------------------------------------------------------------------------------
Human Resources - 0.4%
125 Hall Kinion & Associates, Inc.* 2,672
- --------------------------------------------------------------------------------
Instruments - Controls - 1.1%
125 Parker Hannifin Corp. 8,039
- --------------------------------------------------------------------------------
Instruments - Scientific - 3.0%
475 Dionex Corp.* 22,206
- --------------------------------------------------------------------------------
Life and Health Insurance - 1.0%
5 UICI* 150
250 Western National Corp. 6,969
- --------------------------------------------------------------------------------
7,119
- --------------------------------------------------------------------------------
Medical - Drugs - 5.6%
200 Pfizer, Inc. 11,075
148 Rhone-Poulenc - Class A 5,436
200 Warner-Lambert Co. 25,413
- --------------------------------------------------------------------------------
41,924
- --------------------------------------------------------------------------------
Metal - Aluminum - 0.6%
60 Reynolds Metals Co. 4,241
- --------------------------------------------------------------------------------
Money Center Banks - 2.4%
637 Barclays PLC 14,592
311 Lloyds TSB Group PLC 3,647
- --------------------------------------------------------------------------------
18,239
- --------------------------------------------------------------------------------
Music/Clubs - 1.6%
550 Steinway Musical Instruments, Inc.* 12,066
- --------------------------------------------------------------------------------
Oil - Field Services - 1.6%
175 Halliburton Co. 8,356
150 Hanover Compressor Co.* 3,544
- --------------------------------------------------------------------------------
11,900
- --------------------------------------------------------------------------------
Oil and Gas Drilling - 2.6%
325 Santa Fe International Corp. 14,544
50 Transocean Offshore, Inc. 4,753
- --------------------------------------------------------------------------------
19,297
- --------------------------------------------------------------------------------
Oil Companies - Exploration and Production - 2.4%
200 Burlington Resources, Inc. 10,125
200 Pioneer Natural Resources Co. 7,988
- --------------------------------------------------------------------------------
18,113
- --------------------------------------------------------------------------------
Oil Companies - Integrated - 0.5%
80 Royal Dutch Petroleum - N.Y. Shares 4,060
- --------------------------------------------------------------------------------
Oil Field Machinery and Equipment - 3.4%
250 Camco International, Inc. 17,219
110 Smith International, Inc.* 8,003
- --------------------------------------------------------------------------------
25,222
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
Shares or
Principal Amount Market Value
- --------------------------------------------------------------------------------
Oil Refining and Marketing - 0.5%
728 ENI S.p.A. $4,039
- --------------------------------------------------------------------------------
Power Converters and Power Supply Equipment - 1.1%
300 American Power Conversion Corp.* 7,875
- --------------------------------------------------------------------------------
Property and Casualty Insurance - 1.3%
1,000 Sumitomo Marine & Fire Insurance Co. 6,717
0.5 Transatlantic Holdings, Inc. 35
50 W.R. Berkley Corp. 2,766
- --------------------------------------------------------------------------------
9,518
- --------------------------------------------------------------------------------
Radio - 0.5%
75 American Radio Systems Corp.* 3,694
- --------------------------------------------------------------------------------
Recreational Centers - 0.8%
425 Bally Total Fitness Holding Corp.* 5,897
- --------------------------------------------------------------------------------
Retail - Apparel and Shoe - 1.0%
275 Talbots, Inc. 7,270
- --------------------------------------------------------------------------------
Retail - Consumer Electronics - 3.1%
350 Tandy Corp. 23,231
- --------------------------------------------------------------------------------
Retail - Discount - 2.8%
600 Family Dollar Stores, Inc. 12,750
50 TJX Companies, Inc. 1,375
200 Wal-Mart Stores, Inc. 7,100
- --------------------------------------------------------------------------------
21,225
- --------------------------------------------------------------------------------
Retail - Hypermarkets - 1.5%
315 Costco Companies, Inc.* 11,360
- --------------------------------------------------------------------------------
Retail - Major Department Store - 2.2%
285 Dayton Hudson Corp. 16,245
- --------------------------------------------------------------------------------
Retail - Diversified - 0.9%
137 Vendex International N.V. 6,882
- --------------------------------------------------------------------------------
Retail - Regional Department Stores - 1.2%
175 Fred Meyer, Inc.* 9,100
- --------------------------------------------------------------------------------
Savings/Loan/Thrifts - 5.3%
50 Advantage Bancorp, Inc. 2,113
125 First Spartan Financial Corp.* 4,422
725 Firstbank Corp.* 12,688
125 FSF Financial Corp. 2,219
275 Home Bancorp of Elgin, Inc. 4,813
50 JSB Financial, Inc. 2,269
250 Little Falls Bancorp, Inc. 4,344
250 Norwich Financial Corp. 6,938
- --------------------------------------------------------------------------------
39,806
- --------------------------------------------------------------------------------
Special Purpose Banks - 0.1%
12 Dexia France 1,037
- --------------------------------------------------------------------------------
Steel - Producers - 1.9%
525 Ispat International N.V.* 14,077
- --------------------------------------------------------------------------------
Telecommunication Services - 0.0%
3 Royal PTT Nederland N.V. 107
- --------------------------------------------------------------------------------
Telephone - Local - 1.4%
400 Cincinnati Bell, Inc. 10,775
- --------------------------------------------------------------------------------
Television - 0.2%
50 Young Broadcasting Corp. - Class A* 1,806
- --------------------------------------------------------------------------------
Textile - Apparel - 1.2%
952 CSP International Industria Calze S.p.A.* 9,320
- --------------------------------------------------------------------------------
Transportation - Railroad - 0.2%
140 Railtrak Group PLC 1,754
- --------------------------------------------------------------------------------
Transportation - Truck - 0.5%
100 CNF Transportation, Inc. $3,612
- --------------------------------------------------------------------------------
Transportation - Services - 0.6%
1 Kuoni Reisen A.G. - Class B 4,127
- --------------------------------------------------------------------------------
Total Common Stock (cost $691,756) 733,123
- --------------------------------------------------------------------------------
Preferred Stock - 2.1%
- --------------------------------------------------------------------------------
Cruise Lines - 1.4%
150 Royal Caribbean Cruises, Ltd., 7.25% 10,237
- --------------------------------------------------------------------------------
Retail - Restaurants - 0.2%
25 Wendy's International, Inc.,
Series A, 5.00% 1,412
- --------------------------------------------------------------------------------
Telephone - Local - 0.5%
75 Salomon Inc. "CSN" (DECS), 6.25% 4,163
- --------------------------------------------------------------------------------
Total Preferred Stock (cost $15,423) 15,812
- --------------------------------------------------------------------------------
Total Investments - 99.8% (total cost $707,179) 748,935
- --------------------------------------------------------------------------------
Cash, Receivables and Other Assets, net of Liabilities - 0.2% 44,445
- --------------------------------------------------------------------------------
Net Assets - 100% $793,380
- --------------------------------------------------------------------------------
* Non-income producing security
24
<PAGE>
STATEMENT OF OPERATIONS
For the four months ended August 31, 1997 (unaudited)
(all numbers in thousands)
- --------------------------------------------------------------------------------
Investment Income:
- --------------------------------------------------------------------------------
Interest $ 2
Dividends 1
Foreign Tax Withheld 0
- --------------------------------------------------------------------------------
Total Investment Income 3
- --------------------------------------------------------------------------------
Expenses:
Advisory fees 1
Administrative service fee - Retirement Shares 0
Distribution fee - Retirement Shares 0
Registration fees 0
Custodian fees 1
Transfer agent expenses 2
System fees 2
Audit fees 1
Trustees' fees and expenses 0
Other expenses 0
- --------------------------------------------------------------------------------
Total Expenses 7
- --------------------------------------------------------------------------------
Expense and fee offsets (5)
- --------------------------------------------------------------------------------
Net expenses 2
- --------------------------------------------------------------------------------
Net investment income/(loss) 1
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from securities transactions 31
Net realized gain/(loss) from foreign currency transactions 0
Net realized gain/(loss) from futures contracts 0
Change in net unrealized appreciation or depreciation of investments 40
- --------------------------------------------------------------------------------
Net gain/(loss) on investments 71
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations $72
================================================================================
25
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of August 31, 1997 (unaudited)
(all numbers in thousands except net asset value per share)
- --------------------------------------------------------------------------------
Assets:
Investments at cost $ 707
================================================================================
Investments at value $ 749
Cash 10
Receivables:
Investments sold 8
Fund shares sold 43
Interest 0
Dividends 1
Foreign Currency Contracts 0
Other assets 1
- --------------------------------------------------------------------------------
Total Assets 812
- --------------------------------------------------------------------------------
Liabilities:
Payables:
Investments purchased 22
Fund shares repurchased 0
Advisory fee 0
Distribution fee - Retirement Shares 0
Transfer agent fees and expenses 2
Accrued expenses (6)
Foreign currency contracts 1
- --------------------------------------------------------------------------------
Total Liabilities 19
- --------------------------------------------------------------------------------
Net Assets - Institutional $ 781
Shares Outstanding, $.001 Par Value (unlimited shares authorized) 63
================================================================================
Net Asset Value Per Share $12.40
================================================================================
Net Assets - Retirement $ 12
Shares Outstanding, $.001 Par Value (unlimited shares authorized) 1
================================================================================
Net Asset Value Per Share $12.38
================================================================================
26
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the four months ended August 31, 1997 (unaudited)
(all numbers in thousands)
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
Operations:
Net investment income/(loss) $1
Net realized gain/(loss) from investment transactions 31
Change in unrealized net appreciation or depreciation of investment 40
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations $72
- --------------------------------------------------------------------------------
Dividends and Distributions to Shareholders:
Net investment income 0
Net realized gain from investment transactions 0
- --------------------------------------------------------------------------------
Net decrease from dividends and distributions 0
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares sold
Institutional Shares 805
Retirement Shares 10
Reinvested dividends and distributions
Institutional Shares 0
Retirement Shares 0
Shares repurchased
Institutional Shares (94)
Retirement Shares 0
Net increase/(decrease) from capital share transactions 721
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets 793
Net Assets:
Beginning of period 0
- --------------------------------------------------------------------------------
End of period $793
================================================================================
Net Assets consist of:
Capital (par value and paid-in surplus) 721
Undistributed net investment income/(distribution in excess) 1
Undistributed net realized gain/(loss) from investments 31
Unrealized appreciation/(depreciation) of investments 40
- --------------------------------------------------------------------------------
793
================================================================================
Transactions in Fund Shares:
Shares sold
Institutional Shares 71
Retirement Shares 1
Reinvested distributions
Institutional Shares 0
Retirement Shares 0
Shares repurchased
Institutional Shares 8
Retirement Shares 0
- --------------------------------------------------------------------------------
Net increase/(decrease) 64
- --------------------------------------------------------------------------------
Shares outstanding beginning of period 0
Shares outstanding end of period 64
================================================================================
Purchases and Sales of Investment Securities:
(excluding Short-Term Securities)
Purchases of Securities $895
Proceeds from Sales of Securities 220
Purchases of Long-Term U.S. Government Obligations 0
Proceeds from Sales of Long-Term Government Obligations 0
================================================================================
27
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Institutional Retirement
For a share outstanding for the four months ended August 31, 1997 (unaudited) Shares Shares
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value beginning of period $10.00 $10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.01 0.02
Net gains or (losses) on securities (both realized and unrealized) 2.39 2.36
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 2.40 2.38
- --------------------------------------------------------------------------------------------------------------
Less distributions
Dividends (from net investment income) 0.00 0.00
Distributions (from capital gains) 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Total distributions 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period 12.40 12.38
==============================================================================================================
Total return* 24.00% 23.80%
==============================================================================================================
Net assets, end of period (in thousands) 781 12
Average net assets for the period (in thousands) 430 11
Ratio of gross expenses to average net assets**(1) 1.25% 1.75%
Ratio of net expenses to average net assets** 1.25% 1.75%
Ratio of net investment income to average net assets** 0.59% 0.43%
Portfolio turnover rate** 131% 131%
Average commission paid 0.0449 0.0449
</TABLE>
* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 4.89% for Institutional Shares and 5.39% for Retirement
Shares before waiver of certain fees and/or voluntary reduction of the
advisory fee to the effective rate of the corresponding Janus retail fund.
28
<PAGE>
Appendix A
Explanation of Rating Categories
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
Standard & Poor's Ratings Services
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal
and interest.
AA High quality; very strong capacity to pay principal and
interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances
and economic conditions.
BBB Adequate capacity to pay principal and interest; normally
exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances more likely to lead to
a weakened capacity to pay principal and interest than for
higher rated bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's
CCC, CC, C capacity to meet required interest and principal payments.
BB - lowest degree of speculation; C - the highest degree of
speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to
adverse conditions.
D In default.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate for
the present but certain protective elements may be lacking
or may be unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of
interest and principal payments not well safeguarded during
good and bad times.
B Lack characteristics of desirable investment; potentially
low assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with
respect to principal or interest payments.
Ca Speculative in a high degree; could be in default or have
other marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
29
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
Janus Aspen Series
Equity Income Portfolio
Retirement Shares
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 1997 as supplemented October 24, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus for the
Retirement Shares (the "Shares") of the Equity Income Portfolio (the
"Portfolio"), a separate series of Janus Aspen Series, a Delaware business trust
(the "Trust"). Each series of the Trust represents shares of beneficial interest
in a separate portfolio of securities and other assets with its own objective
and policies. The Portfolio is managed separately by Janus Capital Corporation
("Janus Capital").
The Shares of the Portfolio may be purchased only by certain participant
directed qualified plans. The Portfolio also offers a second class of Shares to
the separate accounts of insurance companies for the purpose of funding variable
life insurance contracts and variable annuity contracts (collectively, "variable
insurance contracts") and certain other qualified retirement plans.
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus dated May 1, 1997 as supplemented October 24, 1997, which is
incorporated by reference into this SAI and may be obtained from plan sponsor.
This SAI contains additional and more detailed information about the Portfolio's
operations and activities than the Prospectus.
[Logo] JANUS
<PAGE>
Equity Income Portfolio
Retirement Shares
Statement of Additional Information
Table of Contents
Page
- --------------------------------------------------------------------------------
Investment Policies, Restrictions and Techniques ............................. 3
Investment Objectives ..................................................... 3
Portfolio Policies ........................................................ 3
Investment Restrictions ................................................... 3
Types of Securities and Investment Techniques ............................. 4
Illiquid Investments .................................................... 4
Zero Coupon, Pay-In-Kind and Step Coupon Securities ..................... 4
Pass-Through Securities ................................................. 5
Investment Company Securities ........................................... 6
Depositary Receipts ..................................................... 6
Other Income-Producing Securities ....................................... 6
Repurchase and Reverse Repurchase Agreements ............................ 6
High-Yield/High-Risk Securities ......................................... 7
Futures, Options and Other Derivative Instruments ....................... 7
Investment Adviser .......................................................... 14
Custodian, Transfer Agent and Certain Affiliations .......................... 15
Portfolio Transactions and Brokerage ........................................ 16
Officers and Trustees ....................................................... 17
Shares of the Trust ......................................................... 19
Net Asset Value Determination ............................................ 19
Purchases ................................................................ 19
Distribution Plan ........................................................ 20
Redemptions .............................................................. 20
Income Dividends, Capital Gains Distributions and Tax Status ................ 20
Principal Shareholders ...................................................... 21
Miscellaneous Information ................................................... 21
Shares of the Trust ...................................................... 21
Voting Rights ............................................................ 21
Independent Accountants .................................................. 21
Registration Statement ................................................... 21
Performance Information ..................................................... 22
Financial Statements ........................................................ 22
Appendix A .................................................................. 29
Explanation of Rating Categories ......................................... 29
- --------------------------------------------------------------------------------
2
<PAGE>
Investment Policies, Restrictions and Techniques
Investment Objective
As stated in the Prospectus, the Portfolio's investment objective is
current income and long-term growth of capital by investing primarily in common
stocks. There can be no assurance that the Portfolio will achieve its objective.
The investment objective of the Portfolio is not fundamental and may be changed
by the Trustees without shareholder approval.
Portfolio Policies
The Prospectus discusses the types of securities in which the Portfolio
will invest, portfolio policies of the Portfolio and the investment techniques
of the Portfolio. The Prospectus includes a discussion of portfolio turnover
policies.
Portfolio turnover (total long-term purchases or sales, whichever is less,
divided by the average monthly value of the Portfolio's long-term portfolio
securities) is not anticipated to exceed 200%. The Portfolio's annualized
portfolio turnover rate for the period May 1, 1997 through August 31, 1997 was
131%.
Investment Restrictions
As indicated in the Prospectus, the Portfolio is subject to certain
fundamental policies and restrictions that may not be changed without
shareholder approval. Shareholder approval means approval by the lesser of (i)
more than 50% of the outstanding voting securities of the Trust (or the
Portfolio or class of shares if a matter affects just the Portfolio or the class
of shares), or (ii) 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities of the Trust
(or the Portfolio or class of shares) are present or represented by proxy. As
fundamental policies, the Portfolio may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to seventy-five percent (75%) of the value of its total assets,
purchase the securities of any one issuer (except cash items and "government
securities" as defined under the Investment Company Act of 1940, as amended (the
"1940 Act")), if immediately after and as a result of such purchase, the value
of the holdings of the Portfolio in the securities of such issuer exceeds 5% of
the value of the Portfolio's total assets.
(2) Invest 25% or more of the value of its total assets in any particular
industry (other than U.S. government securities).
(3) Invest directly in real estate or interests in real estate; however,
the Portfolio 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 Portfolio from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of its total assets would be lent to other parties (but this limitation does not
apply to purchases of commercial paper, debt securities or repurchase
agreements).
(6) Act as an underwriter of securities issued by others, except to the
extent that the Portfolio may be deemed an underwriter in connection with the
disposition of portfolio securities of the Portfolio.
As a fundamental policy, the 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 objectives, policies and
limitations as the Portfolio.
The Trustees have adopted additional investment restrictions for the
Portfolio. These restrictions are operating policies of the Portfolio and may be
changed by the Trustees without shareholder approval. The additional investment
restrictions adopted by the Trustees to date include the following:
(a) The 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 the
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 the Portfolio's commitments
under outstanding futures contracts positions would exceed the market value of
its total assets.
(b) The Portfolio does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
3
<PAGE>
(c) The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities on
margin.
(d) The Portfolio may not mortgage or pledge any securities owned or held
by the Portfolio in amounts that exceed, in the aggregate, 15% of the
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.
(e) The Portfolio may borrow money for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 25% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of the 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.
(f) The Portfolio does not currently intend to purchase any security or
enter into a repurchase agreement, if as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees, or the Portfolio's investment
adviser acting pursuant to authority delegated by the Trustees, may determine
that a readily available market exists for securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"),
or any successor to such rule, Section 4(2) commercial paper and municipal lease
obligations. Accordingly, such securities may not be subject to the foregoing
limitation.
(g) The Portfolio may not invest in companies for the purpose of exercising
control of management.
For purposes of the Portfolio's restriction on investing in a particular
industry, the Portfolio will rely primarily on industry classifications as
published by Bloomberg L.P. To the extent that Bloomberg L.P. classifications
are so broad that the primary economic characteristics in a single class are
materially different, the Portfolio may further classify issuers in accordance
with industry classifications as published by the Securities and Exchange
Commission ("SEC").
The Portfolio is seeking permission from the SEC to borrow money from or
lend money to other funds that permit such transactions and for which Janus
Capital serves as investment adviser. All such borrowing and lending will be
subject to the above limits. There is no assurance that such permission will be
granted.
Types of Securities and Investment Techniques
Illiquid Investments
The Portfolio may invest up to 15% of its net assets in illiquid
investments (i.e., securities that are not readily marketable). The Trustees of
the Portfolio have authorized Janus Capital to make liquidity determinations
with respect to its securities, including Rule 144A Securities and commercial
paper. Under the guidelines established by the Trustees, Janus Capital will
consider the following factors: 1) the frequency of trades and quoted prices for
the obligation; 2) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers; 3) the willingness of
dealers to undertake to make a market in the security; and 4) the nature of the
security and the nature of marketplace trades, including the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer. In the case of commercial paper, Janus Capital will also consider
whether the paper is traded flat or in default as to principal and interest and
any ratings of the paper by a nationally recognized statistical rating
organization ("NRSRO"). A foreign security that may be freely traded on or
through the facilities of an offshore exchange or other established offshore
securities market is not deemed to be a restricted security subject to these
procedures.
Zero Coupon, Pay-In-Kind and Step Coupon Securities
The 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.
4
<PAGE>
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), the Portfolio must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds. Because the 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 the Portfolio may have to
distribute cash obtained from other sources in order to satisfy the distribution
requirements under the Code. The Portfolio might obtain such cash from selling
other portfolio holdings which might cause the Portfolio to incur capital gains
or losses on the sale. In some circumstances, such sales might be necessary in
order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for the 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 Portfolio 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 Portfolio. The most common
type of pass-through securities are mortgage-backed securities. Government
National Mortgage Association ("GNMA") Certificates are mortgage-backed
securities that evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrowers over the term of the loan rather than returned in a lump sum at
maturity. The 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, 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 Portfolio), 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 the
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 the Portfolio might be
converted to cash and the 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 the 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 or guarantor of the security and interest
and principal payments ultimately depend upon payment of the underlying loans by
individuals. Tax-exempt asset-backed securities include units of beneficial
interests in pools of purchase contracts,
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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.
Investment Company Securities
From time to time, the Portfolio may invest in securities of other
investment companies, subject to the provisions of Section 12(d)(1) of the 1940
Act. The Portfolio may invest in securities of money market funds managed by
Janus Capital subject to the terms of an exemptive order obtained by Janus
Capital and the Janus funds which currently provides that the Portfolio will
limit its aggregate investment in a Janus money market fund to the greater of
(i) 5% of the investing Portfolio's total assets or (ii) $2.5 million. The Janus
funds are seeking an amended and restated exemptive order that would permit the
Portfolio to invest in Janus money market funds in excess of the limitations of
Section 12(d)(1) of the 1940 Act. There is no assurance that such amendment will
be granted.
Depositary Receipts
The Portfolio may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depositary of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. The Portfolio may also invest in
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and
in other similar instruments representing securities of foreign companies. EDRs
are receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs. EDRs, in bearer form, are designed for use
in European securities markets.
Other Income-Producing Securities
Other types of income producing securities that the Portfolio may purchase
include, but are not limited to, the following types of securities:
Variable and floating rate obligations. These types of securities have
variable or floating rates of interest and, under certain limited circumstances,
may have varying principal amounts. Variable and floating rate securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). See also "Inverse Floaters."
Standby commitments. These instruments, which are similar to a put, give
the Portfolio the option to obligate a broker, dealer or bank to repurchase a
security held by the 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. Certain variable
rate securities (including certain mortgage-backed securities) pay interest at a
rate that varies inversely to prevailing short-term interest rates (sometimes
referred to as inverse floaters). For example, upon reset the interest rate
payable on a security may go down when the underlying index has risen. The
Portfolio will not invest more than 5% of its assets in inverse floaters.
The Portfolio will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of its portfolio.
Repurchase and Reverse Repurchase Agreements
In a repurchase agreement, the 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." The 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
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the securities as agreed, which may cause the 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, the
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 investments. While it is not possible to
eliminate all risks from these transactions, it is the policy of the Portfolio
to limit repurchase agreements to those parties whose creditworthiness has been
reviewed and found satisfactory by Janus Capital.
The 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. In a reverse
repurchase agreement, the 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, the Portfolio will maintain cash and appropriate liquid assets
in a segregated custodial account to cover its obligation under the agreement.
The Portfolio will enter into reverse repurchase agreements only with parties
that Janus Capital deems creditworthy. Using reverse repurchase agreements to
earn additional income involves the risk that the interest earned on the
invested proceeds is less than the expense of the reverse repurchase agreement
transaction. This technique may also have a leveraging effect on the Portfolio,
although the Portfolio's intent to segregate assets in the amount of the reverse
repurchase agreement minimizes this effect.
High-Yield/High-Risk Securities
The Portfolio intends to invest less than 35% of its net assets in debt
securities that are rated below investment grade (e.g., securities rated BB or
lower by Standard & Poor's Ratings Services ("Standard & Poor's") or Ba or lower
by Moody's Investors Service, Inc. ("Moody's")). Lower rated bonds involve a
higher degree of credit risk, which is the risk that the issuer will not make
interest or principal payments when due. In the event of an unanticipated
default, the Portfolio would experience a reduction in its income, and could
expect a decline in the market value of the securities so affected.
The 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. The portfolio
manager will analyze the credit worthiness 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 the Portfolio unless its
portfolio manager deems such securities to be the equivalent of investment grade
securities.
Subject to the above limits, the Portfolio may purchase defaulted
securities only when its portfolio manager believes, based upon their analysis
of the financial condition, results of operations and economic outlook of an
issuer, that there is potential for resumption of income payments and that the
securities offer an unusual opportunity for capital appreciation.
Notwithstanding the portfolio manager's belief as to the resumption of income,
however, the purchase of any security on which payment of interest or dividends
is suspended involves a high degree of risk. Such risk includes, among other
things, the following:
Financial and Market Risks. Investments in securities that are in default
involve a high degree of financial and market risks that can result in
substantial or, at times, even total losses. Issuers of defaulted securities may
have substantial capital needs and may become involved in bankruptcy or
reorganization proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information about the
condition of such issuers. The market prices of such securities also are subject
to abrupt and erratic movements and above average price volatility, and the
spread between the bid and asked prices of such securities may be greater than
normally expected.
Disposition of Portfolio Securities. Although the Portfolio generally will
purchase securities for which its portfolio manager expects an active market to
be maintained, defaulted securities may be less actively traded than other
securities and it may be difficult to dispose of substantial holdings of such
securities at prevailing market prices. The Portfolio will limit holdings of any
such securities to amounts that the portfolio manager believes could be readily
sold, and holdings of such securities would, in any event, be limited so as not
to limit the Portfolios' ability to readily dispose of securities to meet
redemptions.
Other. Defaulted securities require active monitoring and may, at times,
require participation in bankruptcy or receivership proceedings on behalf of the
Portfolio.
Futures, Options and Other Derivative Instruments
Futures Contracts. The Portfolio 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
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firm, which is a member of the relevant contract market. Through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange.
The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain other liquid assets by the Portfolio's custodian for the benefit of the
FCM. Initial margin payments are similar to good faith deposits or performance
bonds. Unlike margin extended by a securities broker, initial margin payments do
not constitute purchasing securities on margin for purposes of the 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 the
Portfolio, the Portfolio may be entitled to return of margin owed to the
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 Portfolio does business and
by depositing margin payments in a segregated account with the Portfolio's
custodian.
The Portfolio intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" adopted by
the CFTC and the National Futures Association, which regulate trading in the
futures markets. The Portfolio will use futures contracts and related options
primarily for bona fide hedging purposes within the meaning of CFTC regulations.
To the extent that the Portfolio holds positions in futures contracts and
related options that do not fall within the definition of bona fide hedging
transactions, the aggregate initial margin and premiums required to establish
such positions will not exceed 5% of the fair market value of the Portfolio's
net assets, after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into.
Although the Portfolio will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to the Portfolio immediately upon closing out the futures position,
while settlement of securities transactions could take several days. However,
because the Portfolio's cash that may otherwise be invested would be held
uninvested or invested in other liquid assets so long as the futures position
remains open, the Portfolio's return could be diminished due to the opportunity
losses of foregoing other potential investments.
The Portfolio's primary purpose in entering into futures contracts is to
protect the 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, the 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 the Portfolio not participating in a market advance.
This technique is sometimes known as an anticipatory hedge. To the extent the
Portfolio enters into futures contracts for this purpose, the segregated assets
maintained to cover the Portfolio's obligations with respect to the futures
contracts will consist of other liquid assets from its portfolio in an amount
equal to the difference between the contract price and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
the futures contracts. Conversely, if the 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. The 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 the Portfolio owns Treasury bonds and the portfolio manager expects
interest rates to increase, the Portfolio may take a short position in interest
rate futures contracts. Taking such a position would have much the same effect
as the 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 the Portfolio's interest rate futures contract will increase, thereby
keeping the net asset value of the Portfolio from declining as much as it may
have otherwise. If, on the other hand, a portfolio manager expects interest
rates to decline, the 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 the 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
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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 Portfolio believes that use of
such contracts will benefit the Portfolio, the Portfolio's overall performance
could be worse than if the Portfolio had not entered into futures contracts if
the portfolio manager's investment judgement proves incorrect. For example, if
the Portfolio has hedged against the effects of a possible decrease in prices of
securities held in its portfolio and prices increase instead, the 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 the
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 the 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
the Portfolio will not match exactly the Portfolio's current or potential
investments. The 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 the Portfolio's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with the
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 the 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. The 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 the 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 the 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 three days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for the 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, the 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, the Portfolio's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts. The Portfolio may buy and write put and call
options on futures contracts. An option on a future gives the 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 the 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, the
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Portfolio is considering buying. If a call or put option the Portfolio has
written is exercised, the 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, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
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The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the 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 the 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 amount for the assets at the time of delivery. The Portfolio may enter
into forward contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
The following discussion summarizes the Portfolio's principal uses of
forward foreign currency exchange contracts ("forward currency contracts"). The
Portfolio may enter into forward currency contracts with stated contract values
of up to the value of the 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). The 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"). The Portfolio also may hedge some or all of its
investments denominated in a foreign currency or exposed to foreign currency
fluctuations against a decline in the value of that currency relative to the
U.S. dollar by entering into forward currency contracts to sell an amount of
that currency (or a proxy currency whose performance is expected to replicate or
exceed the performance of that currency relative to the U.S. dollar)
approximating the value of some or all of its portfolio securities denominated
in that currency ("position hedge") or by participating in options or futures
contracts with respect to the currency. The 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 the 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 the 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 the Portfolio's currency exposure from
one foreign currency to another removes the Portfolio's opportunity to profit
from increases in the value of the original currency and involves a risk of
increased losses to the 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 the Portfolio than if it had
not entered into such contracts.
The Portfolio will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose value is tied
to, the currency underlying the forward contract or the currency being hedged.
To the extent that the Portfolio is not able to cover its forward currency
positions with underlying portfolio securities, the Portfolio's custodian will
segregate cash or other liquid assets having a value equal to the aggregate
amount of the 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, the Portfolio will find alternative cover or segregate additional cash
or liquid assets on a daily basis so that the value of the covered and
segregated assets will be equal to the amount of the Portfolio's commitments
with respect to such contracts. As an alternative to segregating assets, the
Portfolio may buy call options permitting the Portfolio to buy the amount of
foreign currency being hedged by a forward sale contract or the 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 contacts. In such event,
the Portfolio's ability to utilize forward contracts may be restricted. In
addition, the 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 Portfolio 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
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a foreign currency in which portfolio securities are denominated will reduce the
U.S. dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of portfolio securities, the Portfolio may buy put options on the foreign
currency. If the value of the currency declines, the 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.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the 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 the 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, the Portfolio could sustain losses on
transactions in foreign currency options that would require the Portfolio to
forego a portion or all of the benefits of advantageous changes in those rates.
The Portfolio may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, the
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 decline in value of portfolio securities will be offset
by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the Portfolio
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the 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 the 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, the Portfolio also may lose all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
The Portfolio may write covered call options on foreign currencies. A call
option written on a foreign currency by the Portfolio is "covered" if the
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 the 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 the Portfolio in cash or other
liquid assets in a segregated account with the Portfolio's custodian.
The Portfolio also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
the 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, the Portfolio will collateralize the option by segregating cash
or other liquid assets in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Options on Securities. In an effort to increase current income and to
reduce fluctuations in net asset value, the Portfolio 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
Portfolio may write and buy options on the same types of securities that the
Portfolio may purchase directly.
A put option written by the Portfolio is "covered" if the Portfolio (i)
segregates cash not available for investment or other liquid assets with a value
equal to the exercise price of the put with the Portfolio's custodian or (ii)
holds a put on the same security and in the same principal amount as the put
written and the exercise price of the put held is equal to or greater than the
exercise price of the put written. The premium paid by the buyer of an option
will reflect, among other things, the relationship of the exercise price to the
market price and the volatility of the underlying security, the remaining term
of the option, supply and demand and interest rates.
A call option written by the Portfolio is "covered" if the 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 Portfolio's
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if the 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 than the exercise price of
the call written if the difference is maintained by the Portfolio in cash and
other liquid assets in a segregated account with its custodian.
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The Portfolio also may write call options that are not covered for
cross-hedging purposes. The Portfolio collateralizes its obligation under a
written call option for cross-hedging purposes by segregating cash or other
liquid assets in an amount not less than the market value of the underlying
security, marked to market daily. The 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 the 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 the Portfolio to write
another put option to the extent that the exercise price is secured by other
liquid assets. Effecting a closing transaction also will permit the Portfolio to
use the cash or proceeds from the concurrent sale of any securities subject to
the option for other investments. If the Portfolio desires to sell a particular
security from its portfolio on which it has written a call option, the Portfolio
will effect a closing transaction prior to or concurrent with the sale of the
security.
The 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. The 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 the 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 the 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.
The Portfolio may write options in connection with buy-and-write
transactions. In other words, the 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, the Portfolio's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between
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the 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 the 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, the Portfolio may elect to close the
position or take delivery of the security at the exercise price and the
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.
The Portfolio may buy put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the 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.
The 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
the Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Portfolio.
Eurodollar Instruments. The 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 portfolios and sellers to obtain a fixed rate for
borrowings. The 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. The 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 the 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 the 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
other liquid assets having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Portfolio's
custodian. If the 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. The 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 NRSRO at the
time of entering into such transaction. Janus Capital will monitor the
creditworthiness of all counterparties on an ongoing basis. If there is a
default by the other party to such a transaction, the 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, accordingly, they are less liquid than swaps. To the extent the
Portfolio sells (i.e., writes) caps and floors, it will segregate cash or other
liquid assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the 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 the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
The 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 Portfolio 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
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received or initial margin or collateral posted due to the potential additional
margin and collateral requirements associated with such positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting the 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 the
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.
Investment Adviser
As stated in the Prospectus, the Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928.
The Advisory Agreement provides that Janus Capital will furnish continuous
advice and recommendations concerning the Portfolio's investments, provide
office space for the Portfolio and pay the salaries, fees and expenses of all
Portfolio officers and of those Trustees who are affiliated with Janus Capital.
Janus Capital also may make payments to selected broker-dealer firms or
institutions which were instrumental in the acquisition of shareholders for the
Portfolio or other Janus Funds or which performed recordkeeping or other
services with respect to shareholder accounts. The minimum aggregate size
required for eligibility for such payments, and the factors in selecting the
broker-dealer firms and institutions to which they will be made, are determined
from time to time by Janus Capital. Janus Capital is also authorized to perform
the management and administrative services necessary for the operation of the
Portfolio.
The Portfolio pays custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in connection with
the execution of portfolio transactions, legal and accounting expenses, interest
and taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not affiliated with Janus
Capital, and other costs of complying with applicable laws regulating the sale
of Portfolio shares. Pursuant to the Advisory Agreement, Janus Capital furnishes
certain other services, including net asset value determination, portfolio
accounting and recordkeeping, for which the Portfolio may reimburse Janus
Capital for its costs.
The Portfolio has agreed to compensate Janus Capital for its services by
the monthly payment of a fee at the annual rate of 0.75% of the first $300
million of the average daily net assets of the Portfolio, 0.70% of the next $200
million of the average daily net assets of the Portfolio and 0.65% of the
average daily net assets of the Portfolio in excess of $500 million. The
advisory fee is calculated and payable daily. Janus Capital has voluntarily
agreed to cap the advisory fee of the Portfolio at the effective rate of Janus
Equity Income Fund (the "retail fund"). The effective rate of the 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 the
Portfolio as of the last day of any calendar quarter, then the advisory fee
payable by the Portfolio for the following calendar quarter will be a flat rate
equal to such effective rate. The effective rate (annualized) of Janus Equity
Income Fund was .90% for the quarter ended September 30, 1997. Janus Capital may
terminate this fee reduction at any time upon at least 90 days' notice to the
Trustees.
For the period ended August 31, 1997, the investment advisory fee was
$1,351 prior to waiver by Janus Capital. The advisory fee was $0 after waiver
for this period.
In addition, Janus Capital has agreed to reimburse the Portfolio by 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 the distribution
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fee and participant administration fee described below, brokerage commissions,
interest, taxes and extraordinary expenses, exceed an annual rate of 1.25% of
the average daily net assets of the Portfolio through at least April 30, 1998.
The current Advisory Agreement became effective on December 10, 1996, and
it will continue in effect until June 16, 1998, and thereafter from year to year
so long as such continuance is approved annually by a majority of the
Portfolio's Trustees who are not parties to the Advisory Agreement or interested
persons of any such party, and by either a majority of the outstanding voting
shares of the Portfolio or the Trustees. The Advisory Agreement i) may be
terminated without the payment of any penalty by the 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, including the Trustees who are not interested
persons of the Portfolio or Janus Capital and, to the extent required by the
1940 Act, the vote of a majority of the outstanding voting securities of the
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
Portfolio, are made independently from those for any other account that is or
may in the future become managed by Janus Capital or its affiliates. If,
however, a number of accounts managed by Janus Capital are contemporaneously
engaged in the purchase or sale of the same security, the orders may be
aggregated and/or the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect the
price paid or received by an account or the size of the position obtained or
liquidated for an account. Pursuant to an exemptive order granted by the SEC,
the Portfolio and other portfolios advised by Janus Capital may also transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating portfolios on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
policies and is managed accordingly by a particular portfolio manager or team of
portfolio managers. As a result, from time to time two or more different managed
accounts may pursue divergent investment strategies with respect to investments
or categories of investments.
As indicated in the Prospectus, Janus Capital does not permit the portfolio
manager to purchase and sell securities for his own accounts except under the
limited circumstances contained in Janus Capital's policy regarding personal
investing by directors/ Trustees, officers and employees of Janus Capital and
the Trust. The policy requires investment personnel and officers of Janus
Capital, inside directors/Trustees of Janus Capital and the Trust 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 Portfolio.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/ Trustees of Janus Capital
and the Trust to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI"), owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns
approximately 12% of its voting stock and, by agreement with KCSI, selects a
majority of Janus Capital's Board.
Custodian, Transfer Agent and Certain Affiliations
State Street Bank and Trust Company ("State Street"), P.O. Box 0351,
Boston, Massachusetts 02117-0351 is the custodian of the domestic securities and
cash of the Portfolio. State Street and the foreign subcustodians it selects
have custody of the assets of the Portfolio held outside the U.S. and cash
incidental thereto. The custodian and subcustodians hold the Portfolio's assets
in safekeeping and collect and remit the income thereon, subject to the
instructions of the Portfolio.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the
Portfolio's transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the
Portfolio. Janus Service receives a participant administration fee at an annual
rate of up to .25% of the average daily net assets of the Shares of the
Portfolio for providing or procuring recordkeeping, subaccounting and other
administrative services to plan participants who invest in the Shares. Janus
Service expects to use substantially all of this fee to compensate qualified
plan service providers for providing these services (at an annual rate of up to
.25% of the average daily net assets of the Shares attributable to plan
participants receiving services from each service provider). Services provided
by qualified plan service providers may include but are not limited to
participant recordkeeping, processing and aggregating
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purchase and redemption transactions, providing periodic statements, forwarding
prospectuses, shareholder reports and other materials to existing plan
participants, and other participant administrative services.
The Portfolio pays DST Systems, Inc. ("DST"), a subsidiary of KCSI, license
fees for the use of its portfolio and fund accounting system a monthly base fee
of $250 to $1,250 per month based on the number of Janus funds using the system
and an asset charge of $1 per million (not to exceed $500 per month).
The Trustees have authorized the Portfolio to use another affiliate of DST
as introducing broker for certain Portfolio transactions as a means to reduce
Portfolio expenses through credits against the charges of DST and its affiliates
with regard to commissions earned by such affiliate. See "Portfolio Transactions
and Brokerage."
Janus Distributors, Inc. ("Janus Distributors"), 100 Fillmore Street,
Denver, Colorado 80206-4928, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Shares. Janus Distributors is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. Janus Distributors acts
as the agent of the Shares in connection with the sale of the Shares in all
states in which the Shares are registered and in which Janus Distributors is
qualified as a broker-dealer. Under the Distribution Agreement, Janus
Distributors continuously offers the Portfolio's Shares and accepts orders at
net asset value. No sales charges are paid by investors.
Portfolio Transactions and Brokerage
Decisions as to the assignment of portfolio business for the Portfolio 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 Portfolio may trade foreign
securities in foreign countries because the best available market for these
securities is often on foreign exchanges. In transactions on foreign stock
exchanges, brokers' commissions are frequently fixed and are often higher than
in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to the 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
commission was reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of Janus Capital. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services, and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities.
Most broker dealers used by Janus Capital provide research and other
services described above. For the period ended August 31, 1997, the Portfolio
paid $159 of its total brokerage commissions to brokers and dealers in
transactions identified for execution primarily on the basis of research and
other services provided to the Portfolio on transactions of $135,595. Research
received from brokers or dealers is supplemental to Janus Capital's own research
efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to the Portfolio. 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
Portfolio. Research products and services incidental
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to effecting securities transactions furnished by brokers or dealers may be used
in servicing any or all of Janus Capital's clients and such research may not
necessarily be used by Janus Capital in connection with the accounts which paid
commissions to the broker-dealer providing such research products and services.
Janus Capital may consider sales of Portfolio shares 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 the 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 Portfolio purchases or sells a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where in the opinion
of Janus Capital better prices and executions will be achieved through the use
of a broker.
The Portfolio's Trustees have authorized Janus Capital to place
transactions with DST Securities, Inc. ("DSTS"), a wholly-owned broker-dealer
subsidiary of DST. Janus Capital may do so if it reasonably believes that the
quality of the transaction and the associated commission are fair and reasonable
and if, overall, the associated transaction costs, net of any credits described
above under "Custodian, Transfer Agent and Certain Affiliations," are lower than
those that would otherwise be incurred.
During the period ended August 31, 1997, the Portfolio paid brokerage
commissions of $1,394. There were no commissions paid through DSTS.
As of August 31, 1997, the Portfolio owned securities of $13,792 of Charles
Schwab Corp.
Officers and Trustees
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street
Denver, CO 80206-4928
Trustee, Chairman and President of Janus Investment Fund+. Chairman, Chief
Executive Officer, Director and President of Janus Capital. Chairman and
Director of IDEX Management, Inc., Largo, Florida (50% subsidiary of Janus
Capital and investment adviser to a group of mutual funds) ("IDEX").
James P. Craig, III*# - Trustee and Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Trustee of Janus Investment Fund+. Chief
Investment Officer, Vice President, and Director of Janus Capital.
Blaine P. Rollins* - Executive Vice President and Portfolio Manager
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund+.
Formerly, fixed-income trader and equity securities analyst at Janus
Capital (1990-1995).
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
Vice President and Chief Financial Officer of Janus Investment Fund+. Vice
President of Finance, Treasurer and Chief Financial Officer of Janus
Service, Janus Distributors and Janus Capital. Director of IDEX Janus
Service and Janus Distributors. Director, Treasurer and Vice President of
Finance of Janus Capital International Ltd. Formerly (1992-1996), Treasurer
of Janus Investment Fund and Janus Aspen Series.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street
Denver, CO 80206-4928
Treasurer and Chief Accounting Officer of Janus Investment Fund. Director
of Fund Accounting 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.
17
<PAGE>
Kelley Abbott Howes* - Secretary
100 Fillmore Street
Denver, CO 80206-4928
Secretary of Janus Investment Fund. Director and President, Janus
Distributors, Inc. Associate Counsel of Janus Capital. Formerly (1990 to
1994) with The Boston Company Advisors, Inc., Boston, Massachusetts (mutual
fund administration services).
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Investment Fund+. President of HPS Division of MKS
Instruments, Boulder, Colorado (manufacturer of vacuum fittings and
valves).
Gary O. Loo# - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments).
Dennis B. Mullen - Trustee
14103 Denver West Parkway
Golden, CO 80401
Trustee of Janus Investment Fund+. Chief Financial Officer of Boston Market
Concepts, Golden, Colorado (restaurant chain). Formerly (1993-1997),
President and Chief Officer of BC Northwest L.P., a franchise of Boston
Chicken, Inc., Bellevue, Washington (restaurant chain); (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. Formerly (1989 to
1993), 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).
James T. Rothe - Trustee
102 South Tejon Street, Suite 1100
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. Professor of Business, University of
Colorado, Colorado Springs, Colorado. Principal, Phillips-Smith Retail
Group, Colorado Springs, Colorado (a venture capital firm). Formerly
(1986-1994), Dean of the College of Business, University of Colorado,
Colorado Springs, Colorado.
The Trustees are responsible for major decisions relating to the
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolio 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.
- --------------------------------------------------------------------------------
* 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.
18
<PAGE>
The following table shows the aggregate compensation earned by and paid to
each Trustee by the Portfolio described in this SAI and all funds advised and
sponsored by Janus Capital (collectively, the "Janus Funds") for the periods
indicated. None of the Trustees receive any pension or retirement benefits from
the Portfolio or the Janus Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the
from the Portfolio for fiscal year Janus Funds for calendar year
Name of Person, Position ended December 31, 1996** ended December 31, 1996***
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, Trustee* $0 $0
John W. Shepardson, Trustee+ $0 $73,000
William D. Stewart, Trustee $0 $70,000
Gary O. Loo, Trustee $0 $70,000
Dennis B. Mullen, Trustee $0 $67,000
Martin H. Waldinger, Trustee $0 $73,000
James T. Rothe, Trustee++ $0 $0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* An interested person of the Portfolio and of Janus Capital. Compensated by
Janus Capital and not the Portfolio.
** The Portfolio had not commenced operations as of December 31, 1996.
*** As of December 31, 1996, Janus Funds consisted of two registered investment
companies comprised of a total of 29 funds.
+ Mr. Shepardson retired on March 31, 1997.
++ Mr. Rothe began serving as Trustee on January 1, 1997.
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, Martin Luther King Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
The per share NAV of the Portfolio's Shares is determined by dividing the total
value of the Portfolio's securities and other assets, less liabilities,
attributable to the Shares, 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 Portfolio are traded primarily in the over-the-counter
market. Valuations of such securities are furnished by one or more pricing
services employed by the Portfolio and are based upon a computerized matrix
system or appraisals obtained by a pricing service, in each case in reliance
upon information concerning market transactions and quotations from recognized
municipal securities dealers. Other securities that are traded on the
over-the-counter market are valued at their closing bid prices. Foreign
securities and currencies are converted to U.S. dollars using the exchange rate
in effect at the close of the NYSE. The 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 securities maturing within 60 days are valued on the
amortized cost basis. Securities for which quotations are not readily available,
and other assets, are valued at fair values determined in good faith under
procedures established by and under the supervision of the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which the Portfolio's NAV is not calculated. The 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 Portfolio can be purchased only by certain participant
directed qualified plans. Shares of the Portfolio 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 the Portfolio or
its authorized agent. Your plan documents contain detailed information about
investing in the Portfolio.
19
<PAGE>
Distribution Plan
Under a distribution plan ("Plan") adopted in accordance with Rule 12b-1
under the 1940 Act, the Shares may pay Janus Distributors, Inc. ("JDI"), the
distributor of the Retirement Shares, a fee at an annual rate of up to 0.25% of
the average daily net assets of the Shares of the Portfolio. Under the terms of
the Plan, the Trust is authorized to make payments to JDI for remittance to
qualified plan service providers as compensation for distribution and
shareholder servicing performed by such service providers. The Plan is a
compensation type plan and permits the payment at an annual rate of up to 0.25%
of the average daily net assets of the Shares of a Portfolio for activities
which are primarily intended to result in sales of the Shares, including but not
limited to preparing, printing and distributing prospectuses, Statements of
Additional Information, shareholder reports and educational materials to
prospective and existing plan participants; responding to inquiries by qualified
plan participants; receiving and answering correspondence and similar
activities. On December 10, 1996, Trustees unanimously approved the Plan which
became effective May 1, 1997. The Plan and any Rule 12b-1 related agreement that
is entered into by the Portfolios or JDI in connection with the Plan will
continue in effect for a period of more than one year only so long as
continuance is specifically approved at least annually by a vote of a majority
of the Trustees, and of a majority of the Trustees who are not interested
persons (as defined in the 1940 Act) of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any related
agreements ("12b-1 Trustees"). All material amendments to the Plan must be
approved by a majority vote of the Trustees, including a majority of the 12b-1
Trustees, at a meeting called for that purpose. In addition, the Plan may be
terminated at any time, without penalty, by vote of a majority of the
outstanding Shares of a Portfolio or by vote of a majority of 12b-1 Trustees.
Redemptions
Redemptions, like purchases, may only be effected through participant
directed qualified 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
Portfolio is governed by Rule 18f-1 under the 1940 Act, which requires the
Portfolio to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the NAV of the Portfolio during any 90-day period for any one shareholder.
Should redemptions by any shareholder exceed such limitation, the 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.
The right to require the Portfolio 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 Shares of the Portfolio to make semiannual
distributions in June and December of substantially all of its investment income
and an annual distribution in June of their net realized capital gains, if any.
It is also a policy of the Portfolio to qualify as regulated investment company
by satisfying certain requirements prescribed by Subchapter M of the Code. In
addition, because a class of shares of the Portfolio is sold in connection with
variable insurance contracts, the 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 the
Portfolio's Shares are reinvested automatically in additional Shares of the
Portfolio at the NAV determined on the first business day following the record
date.
The Portfolio may purchase the securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS. In order to
avoid taxes and interest that must be paid by the Portfolio if these investments
are profitable, the Portfolio may make various elections permitted by the tax
laws. However, these elections could require that the Portfolio recognize
taxable income, which in turn must be distributed, before the securities are
sold and before cash is received to pay the distributions.
Some foreign securities purchased by the Portfolio may be subject to
foreign taxes which could reduce the yield on such securities. The amount of
such foreign taxes is expected to be insignificant. The Portfolio may from year
to year make the election permitted under section 853 of the Code to pass
through such taxes to shareholders as a foreign tax credit. If such an election
is not made, any foreign taxes paid or accrued will represent an expense to the
Portfolio which will reduce its investment company taxable income.
20
<PAGE>
Because Shares of the Portfolio can only be purchased through 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 plans. See the plan documents for additional information.
Principal Shareholders
The officers and Trustees of the Portfolio cannot directly own Shares of
the Portfolio without purchasing through one of the participating qualified
plans. As a result, such officers and Trustees as a group own less than 1% of
the outstanding Shares of the Portfolio. As of August 31, 1997, all of the
outstanding Shares of the Portfolio were owned by Janus Capital, which provided
seed capital for the Portfolio.
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. As of the
date of this SAI, the Trust is offering eleven series of shares, known as
"portfolios," in two classes. Additional series and/or classes may be created
from time to time.
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 the Portfolio are fully paid and nonassessable when issued. The
Shares of the Portfolio participate equally in dividends and other distributions
by the Shares of the Portfolio, and in residual assets of the Portfolio in the
event of liquidation. Shares of the Portfolio have no preemptive, conversion or
subscription rights.
The Portfolio currently offers two classes of shares. The Shares discussed
in this SAI are offered only in connection with certain participant directed
qualified plans. A second class of shares, Institutional Shares, is offered only
in connection with investment in and payments under variable insurance contracts
as well as certain qualified retirement plans.
Voting Rights
The Trustees are responsible for major decisions relating to the
Portfolio's policies and objectives; the Trustees oversee the operation of the
Portfolio by its officers and review the investment decisions of the officers.
The present Trustees were elected by the initial trustee of the Trust on
May 25, 1993, with the exception of Mr. Craig and Mr. Rothe who were appointed
by the Trustees as of June 30, 1995 and as of January 1, 1997, respectively.
Under the Trust Instrument, each Trustee will continue in office until the
termination of the Trust or his earlier death, retirement, resignation,
bankruptcy, incapacity or removal. Vacancies will be filled by a majority of the
remaining Trustees, subject to the 1940 Act. Therefore, no annual or regular
meetings of shareholders normally will be held, unless otherwise required by the
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 the
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 portfolio of the Trust has one vote (and fractional
votes for fractional shares). Shares of all portfolios of the Trust have
noncumulative voting rights, which means that the holders of more than 50% of
the shares of all portfolios 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
portfolio or class of the Trust will vote separately only with respect to those
matters that affect only that portfolio or class or if the interest of a
portfolio or class in a matter differs from the interests of other portfolios or
classes of the Trust.
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Portfolio, audit the Portfolio's annual
financial statements and prepare its tax returns.
Registration Statement
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this SAI relates. If further information is desired with
respect to the Portfolio or such securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
21
<PAGE>
Performance Information
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for the Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the 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 Portfolio was made available for sale on May 1, 1997. The lifetime
total return of the Shares for the period May 1, 1997 through August 31, 1997
was 23.8%.
Yield quotations for the Portfolio's Shares 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
From time to time in advertisements or sales material, the Portfolio may
discuss its performance ratings or other information as published by recognized
mutual fund statistical rating services, including, but not limited to, Lipper
Analytical Services, Inc., Ibbotson Associates, Micropal or Morningstar, Inc. or
by publications of general interest such as Forbes, Money, The Wall Street
Journal, Mutual Funds Magazine, Kiplinger's, or Smart Money. The Portfolio may
also compare its performance to that of other selected mutual funds, mutual fund
averages or recognized stock market indicators, including, but not limited to,
the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Russell 2000 Index and the NASDAQ composite. In addition, the
Portfolio may compare its total return to the yield on U.S. Treasury obligations
and to the percentage change in the Consumer Price Index. Such performance
ratings or comparisons may be made with funds that may have different investment
restrictions, objectives, policies or techniques than the Portfolio and such
other funds or market indicators may be comprised of securities that differ
significantly from the Portfolio's investments.
Financial Statements
The following unaudited financial statements for the period ended August
31, 1997 are included in this SAI.
Schedule of Investments as of August 31, 1997
Statement of Operations for the period May 1, 1997 to August 31, 1997
Statement of Assets and Liabilities as of August 31, 1997
Statement of Changes in Net Assets for the period May 1, 1997 to August 31,
1997
Financial Highlights for the period May 1, 1997 to August 31, 1997
22
<PAGE>
JANUS ASPEN EQUITY INCOME PORTFOLIO SCHEDULE OF INVESTMENTS
AUGUST 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares or
Principal Amount Market Value
- --------------------------------------------------------------------------------
Common Stock - 97.7%
- --------------------------------------------------------------------------------
Advertising Sales - 0.9%
31 Publicitas Holding S.A. $6,726
- --------------------------------------------------------------------------------
Aerospace and Defense - 0.9%
275 DONCASTERS PLC* 7,081
- --------------------------------------------------------------------------------
Airlines - 2.2%
600 Ryanair Holdings PLC (ADR)* 16,500
- --------------------------------------------------------------------------------
Apparel Manufacturers - 0.2%
100 TAG Heuer International S.A. (ADR)* 1,375
- --------------------------------------------------------------------------------
Building and Construction - 0.3%
24 Suez Lyonnaise des Eaux 2,418
- --------------------------------------------------------------------------------
Cable Television - 1.9%
225 Houston Industries, Inc.* 11,419
175 Tele-Communications, Inc. - Class A* 3,062
- --------------------------------------------------------------------------------
14,481
- --------------------------------------------------------------------------------
Chemicals - Diversified - 4.2%
267 BOC Group PLC 4,609
40 E.I. du Pont de Nemours and Co. 2,493
616 Imperial Chemical Industries PLC* 9,970
250 Monsanto Co. 10,984
200 Solutia, Inc.* 3,787
- --------------------------------------------------------------------------------
31,843
- --------------------------------------------------------------------------------
Commercial Banks - 0.4%
75 Star Banc Corp. 3,389
- --------------------------------------------------------------------------------
Computer Services - 2.1%
1,374 Delphi Group PLC 15,955
- --------------------------------------------------------------------------------
Computer Software - 5.1%
141 BETA Systems Software A.G.* 13,472
250 Parametric Technology Co.* 11,609
525 Peritus Software Services, Inc.* 13,125
- --------------------------------------------------------------------------------
38,206
- --------------------------------------------------------------------------------
Computers - Information Technology - 2.1%
800 RWD Technologies, Inc.* 15,400
- --------------------------------------------------------------------------------
Computers - Micro - 0.6%
50 Dell Computer Corp.* 4,103
- --------------------------------------------------------------------------------
Cosmetics and Toiletries - 1.7%
200 Avon Products, Inc. 12,812
- --------------------------------------------------------------------------------
Cruise Lines - 3.2%
215 Carnival Corp. - Class A 9,420
350 Royal Caribbean Cruises, Ltd. 14,306
- --------------------------------------------------------------------------------
23,726
- --------------------------------------------------------------------------------
Diversified Operations - 6.3%
202 Asko Oy 3,440
170 Minnesota Mining and Manufacturing Co. 15,279
361 Siebe PLC 6,294
30 Unilever N.V. - N.Y. Shares 6,038
25 Westinghouse Electric Corp. 644
859 Williams PLC 4,855
13 Zellweger Luwa A.G. 10,695
- --------------------------------------------------------------------------------
47,245
- --------------------------------------------------------------------------------
Electronic Components - 3.1%
800 Philips Electronics N.V. 7,783
135 Texas Instruments, Inc. 15,339
- --------------------------------------------------------------------------------
23,122
- --------------------------------------------------------------------------------
Electronic Measuring Instruments - 0.6%
42 Simac Techniek N.V. 4,560
- --------------------------------------------------------------------------------
Electronic Safety Devices - 0.7%
90 Pittway Corp. - Class A 5,428
- --------------------------------------------------------------------------------
Finance - Consumer Loan - 0.4%
25 SLM Holding Corp. 3,387
- --------------------------------------------------------------------------------
Finance - Investment Banker/Broker - 1.8%
325 Charles Schwab Corp. 13,792
- --------------------------------------------------------------------------------
Finance - Other Services - 0.6%
175 HealthCare Financial Partners, Inc.* 4,419
- --------------------------------------------------------------------------------
Food Retail - 1.9%
400 Kroger Co.* 12,050
50 Safeway, Inc.* 2,547
- --------------------------------------------------------------------------------
14,597
- --------------------------------------------------------------------------------
Glass Products - 2.0%
6,231 Pilkington PLC 14,703
- --------------------------------------------------------------------------------
Human Resources - 0.4%
125 Hall Kinion & Associates, Inc.* 2,672
- --------------------------------------------------------------------------------
Instruments - Controls - 1.1%
125 Parker Hannifin Corp. 8,039
- --------------------------------------------------------------------------------
Instruments - Scientific - 3.0%
475 Dionex Corp.* 22,206
- --------------------------------------------------------------------------------
Life and Health Insurance - 1.0%
5 UICI* 150
250 Western National Corp. 6,969
- --------------------------------------------------------------------------------
7,119
- --------------------------------------------------------------------------------
Medical - Drugs - 5.6%
200 Pfizer, Inc. 11,075
148 Rhone-Poulenc - Class A 5,436
200 Warner-Lambert Co. 25,413
- --------------------------------------------------------------------------------
41,924
- --------------------------------------------------------------------------------
Metal - Aluminum - 0.6%
60 Reynolds Metals Co. 4,241
- --------------------------------------------------------------------------------
Money Center Banks - 2.4%
637 Barclays PLC 14,592
311 Lloyds TSB Group PLC 3,647
- --------------------------------------------------------------------------------
18,239
- --------------------------------------------------------------------------------
Music/Clubs - 1.6%
550 Steinway Musical Instruments, Inc.* 12,066
- --------------------------------------------------------------------------------
Oil - Field Services - 1.6%
175 Halliburton Co. 8,356
150 Hanover Compressor Co.* 3,544
- --------------------------------------------------------------------------------
11,900
- --------------------------------------------------------------------------------
Oil and Gas Drilling - 2.6%
325 Santa Fe International Corp. 14,544
50 Transocean Offshore, Inc. 4,753
- --------------------------------------------------------------------------------
19,297
- --------------------------------------------------------------------------------
Oil Companies - Exploration and Production - 2.4%
200 Burlington Resources, Inc. 10,125
200 Pioneer Natural Resources Co. 7,988
- --------------------------------------------------------------------------------
18,113
- --------------------------------------------------------------------------------
Oil Companies - Integrated - 0.5%
80 Royal Dutch Petroleum - N.Y. Shares 4,060
- --------------------------------------------------------------------------------
Oil Field Machinery and Equipment - 3.4%
250 Camco International, Inc. 17,219
110 Smith International, Inc.* 8,003
- --------------------------------------------------------------------------------
25,222
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
Shares or
Principal Amount Market Value
- --------------------------------------------------------------------------------
Oil Refining and Marketing - 0.5%
728 ENI S.p.A. $4,039
- --------------------------------------------------------------------------------
Power Converters and Power
Supply Equipment - 1.1%
300 American Power Conversion Corp.* 7,875
- --------------------------------------------------------------------------------
Property and Casualty Insurance - 1.3%
1,000 Sumitomo Marine & Fire Insurance Co. 6,717
0.5 Transatlantic Holdings, Inc. 35
50 W.R. Berkley Corp. 2,766
- --------------------------------------------------------------------------------
9,518
- --------------------------------------------------------------------------------
Radio - 0.5%
75 American Radio Systems Corp.* 3,694
- --------------------------------------------------------------------------------
Recreational Centers - 0.8%
425 Bally Total Fitness Holding Corp.* 5,897
- --------------------------------------------------------------------------------
Retail - Apparel and Shoe - 1.0%
275 Talbots, Inc. 7,270
- --------------------------------------------------------------------------------
Retail - Consumer Electronics - 3.1%
350 Tandy Corp. 23,231
- --------------------------------------------------------------------------------
Retail - Discount - 2.8%
600 Family Dollar Stores, Inc. 12,750
50 TJX Companies, Inc. 1,375
200 Wal-Mart Stores, Inc. 7,100
- --------------------------------------------------------------------------------
21,225
- --------------------------------------------------------------------------------
Retail - Hypermarkets - 1.5%
315 Costco Companies, Inc.* 11,360
- --------------------------------------------------------------------------------
Retail - Major Department Store - 2.2%
285 Dayton Hudson Corp. 16,245
- --------------------------------------------------------------------------------
Retail - Diversified - 0.9%
137 Vendex International N.V. 6,882
- --------------------------------------------------------------------------------
Retail - Regional Department Stores - 1.2%
175 Fred Meyer, Inc.* 9,100
- --------------------------------------------------------------------------------
Savings/Loan/Thrifts - 5.3%
50 Advantage Bancorp, Inc. 2,113
125 First Spartan Financial Corp.* 4,422
725 Firstbank Corp.* 12,688
125 FSF Financial Corp. 2,219
275 Home Bancorp of Elgin, Inc. 4,813
50 JSB Financial, Inc. 2,269
250 Little Falls Bancorp, Inc. 4,344
250 Norwich Financial Corp. 6,938
- --------------------------------------------------------------------------------
39,806
- --------------------------------------------------------------------------------
Special Purpose Banks - 0.1%
12 Dexia France 1,037
- --------------------------------------------------------------------------------
Steel - Producers - 1.9%
525 Ispat International N.V.* 14,077
- --------------------------------------------------------------------------------
Telecommunication Services - 0.0%
3 Royal PTT Nederland N.V. 107
- --------------------------------------------------------------------------------
Telephone - Local - 1.4%
400 Cincinnati Bell, Inc. 10,775
- --------------------------------------------------------------------------------
Television - 0.2%
50 Young Broadcasting Corp. - Class A* 1,806
- --------------------------------------------------------------------------------
Textile - Apparel - 1.2%
952 CSP International Industria Calze S.p.A.* 9,320
- --------------------------------------------------------------------------------
Transportation - Railroad - 0.2%
140 Railtrak Group PLC 1,754
- --------------------------------------------------------------------------------
Transportation - Truck - 0.5%
100 CNF Transportation, Inc. 3,612
- --------------------------------------------------------------------------------
Transportation - Services - 0.6%
1 Kuoni Reisen A.G. - Class B 4,127
- --------------------------------------------------------------------------------
Total Common Stock (cost $691,756) 733,123
- --------------------------------------------------------------------------------
Preferred Stock - 2.1%
- --------------------------------------------------------------------------------
Cruise Lines - 1.4%
150 Royal Caribbean Cruises, Ltd., 7.25% 10,237
- --------------------------------------------------------------------------------
Retail - Restaurants - 0.2%
25 Wendy's International, Inc.,
Series A, 5.00% 1,412
- --------------------------------------------------------------------------------
Telephone - Local - 0.5%
75 Salomon Inc. "CSN" (DECS), 6.25% 4,163
- --------------------------------------------------------------------------------
Total Preferred Stock (cost $15,423) 15,812
- --------------------------------------------------------------------------------
Total Investments - 99.8% (total cost $707,179) 748,935
- --------------------------------------------------------------------------------
Cash, Receivables and Other Assets, net of Liabilities - 0.2% 44,445
- --------------------------------------------------------------------------------
Net Assets - 100% $793,380
- --------------------------------------------------------------------------------
* Non-income producing security
24
<PAGE>
STATEMENT OF OPERATIONS
For the four months ended August 31, 1997 (unaudited)
(all numbers in thousands)
- --------------------------------------------------------------------------------
Investment Income:
- --------------------------------------------------------------------------------
Interest $ 2
Dividends 1
Foreign Tax Withheld 0
- --------------------------------------------------------------------------------
Total Investment Income 3
- --------------------------------------------------------------------------------
Expenses:
Advisory fees 1
Administrative service fee - Retirement Shares 0
Distribution fee - Retirement Shares 0
Registration fees 0
Custodian fees 1
Transfer agent expenses 2
System fees 2
Audit fees 1
Trustees' fees and expenses 0
Other expenses 0
- --------------------------------------------------------------------------------
Total Expenses 7
- --------------------------------------------------------------------------------
Expense and fee offsets (5)
- --------------------------------------------------------------------------------
Net expenses 2
- --------------------------------------------------------------------------------
Net investment income/(loss) 1
- --------------------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from securities transactions 31
Net realized gain/(loss) from foreign currency transactions 0
Net realized gain/(loss) from futures contracts 0
Change in net unrealized appreciation or depreciation of investments 40
- --------------------------------------------------------------------------------
Net gain/(loss) on investments 71
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations $72
================================================================================
25
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of August 31, 1997 (unaudited)
(all numbers in thousands except net asset value per share)
- --------------------------------------------------------------------------------
Assets:
Investments at cost $ 707
================================================================================
Investments at value $ 749
Cash 10
Receivables:
Investments sold 8
Fund shares sold 43
Interest 0
Dividends 1
Foreign Currency Contracts 0
Other assets 1
- --------------------------------------------------------------------------------
Total Assets 812
- --------------------------------------------------------------------------------
Liabilities:
Payables:
Investments purchased 22
Fund shares repurchased 0
Advisory fee 0
Distribution fee - Retirement Shares 0
Transfer agent fees and expenses 2
Accrued expenses (6)
Foreign currency contracts 1
- --------------------------------------------------------------------------------
Total Liabilities 19
- --------------------------------------------------------------------------------
Net Assets - Institutional $ 781
Shares Outstanding, $.001 Par Value (unlimited shares authorized) 63
================================================================================
Net Asset Value Per Share $12.40
================================================================================
Net Assets - Retirement $ 12
Shares Outstanding, $.001 Par Value (unlimited shares authorized) 1
================================================================================
Net Asset Value Per Share $12.38
================================================================================
26
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the four months ended August 31, 1997 (unaudited)
(all numbers in thousands)
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
Operations:
Net investment income/(loss) $1
Net realized gain/(loss) from investment transactions 31
Change in unrealized net appreciation or depreciation of investment 40
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations $72
- --------------------------------------------------------------------------------
Dividends and Distributions to Shareholders:
Net investment income 0
Net realized gain from investment transactions 0
- --------------------------------------------------------------------------------
Net decrease from dividends and distributions 0
- --------------------------------------------------------------------------------
Capital Share Transactions:
Shares sold
Institutional Shares 805
Retirement Shares 10
Reinvested dividends and distributions
Institutional Shares 0
Retirement Shares 0
Shares repurchased
Institutional Shares (94)
Retirement Shares 0
Net increase/(decrease) from capital share transactions 721
- --------------------------------------------------------------------------------
Net increase/(decrease) in net assets 793
Net Assets:
Beginning of period 0
- --------------------------------------------------------------------------------
End of period $793
================================================================================
Net Assets consist of:
Capital (par value and paid-in surplus) 721
Undistributed net investment income/(distribution in excess) 1
Undistributed net realized gain/(loss) from investments 31
Unrealized appreciation/(depreciation) of investments 40
- --------------------------------------------------------------------------------
793
================================================================================
Transactions in Fund Shares:
Shares sold
Institutional Shares 71
Retirement Shares 1
Reinvested distributions
Institutional Shares 0
Retirement Shares 0
Shares repurchased
Institutional Shares 8
Retirement Shares 0
- --------------------------------------------------------------------------------
Net increase/(decrease) 64
- --------------------------------------------------------------------------------
Shares outstanding beginning of period 0
Shares outstanding end of period 64
================================================================================
Purchases and Sales of Investment Securities:
(excluding Short-Term Securities)
Purchases of Securities $895
Proceeds from Sales of Securities 220
Purchases of Long-Term U.S. Government Obligations 0
Proceeds from Sales of Long-Term Government Obligations 0
================================================================================
27
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Institutional Retirement
For a share outstanding for the four months ended August 31, 1997 (unaudited) Shares Shares
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value beginning of period $10.00 $10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.01 0.02
Net gains or (losses) on securities (both realized and unrealized) 2.39 2.36
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 2.40 2.38
- --------------------------------------------------------------------------------------------------------------
Less distributions
Dividends (from net investment income) 0.00 0.00
Distributions (from capital gains) 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Total distributions 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period 12.40 12.38
==============================================================================================================
Total return* 24.00% 23.80%
==============================================================================================================
Net assets, end of period (in thousands) 781 12
Average net assets for the period (in thousands) 430 11
Ratio of gross expenses to average net assets**(1) 1.25% 1.75%
Ratio of net expenses to average net assets** 1.25% 1.75%
Ratio of net investment income to average net assets** 0.59% 0.43%
Portfolio turnover rate** 131% 131%
Average commission paid 0.0449 0.0449
</TABLE>
* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 4.89% for Institutional Shares and 5.39% for Retirement
Shares before waiver of certain fees and/or voluntary reduction of the
advisory fee to the effective rate of the corresponding Janus retail fund.
28
<PAGE>
Appendix A
Explanation of Rating Categories
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
Standard & Poor's Ratings Services
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal
and interest.
AA High quality; very strong capacity to pay principal and
interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances
and economic conditions.
BBB Adequate capacity to pay principal and interest; normally
exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances more likely to lead to
a weakened capacity to pay principal and interest than for
higher rated bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's
CCC, CC, C capacity to meet required interest and principal payments.
BB - lowest degree of speculation; C - the highest degree of
speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to
adverse conditions.
D In default.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate for
the present but certain protective elements may be lacking
or may be unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of
interest and principal payments not well safeguarded during
good and bad times.
B Lack characteristics of desirable investment; potentially
low assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with
respect to principal or interest payments.
Ca Speculative in a high degree; could be in default or have
other marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
29
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<PAGE>
JANUS ASPEN SERIES
PART C - OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of the
Registration Statement.
(a)(1) Financial Statements Included in the Prospectus:
Financial Highlights for each of the following portfolios:
Equity Income Portfolio - Institutional and Retirement Shares
Capital Appreciation Portfolio - Institutional and Retirement
Shares
(a)(2) Financial Statements included in the Statement of
Additional Information:
The financial statements dated August 31, 1997 for each of the
following Portfolios are included in the Statement of
Additional Information.
Equity Income Portfolio - Institutional and Retirement Shares
Capital Appreciation Portfolio - Institutional and Retirement
Shares.
(b) Exhibits:
Exhibit 1 (a) Trust Instrument dated May 19, 1993, is
incorporated herein by reference to
Registrant's Registration Statement on Form
N-1A filed with the Securities and
Exchange Commission on May 20, 1993.
(b) Amendments to Trust Instrument are
incorporated herein by reference to Exhibit
1(b) to Post-Effective Amendment No. 7,
filed on February 14, 1996.
(c) Amendment to Trust Instrument dated
December 10, 1996 is incorporatedherein by
reference to Exhibit 1(c) to Post- Effective
Amendment No. 10, filed on February 13, 1997.
C-1
<PAGE>
Exhibit 2 (a) Restated Bylaws are incorporated herein by
reference to Exhibit 2(a) to Post-Effective
Amendment No. 7, filed on February 14, 1996.
(b) First Amendment to the Bylaws is
incorporated herein by reference to
Exhibit 2(b) to Post-Effective
Amendment No. 7, filed on February
14, 1996.
Exhibit 3 Not Applicable
Exhibit 4 Not Applicable
Exhibit 5 (a) Form of Investment Advisory Agreement for
Growth Portfolio, Aggressive Growth
Portfolio, Worldwide Growth Portfolio,
Balanced Portfolio, Flexible Income Portfolio
and Short-Term Bond Portfolio is incorporated
herein by reference to Exhibit 5(a) to
Post-Effective Amendment No. 11, filed on
April 30, 1997.
(b) Form of Investment Advisory Agreement for
International Growth Portfolio is
incorporated herein by reference to Exhibit
5(b) to Post-Effective Amendment No. 11,
filed on April 30, 1997.
(c) Form of Investment Advisory Agreement for
Money Market Portfolio is incorporated herein
by reference to Exhibit 5(c) to
Post-Effective Amendment No. 11, filed
on April 30, 1997.
(d) Form of Investment Advisory Agreement for
High-Yield Portfolio is incorporated herein
by reference to Exhibit 5(d) to
Post-Effective Amendment No. 7, filed on
February 14, 1996.
(e) Investment Advisory Agreement for Equity
Income Portfolio is incorporated herein by
reference to Exhibit 5(e) to Post-Effective
Amendment No. 10, filed on February 13, 1997.
(f) Investment Advisory Agreement for Capital
Appreciation Portfolio is incorporated herein
by reference to Exhibit 5(f) to
Post-Effective Amendment No. 10, filed on
February 13, 1997.
C-2
<PAGE>
(g) Form of Investment Advisory Agreement for
Growth and Income Portfolio is incorporated
herein by reference to Exhibit 5(g) to
Post-Effective Amendment No. 12, filed
on August 11, 1997.
Exhibit 6 (a) Distribution Agreement for Retirement Shares
is incorporated herein by reference to
Exhibit 6(a) to Post- Effective Amendment
No. 10, filed on February 13, 1997.
(b) Form of Distribution and Shareholder
Services Agreement for Retirement
Shares is incorporated herein by
reference to Post-Effective
Amendment No. 11, filed on April 30,
1997.
Exhibit 7 Not Applicable
Exhibit 8 (a) Form of Custody Agreement between Janus
Aspen Series and Investors Fiduciary Trust
Company is incorporated herein by reference
to Exhibit 8(a) to Post-Effective Amendment
No. 11, filed on April 30, 1997.
(b) Form of Custodian Contract between
Janus Aspen Series and State Street
Bank and Trust Company is
incorporated herein by reference to
Exhibit 8(b) to Post-Effective
Amendment No. 11, filed on April 30,
1997.
(c) Letter Agreement dated April 4, 1994
regarding State Street Custodian Agreement
is incorporated herein byreference to Exhibit
8(c) to Post-Effective Amendment No. 11,
filed on April 30, 1997.
(d) Form of Custodian Agreement between
Janus Aspen Series and United Missouri Bank,
N.A. is incorporated herein by reference to
Exhibit 8(d) to Post-Effective Amendment No.
11, filed on April 30, 1997.
(e) Amendment dated October 11, 1995 of
State Street Custodian Contract is
incorporated herein by reference to
Exhibit 8(e) to Post-Effective
Amendment No. 7, filed on
February 14, 1996.
(f) Letter Agreement dated September 10, 1996
regarding State Street Custodian is
incorporated herein by reference
C-3
<PAGE>
to Exhibit 8(f) to Post-Effective Amendment
No. 9, filed on October 24, 1996.
(g) Form of Subcustodian Contract between United
Missouri Bank, N.A. and State Street Bank
and Trust Company is incorporated herein by
reference to Exhibit 8(g) to Post-Effective
Amendment No. 9, filed on October 24, 1996.
(h) Form of Letter Agreement dated September 9,
1997, regarding State Street Custodian
Contract is filed herein as Exhibit 8(h).
Exhibit 9 (a) Transfer Agency Agreement with Janus Service
Corporation is incorporated herein by
reference to Exhibit 9(a) to Post-Effective
Amendment No. 11, filed on April 30, 1997.
(b) Transfer Agency Agreement as amended May 1,
1997 is incorporated herein by reference to
Exhibit 9(b) to Post- Effective Amendment
No. 10, filed on February 13, 1997.
(c) Form of Model Participation Agreement is
incorporated herein by reference to Exhibit
9(c) to Post-Effective Amendment No. 11,
filed on April 30, 1997.
Exhibit 10 (a) Opinion and Consent of Fund Counsel with
respect to shares of Growth Portfolio,
Aggressive Growth Portfolio, Worldwide
Growth Portfolio, Balanced Portfolio,
Flexible Income Portfolio and Short-Term
Bond Portfolio is incorporated herein by
reference to Exhibit 10 to Post-Effective
Amendment No. 11, filed on April 30, 1997.
(b) Opinion and Consent of Fund Counsel with
respect to shares of International Growth
Portfolio is incorporated herein by
reference to Exhibit 10(b) to Post-Effective
Amendment No. 11, filed on April 30, 1997.
(c) Opinion and Consent of Fund Counsel with
respect to shares of Money Market Portfolio
is incorporated herein by reference to
Exhibit 10(c) to Post-Effective Amendment
No. 11, filed on April 30, 1997.
(d) Opinion and Consent of Fund Counsel with
respect to High-Yield Portfolio is
incorporated herein by reference
C-4
<PAGE>
to Exhibit 10(d) to Post-Effective Amendment
No. 7, filed on February 14, 1996.
(e) Opinion and Consent of Fund Counsel with
respect to Equity Income Portfolio and
Capital Appreciation Portfolio is
incorporated herein by reference to Exhibit
10(e) to Post-Effective Amendment No. 10,
filed on February 13, 1997.
(f) Opinion and Consent of Fund Counsel with
respect to the Retirement Shares of all the
Portfolios is incorporated herein by
reference to Exhibit 10(f) to Post-Effective
Amendment No. 10, filed on February 13, 1997.
(g) Opinion and Consent of Fund Counsel with
respect to Growth and Income Portfolio is
incorporated herein by reference to Exhibit
10(g) to Post-Effective Amendment No. 12,
filed on August 11, 1997.
(h) Opinion and Consent of Fund Counsel with
respect to Retirement Shares of Growth and
Income Portfolio is incorporated herein by
reference to Exhibit 10(h) to Post- Effective
Amendment No. 12, filed on August 11, 1997.
Exhibit 11 Consent of Price Waterhouse LLP is filed
herein as Exhibit 11.
Exhibit 12 Not Applicable
Exhibit 13 Not Applicable
Exhibit 14 Not Applicable
Exhibit 15 Form of Distribution and Shareholder
Servicing Plan for Retirement Shares dated
May 1, 1997 between Janus Distributors, Inc.
and Janus Aspen Series is incorporated
herein by reference to Exhibit 15 to
Post-Effective Amendment No. 10, filed on
February 13, 1997.
Exhibit 16 Computation of Current Yield and Effective
Yield is incorporated herein by reference to
Exhibit 16 to Post-Effective Amendment No. 6,
filed on August 25, 1995.
C-5
<PAGE>
Exhibit 17 (a) Powers of Attorney dated June 30, 1995, is
incorporated herein by reference to Exhibit
17(a) to Post-Effective Amendment No. 6,
filed on August 25, 1995.
(b) Power of Attorney dated January 2, 1997, is
incorporated herein by reference to Exhibit
17(b) to Post-Effective Amendment No. 10,
filed on February 13, 1997.
(c) Powers of Attorney dated May 20, 1997, are
incorporated herein by reference to Exhibit
17(c) to Post-Effective Amendment No. 12,
filed on August 11, 1997.
Exhibit 18 Rule 18f-3 Plan dated December 10, 1996 is
incorporated herein by reference to Exhibit
18 to Post-Effective Amendment No. 10, filed
on February 13, 1997.
Exhibit 27 Financial Data Schedules for Institutional
Shares and Retirement Shares for Equity
Income Portfolio and Capital Appreciation
Portfolio are filed herein as Exhibit 27.
ITEM 25. Persons Controlled by or Under Common Control with Registrant
None
ITEM 26. Number of Holders of Securities
The number of record holders of shares of the Registrant as of
September 30, 1997, was as follows:
Number of
Title of Class Record Holders
Growth Portfolio - Institutional Shares 14
Growth Portfolio - Retirement Shares 1
Aggressive Growth Portfolio - Institutional Shares 10
Aggressive Growth Portfolio - Retirement Shares 1
Worldwide Growth Portfolio - Institutional Shares 16
Worldwide Growth Portfolio - Retirement Shares 1
Balanced Portfolio - Institutional Shares 9
Balanced Portfolio - Retirement Shares 1
Flexible Income Portfolio - Institutional Shares 5
Flexible Income Portfolio - Retirement Shares 1
Short-Term Bond Portfolio - Institutional Shares 5
C-6
<PAGE>
Short-Term Bond Portfolio - Retirement Shares 1
International Growth Portfolio - Institutional Shares 7
International Growth Portfolio - Retirement Shares 1
Money Market Portfolio - Institutional Shares 2
Money Market Portfolio - Retirement Shares 1
High-Yield Portfolio - Institutional Shares 2
High-Yield Portfolio - Retirement Shares 1
Capital Appreciation Portfolio - Institutional Shares 3
Capital Appreciation Portfolio - Retirement Shares 1
Equity Income Portfolio - Institutional Shares 2
Equity Income Portfolio - Retirement Shares 1
Growth and Income Portfolio - Institutional Shares N/A
Growth and Income Portfolio - Retirement Shares N/A
The number of record holders reflects the number of insurance
companies investing in each Portfolio. Janus Capital
Corporation is also included as a record holder for the
Retirement Shares of each Portfolio and for the Institutional
Shares of International Growth Portfolio, Money Market
Portfolio, High-Yield Portfolio, Capital Appreciation
Portfolio and Equity Income Portfolio.
ITEM 27. Indemnification
Article IX of Janus Aspen Series' Trust Instrument provides for
indemnification of certain persons acting on behalf of the Portfolios. In
general, Trustees and officers will be indemnified against liability and against
all expenses of litigation incurred by them in connection with any claim,
action, suit or proceeding (or settlement of the same) in which they become
involved by virtue of their office in connection with the Portfolios, unless
their conduct is determined to constitute willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties, or unless it has been
determined that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Portfolios. A determination that
a person covered by the indemnification provisions is entitled to
indemnification may be made by the court or other body before which the
proceeding is brought, or by either a vote of a majority of a quorum of Trustees
who are neither "interested persons" of the Trust nor parties to the proceeding
or by an independent legal counsel in a written opinion. The Portfolios also may
advance money for these expenses, provided that the Trustee or officer
undertakes to repay the Portfolios if his conduct is later determined to
preclude indemnification, and that either he provide security for the
undertaking, the Trust be insured against losses resulting from lawful advances
or a majority of a quorum of disinterested Trustees, or independent counsel in a
written opinion, determines that he ultimately will be found to be entitled to
indemnification. The Trust also maintains a liability insurance policy covering
its Trustees and officers.
C-7
<PAGE>
ITEM 28. Business and Other Connections of Investment Adviser
The only business of Janus Capital Corporation is to serve as the
investment adviser of the Registrant and as investment adviser or subadviser to
several other mutual funds, and for individual, charitable, corporate, private
and retirement accounts. Business backgrounds of the principal executive
officers and directors of the adviser that also hold positions with the
Registrant are included under "Officers and Trustees" in the currently effective
Statements of Additional Information of the Registrant. The remaining principal
executive officers of the investment adviser and their positions with the
adviser and affiliated entities are: Mark B. Whiston, Vice President and Chief
Marketing Officer of Janus Capital Corporation, Director and President of Janus
Capital International Ltd.; Marjorie G. Hurd, Vice President and Chief
Operations Officer of Janus Capital Corporation, Director and President of Janus
Service Corporation; and Stephen L. Stieneker, Assistant General Counsel, Chief
Compliance Officer and Vice President of Compliance of Janus Capital
Corporation. Mr. Michael E. Herman, a director of Janus Capital Corporation, is
Chairman of the Finance Committee (1990 to present) of Ewing Marion Kauffman
Foundation, 4900 Oak, Kansas City, Missouri 64112. Mr. Michael N. Stolper, a
director of Janus Capital Corporation, is President of Stolper & Company, Inc.,
525 "B" Street, Suite 1080, San Diego, California 92101, an investment
performance consultant. Mr. Thomas A. McDonnell, a director of Janus Capital
Corporation, is President, Chief Executive Officer and a Director of DST
Systems, Inc., 1055 Broadway, 9th Floor, Kansas City, Missouri 64105, provider
of data processing and recordkeeping services for various mutual funds, and is
Executive Vice President and a director of Kansas City Southern Industries,
Inc., 114 W. 11th Street, Kansas City, Missouri 64105, a publicly traded holding
company whose primary subsidiaries are engaged in transportation and financial
services. Mr. Landon H. Rowland, a director of Janus Capital Corporation, is
President and Chief Executive Officer of Kansas City Southern Industries, Inc.
ITEM 29. Principal Underwriters
(a) Janus Distributors, Inc. ("Janus Distributors") serves as
principal underwriter for Janus Investment Fund and the
Retirement Shares of the Registrant only.
(b) The principal business address, positions with Janus
Distributors and positions with Registrant of Kelley Abbott
Howes and Steven R.Goodbarn, officers and directors of
Janus Distributors, are described under "Officers and
Trustees" in the Statement of Additional Information
included in this Registration Statement. The remaining
principal executive officer of Janus Distributors is
Jennifer A. Davis, Secretary. Ms. Davis does not hold any
positions with the Registrant. Ms. Davis' principal
business address is 100 Fillmore Street, Denver, Colorado
80206-4928.
(c) Not Applicable.
C-8
<PAGE>
ITEM 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained by Janus Capital Corporation and Janus Service
Corporation, both of which are located at 100 Fillmore Street, Denver, Colorado
80206-4928 and by State Street Bank and Trust Company, P.O. Box 0351, Boston,
Massachusetts 02117-0351 and United Missouri Bank, N.A., P.O.
Box 419226, Kansas City, Missouri 64141.
ITEM 31. Management Services
The Registrant has no management-related service contract which is not
discussed in Part A or Part B of this form.
ITEM 32. Undertakings
(a) Not applicable.
(b) The Registrant undertakes to file one or more post-effective
amendments for Growth and Income Portfolio using financial
statements which need not be certified, within four to six
months of the later of the effective date of this Amendment
to the Registration Statement or the commencement of
operations of each Portfolio.
(c) The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders, upon request and
without charge.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements of effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Denver, and State of
Colorado, on the 24th day of October, 1997.
JANUS ASPEN SERIES
By: /s/ Thomas H. Bailey
Thomas H. Bailey, President
Janus Aspen Series is organized under a Trust Instrument dated May 19,
1993. The obligations of the Registrant hereunder are not binding upon any of
the Trustees, shareholders, nominees, officers, agents or employees of the
Registrant personally, but bind only the trust property of the Registrant, as
provided in the Trust Instrument. The execution of this Amendment to the
Registration Statement has been authorized by the Trustees of the Registrant and
this Amendment to the Registration Statement has been signed by an authorized
officer of the Registrant, acting as such, and neither such authorization by
such Trustees nor such execution by such officer shall be deemed to have been
made by any of them personally, but shall bind only the trust property of the
Registrant as provided in its Trust Instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Thomas H. Bailey President October 24, 1997
Thomas H. Bailey (Principal Executive
Officer) and Trustee
/s/ Steven R. Goodbarn Vice President and October 24, 1997
Steven R. Goodbarn Chief Financial Officer
(Principal Financial Officer)
/s/ Glenn P. O'Flaherty Treasurer and Chief October 24, 1997
Glenn P. O'Flaherty Accounting Officer
(Principal Accounting Officer)
<PAGE>
/s/ James P. Craig, III Trustee October 24, 1997
James P. Craig, III
Gary O. Loo* Trustee October 24, 1997
Gary O. Loo
Dennis B. Mullen* Trustee October 24, 1997
Dennis B. Mullen
James T. Rothe* Trustee October 24, 1997
James T. Rothe
William D. Stewart* Trustee October 24, 1997
William D. Stewart
Martin H. Waldinger* Trustee October 24, 1997
Martin H. Waldinger
/s/ Steven R. Goodbarn
*By Steven R. Goodbarn
Attorney-in-Fact
<PAGE>
INDEX OF EXHIBITS
Exhibit Number Exhibit Title
Exhibit 8(h) Form of Letter Agreement regarding
State Street Custodian Contract
Exhibit 11 Consent of Price Waterhouse LLP
Exhibit 27 Financial Data Schedules
EXHIBIT 8(h)
LETTER AGREEMENT
September 9, 1997
Mr. Donald DeMarco, Vice President
State Street Bank and Trust Company
One Heritage Drive
Mutual Fund Services P2 North
North Quincy, Massachusetts 02171
Dear Mr. DeMarco:
Please be advised that Janus Aspen Series (the "Trust") has established Growth
and Income Portfolio as a new series of the Trust. Pursuant to Section 17 of the
Custodian Contract dated September 13, 1993, as amended, between the Trust and
State Street Bank and Trust Company ("State Street"), the Trust requests
confirmation that State Street will act as custodian for the new series under
the terms of the contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one copy to the Trust and retaining one copy for
your records.
JANUS ASPEN SERIES
By:_______________________________________
Steven R. Goodbarn, Vice President
STATE STREET BANK AND TRUST COMPANY
By:_______________________________________
Agreed to this___day of___________________,1997
cc: Kelley Abbott Howes
Glenn O'Flaherty
Sue Vreeland
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information constituting part of
this Post-Effective Amendment No. 14 to the Registration Statement on Form N-1A
of Janus Aspen Series.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
October 23, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from financial
statements dated August 31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 010
<NAME> JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 2,202
<INVESTMENTS-AT-VALUE> 2,313
<RECEIVABLES> 18
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,360
<PAYABLE-FOR-SECURITIES> 6
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,207
<SHARES-COMMON-STOCK> 184
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 13
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 111
<NET-ASSETS> 2,351
<DIVIDEND-INCOME> 18
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 5
<NET-INVESTMENT-INCOME> 13
<REALIZED-GAINS-CURRENT> 20
<APPREC-INCREASE-CURRENT> 111
<NET-CHANGE-FROM-OPS> 144
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 293
<NUMBER-OF-SHARES-REDEEMED> (109)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,351
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9
<AVERAGE-NET-ASSETS> 1,182
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.070
<PER-SHARE-GAIN-APPREC> 2.680
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.700
<EXPENSE-RATIO> 1.270
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
financial statements dated August 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 2,202
<INVESTMENTS-AT-VALUE> 2,313
<RECEIVABLES> 18
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,360
<PAYABLE-FOR-SECURITIES> 6
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,207
<SHARES-COMMON-STOCK> 1
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 13
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 111
<NET-ASSETS> 2,351
<DIVIDEND-INCOME> 18
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 5
<NET-INVESTMENT-INCOME> 13
<REALIZED-GAINS-CURRENT> 20
<APPREC-INCREASE-CURRENT> 111
<NET-CHANGE-FROM-OPS> 144
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,351
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9
<AVERAGE-NET-ASSETS> 12
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.100
<PER-SHARE-GAIN-APPREC> 2.580
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.680
<EXPENSE-RATIO> 1.740
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from financial
statements dated August 31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> JANUS ASPEN EQUITY INCOME PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 707
<INVESTMENTS-AT-VALUE> 749
<RECEIVABLES> 52
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 812
<PAYABLE-FOR-SECURITIES> 22
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (3)
<TOTAL-LIABILITIES> 19
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 721
<SHARES-COMMON-STOCK> 63
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40
<NET-ASSETS> 793
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> 2
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 31
<APPREC-INCREASE-CURRENT> 40
<NET-CHANGE-FROM-OPS> 72
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71
<NUMBER-OF-SHARES-REDEEMED> (8)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 793
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7
<AVERAGE-NET-ASSETS> 430
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 2.39
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.40
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from financial
statements dated August 31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 112
<NAME> JANUS ASPEN EQUITY INCOME PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 707
<INVESTMENTS-AT-VALUE> 749
<RECEIVABLES> 52
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 812
<PAYABLE-FOR-SECURITIES> 22
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (3)
<TOTAL-LIABILITIES> 19
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 721
<SHARES-COMMON-STOCK> 1
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40
<NET-ASSETS> 793
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> 2
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 31
<APPREC-INCREASE-CURRENT> 40
<NET-CHANGE-FROM-OPS> 72
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 793
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7
<AVERAGE-NET-ASSETS> 11
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 2.36
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.38
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
