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. 11 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 /__/
Amendment No. 13 /X/
(Check appropriate box or boxes.)
JANUS ASPEN SERIES
(Exact Name of Registrant as Specified in Charter)
100 Fillmore Street, Denver, Colorado 80206-9916
Address of Principal Executive Offices (Zip Code)
Registrant's Telephone No., including Area Code: 303-333-3863
David C. Tucker - 100 Fillmore Street, Denver, Colorado 80206-9916
(Name and Address of Agent for Service)
Approximate Date of Proposed Offering: May 1, 1997
It is proposed that this filing will become effective (check appropriate line):
___ immediately upon filing pursuant to paragraph (b) of Rule 485.
X on May 1, 1997, 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 May 1, 1997, pursuant to paragraph (a)(2) of Rule 485.
Registrant has registered an indefinite number of shares of beneficial interest
under the Securities Act of 1933 pursuant to Rule 24f-2(a) and filed a Rule
24f-2 Notice on February 21, 1997, for the fiscal year ended December 31, 1996,
with respect to all of its series in existence as of December 31, 1996.
<PAGE>
JANUS ASPEN SERIES
Cross Reference Sheet
Between the Prospectus and Statement of
Additional Information and Form N-1A Item
Form N-1A Item
Part A Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Cover Page
3. Condensed Financial Financial Highlights; Performance
Information (Institutional Shares only)
4. General Description of The Porfolio's Investment Objectives and
Registrant Policies; Other Information; Appendix A
- Glossary of Investment Terms;
Appendix B - Explanation of Rating
Categories
5. Management of the Fund Investment Adviser; Other Information
5A. Management's Discussion Not Applicable
of Fund Performance
6. Capital Stock and Other Distributions and 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 Policies, Restrictions and
Policies Techniques; Types of Securities and
Investment Techniques
14. Management of the Fund Investment Adviser; Officers and
Trustees
15. Control Persons and Principal Shareholders (Institutional
Principal Holders of Shares only)
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 Dividends and Tax Status
21. Underwriters Not Applicable
22. Calculation of Performance Performance Information
Data
23. Financial Statements Financial Statements (except new
portfolios: Equity Income and Capital
Appreciation Portfolios)
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE
Brief description of the Portfolios ...........................................1
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
Each Portfolio's annual
operating expenses .........................................................3
Financial Highlights -
a summary of financial data ................................................4
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
An explanation of performance terms ...........................................7
- --------------------------------------------------------------------------------
THE PORTFOLIOS IN DETAIL
Investment Objectives and Policies of the
Growth Combination and
Fixed Income Portfolios ....................................................8
General Portfolio Policies of the
Portfolios other than
Money Market Portfolios ...................................................13
Additional Risk Factors ......................................................14
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
Investment Objectives,
Policies and Techniques ...................................................16
- --------------------------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIOS
Investment Adviser and
Investment Personnel ......................................................19
Portfolio Transactions .......................................................20
Management Expenses ..........................................................21
Other Service Providers ......................................................21
Other Information ............................................................21
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
Distributions ................................................................23
Taxes ........................................................................23
- --------------------------------------------------------------------------------
SHAREHOLDER'S GUIDE
Purchases ....................................................................24
Redemptions ..................................................................24
Shareholder Communications ...................................................24
- --------------------------------------------------------------------------------
APPENDIX A
Glossary of Investment Terms .................................................25
- --------------------------------------------------------------------------------
APPENDIX B
Explanation of Rating Categories .............................................27
JANUS ASPEN SERIES
Prospectus
May 1, 1997
This prospectus describes nine mutual funds with a variety of investment
objectives, including growth of capital, current income and a combination of
growth and income (the "Portfolios"). Each Portfolio is a series of Janus Aspen
Series (the "Trust") and currently offers two classes of shares. The
Institutional Shares are sold under the name "Janus Aspen Series." The Trust is
registered with the Securities and Exchange Commission ("SEC") as an open-end
management investment company. The Institutional Shares of each Portfolio
(collectively, the "Shares") are offered by this prospectus in connection with
investment in and payments under variable annuity contracts and variable life
insurance contracts (collectively "variable insurance contracts"), as well as
certain qualified retirement plans. Janus Capital Corporation ("Janus Capital")
serves as investment adviser to each Portfolio. Janus Capital has been in the
investment advisory business for over 26 years and currently manages
approximately $50 billion in assets.
The Trust sells and redeems its Shares at net asset value without any sales
charges, commissions or redemption fees. Each variable insurance contract
involves fees and expenses not described in this Prospectus. Certain Portfolios
may not be available in connection with a particular contract and certain
contracts may limit allocations among the Portfolios. See the accompanying
contract prospectus for information regarding contract fees and expenses and any
restrictions on purchases or allocations.
This Prospectus contains information about the Shares that a prospective
purchaser of a variable insurance contract or plan participant should consider
before allocating purchase payments or premiums to the Portfolios. It should be
read carefully in conjunction with the separate account prospectus of the
specific insurance product that accompanies this Prospectus and retained for
future reference. Additional information about the Shares is contained in a
Statement of Additional Information ("SAI") filed with the SEC. The SAI dated
May 1, 1997 is incorporated by reference into this Prospectus. Copies of the SAI
are available upon request and without charge by writing or calling your
insurance company or plan sponsor.
FLEXIBLE INCOME PORTFOLIO AND HIGH-YIELD PORTFOLIO MAY INVEST ALL OF THEIR
RESPECTIVE ASSETS IN HIGH-YIELD CORPORATE DEBT SECURITIES, COMMONLY KNOWN AS
"JUNK BONDS." SEE "ADDITIONAL RISK FACTORS" ON PAGE 14 FOR THE RISKS ASSOCIATED
WITH INVESTING IN THESE SECURITIES.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC NOR HAS THE SEC PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR
OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH STATE OR OTHER JURISDICTION.
<PAGE>
PORTFOLIOS AT A GLANCE
This section is designed to provide you with a brief overview of the Portfolios
and their investment emphasis. A more detailed discussion of the Portfolios'
investment objectives and policies begins on page 8.
GROWTH PORTFOLIO
Focus: A diversified portfolio that seeks long-term growth of capital by
investing primarily in common stocks, with an emphasis on companies with larger
market capitalizations.
Inception: September 1993
Manager: James P. Craig, III
Assistant Managers: David Decker
Blaine Rollins
AGGRESSIVE GROWTH PORTFOLIO
Focus: A nondiversified portfolio that seeks long-term growth of capital by
investing primarily in common stocks, with an emphasis on securities issued by
medium-sized companies.
Inception: September 1993
Manager: James P. Goff
INTERNATIONAL GROWTH PORTFOLIO
Focus: A diversified portfolio that seeks long-term growth of capital by
investing primarily in common stocks of foreign issuers.
Inception: May 1994
Manager: Helen Young Hayes
Assistant Manager: Laurence Chang
WORLDWIDE GROWTH PORTFOLIO
Focus: A diversified portfolio that seeks long-term growth of capital by
investing primarily in common stocks of foreign and domestic issuers.
Inception: September 1993
Manager: Helen Young Hayes
Assistant Manager: Laurence Chang
BALANCED PORTFOLIO
Focus: A diversified portfolio that seeks long-term growth of capital, balanced
by current income. The Portfolio normally invests 40-60% of its assets in
securities selected primarily for their growth potential and 40-60% of its
assets in securities selected primarily for their income potential.
Inception: September 1993
Manager: Blaine P. Rollins
FLEXIBLE INCOME PORTFOLIO
Focus: A diversified portfolio that seeks to maximize total return from a
combination of income and capital appreciation by investing primarily in
income-producing securities.
Inception: September 1993
Managers: Ronald V. Speaker
Sandy R. Rufenacht
HIGH-YIELD PORTFOLIO
Focus: A diversified portfolio that seeks high current income as its primary
objective. Capital appreciation is a secondary objective when consistent with
the primary objective. The Portfolio seeks to achieve these objectives by
investing primarily in high-yield/ high-risk fixed-income securities.
Inception: May 1996
Managers: Ronald V. Speaker
Sandy R. Rufenacht
SHORT-TERM BOND PORTFOLIO
Focus: A diversified portfolio that seeks a high level of current income while
minimizing interest rate risk by investing in shorter term fixed-income
securities. Its average-weighted maturity is normally less than three years.
Inception: September 1993
Manager: Sandy R. Rufenacht
MONEY MARKET PORTFOLIO
Focus: A money market mutual fund that seeks maximum current income to the
extent consistent with stability of capital. The Portfolio seeks to achieve this
objective by investing primarily in high quality debt obligations and
obligations of financial institutions.
Inception: May 1995
Manager: Sharon S. Pichler
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
1
<PAGE>
JANUS SPECTRUM
The spectrum below shows Janus Capital's assessment of the potential volatility
of the Portfolios relative to one another and should not be used to compare the
Portfolios to other mutual funds or other types of investments. A Portfolio's
position in the spectrum was determined based on a number of factors such as
selected historic volatility measurements, the types of securities in which the
Portfolio intends to invest, the degree of diversification intended and/or
permitted, and the size of the Portfolio. In addition, the spectrum is
significantly affected by the portfolio managers' investment styles. These
factors were considered as of the date of this prospectus and will be reassessed
with each new prospectus. Increased volatility results in increased fluctuations
in a Portfolio's net asset value per share. Increased volatility may be
associated with a Portfolio that undertakes more risk in order to seek greater
returns. Specific risks of certain types of instruments in which some of the
Portfolios may invest, including foreign securities, junk bonds and derivative
instruments such as futures contracts and options, are described under
"Additional Risk Factors" on page 14. The spectrum is not indicative of the
future volatility or performance of a Portfolio and relative positions of
Portfolios within the spectrum may change.
[SPECTRUM CHART)
The spectrum illustrates the potential volatility of the Portfolios relative to
one another. The Portfolios' volatility ranges from low to high. The Growth
Portfolios are illustrated as follows: Growth Portfolio is shown as moderate;
Aggressive Growth Portfolio is shown as high; Capital Appreciation Portfolio* is
shown as high; International Growth Portfolio is shown as moderately-high;
Worldwide Growth Portfolio is shown as moderately-high (but less volatile than
International Growth Portfolio). The Combination Portfolios are illustrated as
follows: Balanced Portfolio is shown as moderate; Equity Income Portfolio* is
shown as moderate (but more volatile than Janus Balanced Fund). The Fixed-Income
Portfolios are illustrated as follows: Flexible Income Portfolio is shown as
low-moderate; High-Yield Portfolio is shown as moderate; Short-Term Bond
Portfolio is shown as low. Janus Money Market Fund is shown as low (but less
volatile than Janus Short-Term Bond Fund).
*These Portfolios commenced operations on May 1, 1997 and are offered by
separate prospectuses.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
2
<PAGE>
EXPENSE INFORMATION
The tables and example below are designed to assist participants in qualified
plans that invest in the Shares of the Portfolios in understanding the various
costs and expenses that you will bear directly or indirectly as an investor in
the Shares. OWNERS OF VARIABLE INSURANCE CONTRACTS THAT INVEST IN THE SHARES
SHOULD REFER TO THE VARIABLE INSURANCE CONTRACT PROSPECTUS FOR A DESCRIPTION OF
COSTS AND EXPENSES, AS THE TABLES AND EXAMPLE DO NOT REFLECT DEDUCTIONS AT THE
SEPARATE ACCOUNT LEVEL OR CONTRACT LEVEL FOR ANY CHARGES THAT MAY BE INCURRED
UNDER A CONTRACT.
SHAREHOLDER TRANSACTION EXPENSES (applicable to each Portfolio)
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales charges on redemptions None
Redemption fee None
Exchange fee None
ANNUAL OPERATING EXPENSES (after fee waivers and reductions)(1)
(expressed as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fee Other Expenses Total Operating Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio 0.65% 0.04% 0.69%
Aggressive Growth Portfolio 0.72% 0.04% 0.76%
International Growth Portfolio 0.05% 1.21% 1.26%
Worldwide Growth Portfolio 0.66% 0.14% 0.80%
Balanced Portfolio 0.79% 0.15% 0.94%
Flexible Income Portfolio 0.65% 0.19% 0.84%
High-Yield Portfolio 0.00% 1.01% 1.01%
Short-Term Bond Portfolio 0.47% 0.19% 0.66%
Money Market Portfolio 0.00% 0.50% 0.50%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fees and expenses in the table above are based on gross expenses of the
Shares before expense offset arrangements for the fiscal year ended
December 31, 1996. The information for each Portfolio other than the
Flexible Income Portfolio is net of fee waivers or reductions from Janus
Capital. Fee reductions for the Growth, Aggressive Growth, International
Growth, Worldwide Growth and Balanced Portfolios reduce the management fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Operating Expenses for the Shares would have been
0.79%, 0.04%, and 0.83% for Growth Portfolio; 0.79%, 0.04%, and 0.83% for
Aggressive Growth Portfolio; 1.00%, 1.21% and 2.21% for International
Growth Portfolio; 0.77%, 0.14% and 0.91% for Worldwide Growth Portfolio;
0.92%, 0.15% and 1.07% for Balanced Portfolio; 0.75%, 5.54% and 6.29% for
High-Yield Portfolio; 0.65%, 0.19% and 0.84% for Short-Term Bond Portfolio;
and 0.25%, 0.53% and 0.78% for Money Market Portfolio, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
EXAMPLE
You would indirectly pay the following expenses on a $1,000 investment, assuming
expense ratios remain as listed above and assuming a 5% annual return with or
without redemption at the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $7 $22 $38 $86
Aggressive Growth Portfolio $8 $24 $42 $94
International Growth Portfolio $13 $40 $69 $152
Worldwide Growth Portfolio $8 $26 $44 $99
Balanced Portfolio $10 $30 $52 $115
Flexible Income Portfolio $9 $27 $47 $104
High-Yield Portfolio $10 $32 $56 $124
Short-Term Bond Portfolio $7 $21 $37 $82
Money Market Portfolio $5 $16 $28 $63
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
3
<PAGE>
FINANCIAL HIGHLIGHTS
Unless otherwise noted, the information below is for fiscal periods ending on
December 31 of each year. The accounting firm of Price Waterhouse LLP has
audited the Portfolios' financial statements since their inception. Their report
is included in the Portfolios' Annual Report, which is incorporated by reference
into the SAI. A detailed explanation of the Financial Highlights can be found on
page 7.
<TABLE>
<CAPTION>
Growth Portfolio Aggressive Growth Portfolio
1996 1995 1994 1993(1) 1996 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Net asset value, beginning of period $13.45 $10.57 $10.32 $10.00 $17.08 $13.62 $11.80 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .17 .28 .09 .03 -- .24 .11 .01
3. Net gains or (losses) on securities
both realized and unrealized) 2.29 2.90 .20 .32 1.36 3.47 1.82 1.80
- ---------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations 2.46 3.18 .29 .35 1.36 3.71 1.93 1.81
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
5. Dividends (from net investment income) (.17) (.30) (.04) (.03) -- (.25) (.11) (.01)
6. Tax return of capital distributions -- -- -- -- (.01) -- -- --
7. Distributions (from capital gains) (.23) -- -- -- (.19) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.40) (.30) (.04) (.03) (.20) (.25) (.11) (.01)
- ---------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $15.51 $13.45 $10.57 $10.32 $18.24 $17.08 $13.62 $11.80
10. Total return* 18.45% 30.17% 2.76% 3.50% 7.95% 27.48% 16.33% 18.05%
11. Net assets, end of period
(in thousands) $325,789 $126,911 $43,549 $7,482 $383,693 $185,911 $41,289 $1,985
12. Ratio of gross expenses to
average net assets** 0.69%(7) 0.78%(6) N/A N/A 0.76%(7) 0.86%(6) N/A N/A
13. Ratio of net expenses to
average net assets** 0.69% 0.76% 0.88%(3)(5) 0.25%(4) 0.76% 0.84% 1.05%(3)(5) 0.25%(4)
14. Ratio of net investment income
to average net assets** 1.39% 1.24% 1.45% 2.54% (.27%) 0.58% 2.18% 0.34%
15. Portfolio turnover rate** 87% 185% 169% 162% 88% 155% 259% 31%
16. Average commission rate $0.0466 N/A N/A N/A $0.0347 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
International Growth Portfolio Worldwide Growth Portfolio
1996 1995 1994(2) 1996 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------------------------------
1. Net asset value, beginning of period $11.95 $9.72 $10.00 $15.31 $12.07 $11.89 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .05 .09 (.09) .16 .11 .04 .02
3. Net gains or (losses) on securities
(both realized and unrealized) 4.06 2.16 (.19) 4.27 3.19 .14 1.89
- ---------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations 4.11 2.25 (.28) 4.43 3.30 .18 1.91
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
5. Dividends (from net investment income) (.11) (.02) -- (.17) (.06) -- (.01)
6. Tax return of capital distributions -- -- -- -- -- -- (.01)
7. Distributions (from capital gains) (.23) -- -- (.13) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.34) (.02) -- (.30) (.06) -- (.02)
- ---------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $15.72 $11.95 $9.72 $19.44 $15.31 $12.07 $11.89
10. Total return* 34.71% 23.15% (2.80%) 29.04% 27.37% 1.53% 19.10%
11. Net assets, end of period
(in thousands) $27,192 $1,608 $1,353 $582,603 $108,563 $37,728 $4,856
12. Ratio of gross expenses to
average net assets** 1.26%(7) 2.69%(6) N/A 0.80%(7) 0.90%(6) N/A N/A
13. Ratio of net expenses to
average net assets** 1.25% 2.50% 2.50%(6) 0.80% 0.87% 1.18%(3)(5) 0.25%
(4)
14. Ratio of net investment
income to average net assets** 0.62% (0.80%) (1.30%) 0.83% 0.95% 0.50% 0.84%
15. Portfolio turnover rate** 65% 211% 275% 62% 113% 217% 57%
16. Average commission rate $0.0305 N/A N/A $0.0345 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one year.
** Annualized for periods of less than one full year.
(1) September 13, 1993 (inception) to December 31, 1993.
(2) May 2, 1994 (inception) to December 31, 1994.
(3) Commissions payable by the Portfolio for transactions effected by a
broker-dealer affiliated with Janus Capital were credited against the
Portfolio's operating expenses. The effect of such directed brokerage
arrangement was de minimis.
(4) The ratio was 2.16%, 5.79% and 2.71%, respectively, for the Growth,
Aggressive Growth and Worldwide Growth Portfolios, before waiver of certain
fees and/or voluntary reduction of advisor's fees to the effective rate of
the corresponding Janus retail fund.
(5) The ratio was 1.23%, 1.14%, 4.67% and 1.49%, respectively, for the Growth,
Aggressive Growth, International Growth and Worldwide Growth Portfolios,
before waiver of certain fees and/or voluntary reduction of advisor's fees
to the effective rate of the corresponding Janus retail fund.
(6) The ratio was 0.98%, 0.93%, 3.57% and 1.09%, respectively, for the Growth,
Aggressive Growth, International Growth and Worldwide Growth Portfolios,
before waiver of certain fees and/or voluntary reduction of advisor's fees
to the effective rate of the corresponding Janus retail fund.
(7) The ratio was 0.83%, 0.83%, 2.21% and 0.91%, respectively, for the Growth,
Aggressive Growth, International Growth and Worldwide Growth Portfolios,
before waiver of certain fees and/or voluntary reduction of advisor's fees
to the effective rate of the corresponding Janus retail fund.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
4
<PAGE>
<TABLE>
<CAPTION>
Balanced Portfolio Flexible Income Portfolio
1996 1995 1994 1993(1) 1996 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Net asset value, beginning of period $13.03 $10.63 $10.64 $10.00 $11.11 $9.48 $9.97 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .32 .17 .15 .08 .74 .53 .47 .11
3. Net gains or (losses) on securities
both realized and unrealized) 1.81 2.45 (.06) .64 .24 1.70 (.56) (.04)
- ---------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations 2.13 2.62 .09 .72 .98 2.23 (.09) .07
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
5. Dividends (from net investment income) (.30) (.22) (.10) (.08) (.72) (.60) (.40) (.10)
6. Tax return of capital distributions -- -- -- -- -- -- -- --
7. Distributions (from capital gains) (.09) -- -- -- (.13) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.39) (.22) (.10) (.08) (.85) (.60) (.40) (.10)
- ---------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $14.77 $13.03 $10.63 $10.64 $11.24 $11.11 $9.48 $9.97
10. Total return* 16.18% 24.79% 0.84% 7.20% 9.19% 23.86% (0.91%) 0.70%
11. Net assets, end of period
(in thousands) $85,480 $14,021 $3,153 $537 $25,315 $10,831 $1,924 $538
12. Ratio of gross expenses to
average net assets** 0.94%(6) 1.37%(5) N/A N/A 0.84% 1.07% N/A N/A
13. Ratio of net expenses to
average net assets** 0.92% 1.30% 1.57%(2)(4) 0.25%(3) 0.83% 1.00% 1.00%(4) 1.00%(3)
14. Ratio of net investment income to
average net assets** 2.92% 2.41% 1.90% 2.69% 7.31% 7.46% 5.49% 3.77%
15. Portfolio turnover rate** 103% 149% 158% 126% 250% 236% 234% 508%
16. Average commission rate $0.0426 N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one year.
** Annualized for periods of less than one full year.
(1) September 13, 1993 (inception) to December 31, 1993.
(2) Commissions payable by the Portfolio for transactions effected by a
broker-dealer affiliated with Janus Capital were credited against the
Portfolio's operating expenses. The effect of such directed brokerage
arrangement was de minimis.
(3) The ratio was 7.92% and 5.27%, respectively, for the Balanced and Flexible
Income Portfolios, before waiver of certain fees and/or voluntary reduction
of advisor's fees to the effective rate of the corresponding Janus retail
fund.
(4) The ratio was 1.74% and 1.35%, respectively, for the Balanced and Flexible
Income Portfolios, before waiver of certain fees and/or voluntary reduction
of advisor's fees to the effective rate of the corresponding Janus retail
fund.
(5) The ratio was 1.55% for the Balanced Portfolio, before waiver of certain
fees and/or voluntary reduction of advisor's fees to the effective rate of
the Janus Balanced Fund.
(6) The ratio was 1.07% for the Balanced Portfolio, before waiver of certain
fees and/or voluntary reduction of advisor's fees to the effective rate of
the Janus Balanced Fund.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
5
<PAGE>
<TABLE>
<CAPTION>
High-Yield Portfolio Short-Term Bond Portfolio
1996(5) 1996 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Net asset value, beginning of period $10.00 $10.03 $9.72 $9.93 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .43 .42 .60 .35 .11
3. Net gains or (losses) on securities
(both realized and unrealized) .80 (.03) .31 (.26) (.08)
- ---------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations 1.23 .39 .91 .09 .03
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
5. Dividends (from net investment income) (.40) (.44) (.60) (.30) (.10)
6. Tax return of capital distributions -- -- -- -- --
7. Distributions (from capital gains) -- (.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.40) (.45) (.60) (.30) (.10)
- ---------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $10.83 $9.97 $10.03 $9.72 $9.93
10. Total return* 12.40% 3.98% 9.54% 0.92% 0.30%
11. Net assets, end of period (in thousands) $783 $11,901 $3,187 $2,902 $502
12. Ratio of gross expenses to average net assets** 1.01%(6) 0.66%(7) 0.70%(4) N/A N/A
13. Ratio of net expenses to average net assets** 1.00% 0.65% 0.65% 0.65%(3)
0.65%(2)
14. Ratio of net investment income to average net assets** 5.74% 5.44% 6.02% 5.00% 3.57%
15. Portfolio turnover rate** 301% 416% 417% 256% 91%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one year.
** Annualized for periods of less than one full year.
(1) September 13, 1993 (inception) to December 31, 1993.
(2) The ratio was 5.33% for the Short-Term Bond Portfolio, before waiver of
certain fees and/or voluntary reduction of advisor's fees to the effective
rate of the Janus Short-Term Bond Fund.
(3) The ratio was 1.40% for the Short-Term Bond Portfolio, before waiver of
certain fees incurred by the Portfolio.
(4) The ratio was 1.37% for the Short-Term Bond Portfolio, before waiver of
certain fees incurred by the Portfolio. (5) May 1, 1996 (inception) to
December 31, 1996.
(6) The ratio was 6.29% before waiver of certain fees incurred by the
Portfolio.
(7) The ratio was 0.84% before waiver of certain fees incurred by the
Portfolio.
<TABLE>
<CAPTION>
Money Market Portfolio
1996 1995(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Net asset value, beginning of period $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .05 .04
3. Net gains or (losses) on securities (both realized and unrealized) -- --
- ---------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations .05 .04
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
5. Dividends (from net investment income) (.05) (.04)
6. Tax return of capital distributions -- --
- ---------------------------------------------------------------------------------------------------------------------------
7. Total distributions (.05) (.04)
- ---------------------------------------------------------------------------------------------------------------------------
8. Net asset value, end of period $1.00 $1.00
9. Total return* 5.05% 3.63%
10. Net assets, end of period (in thousands) $6,016 $1,735
11. Ratio of expenses to average net assets 0.50%(3) 0.50%(2)
12. Ratio of net investment income to average net assets** 4.93% 5.30%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one year.
** Annualized for periods of less than one full year.
(1) May 1, 1995 (inception) to December 31, 1995.
(2) The ratio was 1.07% before waiver of certain fees incurred by the
Portfolio.
(3) The ratio was 0.78% before waiver of certain fees incurred by the
Portfolio.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
6
<PAGE>
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
This section is designed to help you better understand the information
summarized in the Financial Highlights tables. The tables contain important
historical operating information that may be useful in making your investment
decision or understanding how your investment has performed. The Portfolios'
Annual Report contains additional information about each Portfolio's
performance, including a comparison to an appropriate securities index. To
request a copy of the Annual Report, please call or write your insurance
company.
Net asset value ("NAV") is the value of a single Share of a Portfolio. It is
computed by adding the value of all of a Portfolio's investments and other
assets, subtracting any liabilities and dividing the result by the number of
shares outstanding. The difference between line 1 and line 9 in the Financial
Highlights tables represents the change in value of a Share of a Portfolio over
the fiscal period, but not its total return. The NAV of the Money Market
Portfolio's Shares is expected to be $1.00.
Net investment income is the per share amount of dividends and interest income
earned on securities held by a Portfolio, less Portfolio expenses. Dividends
(from net investment income) are the per share amount that a Portfolio paid from
net investment income.
Net gains or (losses) on securities is the per share increase or decrease in
value of the securities a Portfolio holds. A gain (or loss) is realized when
securities are sold. A gain (or loss) is unrealized when securities increase or
decrease in value but are not sold. Distributions (from capital gains) are the
per share amount that a Portfolio paid from net realized gains.
Total Return is the percentage increase or decrease in the value of an
investment over a stated period of time. A total return percentage includes both
changes in NAV and income. For the purposes of calculating total return, it is
assumed that dividends and distributions are reinvested at the NAV on the day of
the distribution. A PORTFOLIO'S TOTAL RETURN CANNOT BE COMPUTED DIRECTLY FROM
THE FINANCIAL HIGHLIGHTS TABLES.
Ratio of net expenses to average net assets is the total of a Portfolio's
operating expenses divided by its average net assets for the stated period.
Ratio of gross expenses to average net assets does not reflect reductions in
expenses through the use of brokerage commissions and uninvested cash balances
earning interest with the Portfolio's custodian.
Ratio of net investment income to average net assets is a Portfolio's net
investment income divided by its average net assets for the stated period.
Portfolio turnover rate is a measure of the amount of a Portfolio's buying and
selling activity. It is computed by dividing total purchases or sales, whichever
is less, by the average monthly market value of a Portfolio's securities. The
Money Market Portfolio does not calculate portfolio turnover.
Average commission rate is the total of a Portfolio's agency commission paid on
equity securities trades divided by the number of shares purchased and sold.
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
This section will help you understand various terms that are commonly used to
describe a Portfolio's performance. You may see references to these terms in our
newsletters or advertisements (or those published by participating insurance
companies) and in media articles. Newsletters and advertisements may include
comparisons of a Portfolio's performance to the performance of other mutual
funds, mutual fund averages or recognized stock market indices. Growth
Portfolio, Aggressive Growth Portfolio, International Growth Portfolio,
Worldwide Growth Portfolio and Balanced Portfolio generally measure performance
in terms of total return, while Flexible Income Portfolio, High-Yield Portfolio,
Short-Term Bond Portfolio and Money Market Portfolio generally use yield.
Cumulative total return represents the actual rate of return on an investment
for a specified period. The Financial Highlights tables show total return for a
single fiscal period. Cumulative total return is generally quoted for more than
one year (e.g., the life of a Portfolio). A cumulative total return does not
show interim fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the cumulative
total return for the stated period and determining what constant annual return
would have produced the same cumulative return. Average annual returns for more
than one year tend to smooth out variations in a Portfolio's return and are not
the same as actual annual results.
Yield shows the rate of income the Shares earn on investments as a percentage of
the Share price. It is calculated by dividing net investment income for a 30-day
period (7-day period for the Money Market Portfolio) by the average number of
Shares entitled to receive dividends and dividing the result by the Share's NAV
per share at the end of the 30-day period. Yield does not include changes in
NAV.
Yields are calculated according to standardized SEC formulas and may not equal
the income on an investor's account. Yield is usually quoted on an annualized
basis. An annualized yield represents the amount you would earn if you remained
in a Portfolio for a year and the Shares of that Portfolio continued to have the
same yield for the entire year.
Effective yield is similar to yield in that it is calculated over the same time
frame, but instead the net investment income is compounded and then annualized.
Due to the compounding effect, the effective yield will normally be higher than
the yield.
THE PORTFOLIOS IMPOSE NO SALES OR OTHER CHARGES THAT WOULD AFFECT TOTAL RETURN
OR YIELD COMPUTATIONS. YIELD AND TOTAL RETURN FIGURES OF THE PORTFOLIOS INCLUDE
THE EFFECT OF DEDUCTING EACH PORTFOLIO'S EXPENSES, BUT MAY NOT INCLUDE CHARGES
AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. PORTFOLIO
PERFORMANCE FIGURES ARE BASED UPON HISTORICAL RESULTS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. INVESTMENT RETURNS AND NET ASSET VALUE WILL
FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
7
<PAGE>
THE PORTFOLIOS IN DETAIL
This section takes a closer look at the Portfolios' investment objectives,
policies and the securities in which they invest. Please carefully review the
"Additional Risk Factors" section of this Prospectus for a more detailed
discussion of the risks associated with certain investment techniques as well as
the risk spectrum on page 2. Appendix A contains a more detailed description of
investment terms used throughout this Prospectus. You should carefully consider
your investment goals, time horizon and risk tolerance before choosing a
Portfolio.
Each Portfolio has an investment objective and policies that are similar to
those of a Janus retail fund, as illustrated in the chart below. Although it is
anticipated that each Portfolio and its corresponding retail fund will hold
similar securities, differences in asset size and cash flow needs as well as the
relative weightings of securities selections may result in differences in
investment performance. Expenses of each Portfolio and its corresponding retail
fund are expected to differ. The variable contract owner will also bear various
insurance-related costs at the insurance company level. You should review the
accompanying separate account prospectus for a summary of contract fees and
expenses.
Policies that are noted as "fundamental" cannot be changed without a shareholder
vote. All other policies, including each Portfolio's investment objective, are
not fundamental and may be changed by the Portfolios' Trustees without a
shareholder vote. You will be notified of any such changes that are material. If
there is a material change in a Portfolio's objective or policies, you should
consider whether that Portfolio remains an appropriate investment for your
variable insurance contract or qualified retirement plan.
- --------------------------------------------------------------------------------
EACH OF THE PORTFOLIOS HAS A SIMILAR INVESTMENT OBJECTIVE AND SIMILAR INVESTMENT
POLICIES TO AN EXISTING JANUS RETAIL FUND.
Growth Portfolio .....................................................Janus Fund
Aggressive Growth Portfolio ...............................Janus Enterprise Fund
International Growth Portfolio ..............................Janus Overseas Fund
Worldwide Growth Portfolio .................................Janus Worldwide Fund
Balanced Portfolio ..........................................Janus Balanced Fund
Flexible Income Portfolio ............................Janus Flexible Income Fund
High-Yield Portfolio ......................................Janus High-Yield Fund
Short-Term Bond Portfolio ............................Janus Short-Term Bond Fund
Money Market Portfolio ..................................Janus Money Market Fund
GROWTH PORTFOLIO, AGGRESSIVE GROWTH PORTFOLIO, INTERNATIONAL GROWTH PORTFOLIO
AND WORLDWIDE GROWTH PORTFOLIO ARE DESIGNED FOR LONG-TERM INVESTORS WHO SEEK
GROWTH OF CAPITAL ONLY AND WHO CAN TOLERATE THE GREATER RISKS ASSOCIATED WITH
COMMON STOCK INVESTMENTS.
GROWTH PORTFOLIOS
Investment Objective: .........................................Growth of Capital
Primary Holdings: .................................................Common Stocks
Shareholder's Investment Horizon: .....................................Long-Term
GROWTH PORTFOLIO
The investment objective of this Portfolio is long-term growth of capital in a
manner consistent with the preservation of capital. It is a diversified
portfolio that pursues its objective by investing in common stocks of issuers of
any size. This Portfolio generally invests in larger, more established issuers.
AGGRESSIVE GROWTH PORTFOLIO
The investment objective of this Portfolio is long-term growth of capital. It is
a nondiversified portfolio that pursues its investment objective by normally
investing at least 50% of its equity assets in securities issued by medium-sized
companies. Medium-sized companies are those whose market capitalizations fall
within the range of companies in the S&P MidCap 400 Index (the "MidCap Index").
Companies whose capitalization falls outside this range after the Portfolio's
initial purchase continue to be considered medium-sized companies for the
purpose of this policy. As of December 30, 1996, the MidCap Index included
companies with capitalizations between approximately $192 million to $6.5
billion. The range of the MidCap Index is expected to change on a regular basis.
Subject to the above policy, the Portfolio may also invest in smaller or larger
issuers.
INTERNATIONAL GROWTH PORTFOLIO
The investment objective of this Portfolio is long-term growth of capital. It is
a diversified portfolio that pursues its objective primarily through investments
in common stocks of issuers located outside the United States. The Portfolio has
the flexibility to invest on a worldwide basis in companies and other
organizations of any size, regardless of country of organization or place of
principal business activity. The Portfolio normally invests at least 65% of its
total assets in securities of issuers from at least five different countries,
excluding the United States. Although the Portfolio intends to invest
substantially all of its assets in issuers located outside the United States, it
may at times invest in U.S. issuers, and it may at times invest all of its
assets in fewer than five countries or even a single country.
WORLDWIDE GROWTH PORTFOLIO
The investment objective of this Portfolio is long-term growth of capital in a
manner consistent with the preservation of capital. It is a diversified
portfolio that pursues its objective primarily through investments in common
stocks of foreign and domestic issuers. The Portfolio has the flexibility to
invest on a worldwide basis in companies and other organizations of any size,
regardless of country of organization or place of principal business activity.
Worldwide Growth Portfolio normally invests in issuers from at least five
different countries, including the United States. The Portfolio may at times
invest in fewer than five countries or even a single country.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
8
<PAGE>
TYPES OF INVESTMENTS
Each of these Portfolios invests primarily in common stocks of foreign and
domestic companies. However, the percentage of each Portfolio's assets invested
in common stocks will vary and each Portfolio may at times hold substantial
positions in cash equivalents or interest bearing securities. See "General
Portfolio Policies" on page 13. Each Portfolio may invest to a lesser degree in
other types of securities including preferred stocks, warrants, convertible
securities and debt securities when its portfolio manager perceives an
opportunity for capital growth from such securities or to receive a return on
idle cash. Some securities that the Portfolios purchase may be on a when-issued,
delayed delivery or forward commitment basis. The Portfolios may invest up to
25% of their assets in mortgage- and asset-backed securities, up to 10% of their
assets in zero coupon, pay-in-kind and step coupon securities, and without limit
in indexed/structured securities. No Growth Portfolio will invest 35% or more of
its assets in high-yield/high-risk securities.
Although Worldwide Growth Portfolio and International Growth Portfolio are
committed to foreign investing, Growth Portfolio and Aggressive Growth Portfolio
may also invest without limit in foreign equity and debt securities. The
Portfolios may invest directly in foreign securities denominated in a foreign
currency and not publicly traded in the United States. Other ways of investing
in foreign securities include depositary receipts or shares, and passive foreign
investment companies ("PFICs"). These Portfolios may use futures, options and
other derivatives for hedging purposes or for non-hedging purposes such as
seeking to enhance return. See "Additional Risk Factors" on page 14 for a
discussion of the risks associated with foreign investing and derivatives.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN GROWTH PORTFOLIO, AGGRESSIVE GROWTH PORTFOLIO, INTERNATIONAL GROWTH PORTFOLIO
OR WORLDWIDE GROWTH PORTFOLIO.
HOW ARE COMMON STOCKS SELECTED?
Each of these Portfolios invests substantially all of its assets in common
stocks to the extent its portfolio manager believes that the relevant market
environment favors profitable investing in those securities. Portfolio managers
generally take a "bottom up" approach to building their portfolios. In other
words, they seek to identify individual companies with earnings growth potential
that may not be recognized by the market at large. Although themes may emerge in
any Portfolio, securities are generally selected without regard to any defined
industry sector or other similarly defined selection procedure. Realization of
income is not a significant investment consideration. Any income realized on
these Portfolios' investments will be incidental to its objective.
- --------------------------------------------------------------------------------
ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. Portfolio managers seek companies that meet their selection
criteria, regardless of country of organization or place of principal business
activity. Foreign securities are generally selected on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
However, certain factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign
securities. See "Additional Risk Factors" on page 14.
- --------------------------------------------------------------------------------
WHAT IS THE MAIN RISK OF INVESTING IN A COMMON STOCK FUND?
The fundamental risk associated with any common stock fund is the risk that the
value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative. See "Additional Risk Factors" on page 14.
WHAT IS MEANT BY "MARKET CAPITALIZATION"?
Market capitalization is the most commonly used measure of the size and value of
a company. It is computed by multiplying the current market price of a share of
the company's stock by the total number of its shares outstanding. As noted
previously, market capitalization is an important investment criteria for
Aggressive Growth Portfolio which may invest in small to medium sized companies
to a greater degree. Although Growth Portfolio, International Growth Portfolio
and Worldwide Growth Portfolio do not emphasize companies of any particular
size, Portfolios with a larger asset base are more likely to invest in larger,
more-established issuers.
- --------------------------------------------------------------------------------
HOW DOES A DIVERSIFIED PORTFOLIO DIFFER FROM A NONDIVERSIFIED PORTFOLIO?
Diversification is a means of reducing risk by investing a Portfolio's assets in
a broad range of stocks or other securities. A "nondiversified" portfolio has
the ability to take larger positions in a smaller number of issuers. Because the
appreciation or depreciation of a single stock may have a greater impact on the
NAV of a nondiversified portfolio, its share price can be expected to fluctuate
more than a comparable diversified portfolio. Aggressive Growth Portfolio is a
nondiversified portfolio.
- --------------------------------------------------------------------------------
HOW DO THESE PORTFOLIOS TRY TO REDUCE RISK?
Diversification of a Portfolio's assets reduces the effect of any single holding
on its overall portfolio value. A Portfolio may also use futures, options and
other derivative instruments to protect its portfolio from movements in
securities' prices and interest rates. The Portfolios may use a variety of
currency hedging techniques, including forward currency contracts, to manage
exchange rate risk when investing directly in foreign markets. See "Additional
Risk Factors" on page 14. In addition, to the extent that a Portfolio holds a
larger cash position, it may not participate in market declines to the same
extent as if the Portfolio remained more fully invested in common stocks.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
9
<PAGE>
BALANCED PORTFOLIO IS DESIGNED FOR INVESTORS WHO PRIMARILY SEEK GROWTH OF
CAPITAL WITH A DEGREE OF EMPHASIS ON INCOME. IT IS NOT DESIGNED FOR INVESTORS
WHO DESIRE A CONSISTENT LEVEL OF INCOME.
COMBINATION PORTFOLIO
Investment Objective: ................Growth of Capital; Some Emphasis on Income
Primary Holdings: .................Common Stocks and Income-Producing Securities
Shareholder's Investment Horizon: .....................................Long-Term
BALANCED PORTFOLIO
The investment objective of this Portfolio is long-term capital growth,
consistent with preservation of capital and balanced by current income. It is a
diversified portfolio that, under normal circumstances, pursues its objective by
investing 40-60% of its assets in securities selected primarily for their growth
potential and 40-60% of its assets in securities selected primarily for their
income potential. This Portfolio normally invests at least 25% of its assets in
fixed-income senior securities, which include debt securities and preferred
stocks.
TYPES OF INVESTMENTS
Balanced Portfolio may invest in the types of investments previously described
on page 9. The Portfolio may also invest in the types of income-producing
securities described below for Flexible Income Portfolio except that its
investments in high-yield/high-risk securities will not exceed 35% of net assets
and investments in mortgage- and asset-backed securities will not exceed 25% of
assets.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN BALANCED PORTFOLIO.
HOW ARE ASSETS ALLOCATED BETWEEN THE GROWTH AND INCOME COMPONENTS OF BALANCED
PORTFOLIO?
Balanced Portfolio may invest in a combination of common stocks, preferred
stocks, convertible securities, debt securities and other fixed-income
securities. Balanced Portfolio may shift assets between the growth and income
components of its portfolio based on its portfolio manager's analysis of
relevant market, financial and economic conditions. If the portfolio manager
believes that growth securities will provide better returns than the yields then
available or expected on income-producing securities, then the Portfolio will
place a greater emphasis on the growth component.
WHAT TYPES OF SECURITIES MAKE UP THE GROWTH COMPONENT OF BALANCED PORTFOLIO?
The growth component of Balanced Portfolio is expected to consist primarily of
common stocks. The selection criteria for common stocks are described on page 9.
Because income is a part of the investment objective of Balanced Portfolio, the
portfolio manager may consider dividend-paying characteristics to a greater
degree in selecting equity securities. Balanced Portfolio may also find
opportunities for capital growth from debt securities because of anticipated
changes in interest rates, credit standing, currency relationships or other
factors.
- --------------------------------------------------------------------------------
WHAT TYPES OF SECURITIES MAKE UP THE INCOME COMPONENT OF BALANCED PORTFOLIO?
The income component of the Balanced Portfolio will consist of securities that
the portfolio manager believes have income potential. Such securities may
include equity securities, convertible securities and all types of debt
securities. Equity securities may be included in the income component of the
Balanced Portfolio if they currently pay dividends or a portfolio manager
believes they have the potential for either increasing their dividends or
commencing dividends, if none are currently paid. Investors in the Balanced
Portfolio should keep in mind that the Portfolio is not designed to produce a
consistent level of income.
- --------------------------------------------------------------------------------
FLEXIBLE INCOME PORTFOLIO, HIGH-YIELD PORTFOLIO AND SHORT-TERM BOND PORTFOLIO
ARE DESIGNED FOR THOSE INVESTORS WHO PRIMARILY SEEK CURRENT INCOME.
FIXED-INCOME PORTFOLIOS
Investment Objective:
Flexible Income Portfolio ........................................Total Return
Others .................................................................Income
Primary Holdings: ...................................Income-Producing Securities
Shareholder's Investment Horizon:
Short-Term Bond Portfolio ........................ Short- to Intermediate-Term
Others .............................................Intermediate- to Long-Term
FLEXIBLE INCOME PORTFOLIO
The investment objective of this Portfolio is to obtain maximum total return,
consistent with preservation of capital. The Portfolio pursues its objective
primarily through investments in income-producing securities. Total return is
expected to result from a combination of current income and capital
appreciation, although income will normally be the dominant component of total
return. As a fundamental policy, this Portfolio will invest at least 80% of its
assets in income-producing securities.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
10
<PAGE>
Flexible Income Portfolio may invest in a wide variety of income-producing
securities including corporate bonds and notes, government securities,
index/structured securities, preferred stock, income-producing common stocks,
debt securities that are convertible or exchangeable into equity securities, and
debt securities that carry with them the right to acquire equity securities as
evidenced by warrants attached to or acquired with the securities. The Portfolio
may invest to a lesser degree in common stocks, other equity securities or debt
securities that are not currently paying dividends or interest. The Portfolio
may purchase securities of any maturity and quality and the average maturity and
quality of its portfolio may vary substantially.
Flexible Income Portfolio may invest without limit in foreign securities,
including those of corporate and government issuers. The Portfolio may invest
without limit in high-yield/high-risk securities and may have substantial
holdings of such securities. The Portfolio may invest without limit in mortgage-
and asset-backed securities and up to 10% of its assets in zero coupon,
pay-in-kind and step coupon securities. The risks of foreign securities and
high-yield securities are described under "Additional Risk Factors" on page 14.
The Portfolio may purchase defaulted debt securities if, in the opinion of Janus
Capital it appears likely that the issuer may resume interest payments or other
advantageous developments appear likely in the near term. Defaulted debt
securities may be illiquid and subject to the Portfolio's limit on illiquid
investments.
HIGH-YIELD PORTFOLIO
The primary investment objective of this Portfolio is to obtain high current
income. Capital appreciation is a secondary objective when consistent with its
primary objective. Capital appreciation may result, for example, from an
improvement in the credit standing of an issuer whose securities are held by
this Portfolio or from a general lowering of interest rates, or both. This
Portfolio pursues its objectives by investing primarily in high-yield/high-risk
fixed-income securities. This Portfolio will normally invest at least 65% of its
total assets in those securities. In addition, the Portfolio may invest in all
of the types of securities previously described under Flexible Income Portfolio
(except it may invest without limit in zero coupon, pay-in-kind and step coupon
securities).
The high yields sought by this Portfolio are expected to result primarily from
investments in longer-term, lower quality corporate bonds, commonly referred to
as "junk" bonds. This Portfolio considers lower quality securities to be
securities rated below investment grade by established rating agencies or
unrated securities of comparable quality. 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") are below investment grade. Lower
quality securities are often considered to be more speculative and involve
greater risk of default or price changes due to changes in interest rates,
economic conditions and the issuer's credit-worthiness. As a result, their
market prices tend to fluctuate more than higher quality securities of
comparable maturity. Additional risks of lower quality securities are described
under "Additional Risk Factors" on page 14.
SHORT-TERM BOND PORTFOLIO
The investment objective of this Portfolio is to seek as high a level of current
income as is consistent with preservation of capital. The Portfolio pursues its
objective by investing primarily in short- and intermediate-term fixed-income
securities. Under normal circumstances, it is expected that this Portfolio's
dollar-weighted average portfolio effective maturity will not exceed three
years.
Effective maturity is the weighted average period over which a security's
principal is expected to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call provisions.
Targeting effective maturity provides additional flexibility in portfolio
management but, all else being equal, could result in higher volatility than a
fund targeting a stated maturity or maturity range. See the question and answer
section below for a more detailed discussion of the Portfolio's maturity policy.
Short-Term Bond Portfolio will normally invest at least 65% of its assets in
debt securities. Subject to this policy and subject to its maturity limits, the
Portfolio may invest in the types of securities previously described under
Flexible Income Portfolio except that the Portfolio will invest less than 35% of
its net assets in high-yield/ high-risk securities and its investments in
mortgage- and asset-backed securities will not exceed 25% of assets.
TYPES OF INVESTMENTS
Each Portfolio may purchase securities on a when-issued, delayed delivery or
forward commitment basis. In addition, each Portfolio may use futures, options
and other derivatives for hedging purposes or for non-hedging purposes such as
seeking to enhance return. See "Additional Risk Factors" on page 14. When its
portfolio manager is unable to locate investment opportunities with favorable
risk/reward characteristics, the cash position of any Portfolio may increase and
the Portfolio may have substantial holdings of cash or cash equivalent
short-term obligations. See "General Portfolio Policies" on page 13.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN FLEXIBLE INCOME PORTFOLIO, HIGH-YIELD PORTFOLIO OR SHORT-TERM BOND PORTFOLIO.
HOW DO INTEREST RATES AFFECT THE VALUE OF MY INVESTMENT?
A fundamental risk associated with any fund that invests in fixed-income
securities (e.g., a bond fund) is the risk that the value of the securities it
holds will rise or fall as interest rates change. Generally, a fixed-income
security will increase in value when interest rates fall and decrease in value
when interest rates rise. Longer-term securities are generally more sensitive to
interest rate changes than shorter-term securities, but they generally offer
higher yields to compensate investors for the associated risks. A bond fund's
average-weighted maturity and its duration are measures of how the portfolio may
react to interest rate changes. High-yield bond prices are generally less
directly responsive to rate changes than investment grade issues and may not
always follow this pattern.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
11
<PAGE>
WHAT IS MEANT BY A PORTFOLIO'S "AVERAGE-WEIGHTED EFFECTIVE MATURITY"?
The stated maturity of a bond is the date when the issuer must repay the bond's
entire principal value to an investor, such as a Portfolio. Some types of bonds,
such as mortgage-backed securities and securities with call provisions, may also
have an "effective maturity" that is shorter than the stated date. With respect
to GNMA securities and other mortgage-backed securities, effective maturity is
likely to be substantially less than the stated maturities of the mortgages in
the underlying pools. With respect to obligations with call provisions,
effective maturity is typically the next call date on which the obligation
reasonably may be expected to be called. Securities without prepayment or call
provisions generally have an effective maturity equal to their stated maturity.
Dollar-weighted effective maturity is calculated by averaging the effective
maturity of bonds held by a Portfolio with each effective maturity "weighted"
according to the percentage of net assets that it represents.
- --------------------------------------------------------------------------------
WHAT IS MEANT BY A PORTFOLIO'S "DURATION"?
A bond's duration indicates the time it will take an investor to recoup his or
her investment. Unlike average maturity, duration reflects both principal and
interest payments. Generally, the higher the coupon rate on a bond, the lower
its duration will be. The duration of a bond fund is calculated by averaging the
duration of bonds held by a Portfolio with each duration "weighted" according to
the percentage of net assets that it represents. Because duration accounts for
interest payments, a Portfolio's duration is usually shorter than its average
maturity.
- --------------------------------------------------------------------------------
HOW DO FLEXIBLE INCOME PORTFOLIO, HIGH-YIELD PORTFOLIO AND SHORT-TERM BOND
PORTFOLIO MANAGE INTEREST RATE RISK?
Each of these Portfolios may vary the average-weighted effective maturity of its
portfolio to reflect its portfolio manager's analysis of interest rate trends
and other factors. A Portfolio's average-weighted effective maturity will tend
to be shorter when its portfolio manager expects interest rates to rise and
longer when its portfolio manager expects interest rates to fall. The Portfolios
may also use futures, options and other derivatives to manage interest rate
risk. See "Additional Risk Factors" on page 14.
Primary Interest Rate
Investment Type Credit Risk Risk
- --------------------------------------------------------------------------------
Flexible Income Portfolio Corporate Bonds High High
High-Yield Portfolio Corporate Bonds Highest Moderate
Short-Term Bond Portfolio Corporate Bonds Moderate Low
- --------------------------------------------------------------------------------
WHAT IS MEANT BY "CREDIT QUALITY"?
Credit quality measures the likelihood that the issuer will meet its obligations
on a bond. One of the fundamental risks associated with all fixed-income funds
is credit risk, which is the risk that an issuer will be unable to make
principal and interest payments when due. U.S. government securities are
generally considered to be the safest type of investment in terms of credit
risk. Municipal obligations generally rank between U.S. government securities
and corporate debt securities in terms of credit safety. Corporate debt
securities, particularly those rated below investment grade, present the highest
credit risk.
- --------------------------------------------------------------------------------
HOW IS CREDIT QUALITY MEASURED?
Ratings published by nationally recognized rating agencies such as Standard &
Poor's and Moody's are widely accepted measures of credit risk. The lower a bond
issue is rated by an agency, the more credit risk it is considered to represent.
Lower rated bonds generally pay higher yields to compensate investors for the
associated risk. Please refer to Appendix B for a description of rating
categories.
- --------------------------------------------------------------------------------
WHAT IS A HIGH-YIELD/ HIGH-RISK SECURITY?
A high-yield security (also called a "junk" bond) is a debt security rated below
investment grade by major rating agencies (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's) or an unrated bond of similar quality. It
presents greater risk of default (the failure to make timely interest and
principal payments) than higher quality bonds.
- --------------------------------------------------------------------------------
WHAT RISKS DO HIGH-YIELD/ HIGH-RISK SECURITIES PRESENT?
High-yield securities are often considered to be more speculative and involve
greater risk of default or price changes due to changes in economic and industry
conditions and the issuer's creditworthiness. Their market prices tend to
fluctuate more than higher quality securities as a result of changes in these
factors.
The default rate of lower quality debt securities is likely to be higher when
issuers have difficulty meeting projected goals or obtaining additional
financing. This could occur during economic recessions or periods of high
interest rates. In addition, there may be a smaller market for lower quality
securities than for higher quality securities, making lower quality securities
more difficult to sell promptly at an acceptable price.
The junk bond market can experience sudden and sharp price swings. Because
Flexible Income Portfolio and High-Yield Portfolio may invest a significant
portion of their portfolios in high-yield/high-risk securities, investors in
such Portfolios should be willing to tolerate a corresponding increase in the
risk of significant and sudden changes in NAV.
- --------------------------------------------------------------------------------
HOW DO FLEXIBLE INCOME PORTFOLIO, HIGH-YIELD PORTFOLIO AND SHORT-TERM BOND
PORTFOLIO DIFFER FROM EACH OTHER?
The chart above shows that the Portfolios differ substantially in terms of the
type,
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
12
<PAGE>
credit quality and interest rate risk of the securities in which they
invest.
GENERAL PORTFOLIO POLICIES OF THE PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
Unless otherwise stated, each of the following policies applies to all of the
Portfolios other than the Money Market Portfolio. The percentage limitations
included in these policies and elsewhere in this Prospectus apply only at the
time of purchase of the security. For example, if a Portfolio exceeds a limit as
a result of market fluctuations or the sale of other securities, it will not be
required to dispose of any securities.
CASH POSITION
When a Portfolio's manager believes that market conditions are not favorable for
profitable investing or when the portfolio manager is otherwise unable to locate
favorable investment opportunities, a Portfolio's investments may be hedged to a
greater degree and/or its cash or similar investments may increase. In other
words, the Portfolios do not always stay fully invested in stocks and bonds.
Cash or similar investments are a residual - they represent the assets that
remain after a portfolio manager has committed available assets to desirable
investment opportunities. Partly because the portfolio managers act
independently of each other, the cash positions of the Portfolios may vary
significantly. Larger hedged positions and/or larger cash positions may serve as
a means of preserving capital in unfavorable market conditions.
Securities that the Portfolios may invest in as means of receiving a return on
idle cash include high-grade commercial paper, certificates of deposit,
repurchase agreements or other short-term debt obligations. The Portfolios may
also invest in money market funds (including funds managed by Janus Capital).
When a Portfolio's investments in cash or similar investments increase, a
Portfolio may not participate in stock or bond market advances or declines to
the same extent that it would if the Portfolio remained more fully invested in
stocks or bonds.
DIVERSIFICATION
The Investment Company Act of 1940 (the "1940 Act") classifies investment
companies as either diversified or nondiversified. All of the Portfolios (except
Aggressive Growth Portfolio) qualify as diversified funds under the 1940 Act.
The Portfolios are subject to the following diversification requirements:
o As a fundamental policy, no Portfolio may own more than 10% of the
outstanding voting shares of any issuer.
o As a fundamental policy, with respect to 50% of the total assets of
Aggressive Growth Portfolio and 75% of the total assets of the other
Portfolios, no Portfolio will purchase a security of any issuer (other than
cash items and U.S. government securities, as defined in the 1940 Act) if
such purchase would cause a Portfolio's holdings of that issuer to amount
to more than 5% of that Portfolio's total assets.
o No Portfolio will invest more than 25% of its total assets in a single
issuer (other than U.S. government securities).
o Aggressive Growth Portfolio reserves the right to become a diversified
portfolio by limiting the investments in which more than 5% of its total
net assets are invested.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS
In addition to the diversification requirements stated above, each Portfolio
intends to comply with the diversification requirements currently imposed by the
IRS on separate accounts of insurance companies as a condition of maintaining
the tax-deferred status of variable contracts. More specific information may be
contained in the participating insurance company's separate account prospectus.
INDUSTRY CONCENTRATION
As a fundamental policy, no Portfolio will invest 25% or more of its total
assets in any particular industry (excluding U.S. government securities).
PORTFOLIO TURNOVER
Each Portfolio generally intends to purchase securities for long-term investment
rather than short-term gains. However, short-term transactions may result from
liquidity needs, securities having reached a price or yield objective, changes
in interest rates or the credit standing of an issuer, or by reason of economic
or other developments not foreseen at the time of the initial investment
decision. Changes are made in a Portfolio whenever its portfolio manager
believes such changes are desirable. Portfolio turnover rates are generally not
a factor in making buy and sell decisions.
To a limited extent, a Portfolio may purchase securities in anticipation of
relatively short-term price gains. A Portfolio may also sell one security and
simultaneously purchase the same or comparable security to take advantage of
short-term differentials in bond yields or securities prices. Increased
portfolio turnover may result in higher costs for brokerage commissions, dealer
mark-ups and other transaction costs and may also result in taxable capital
gains. Certain tax rules may restrict the Portfolios' ability to engage in
short-term trading if a security has been held for less than three months.
ILLIQUID INVESTMENTS
Each Portfolio may invest up to 15% of its net assets in illiquid investments,
including restricted securities or private placements that are not deemed to be
liquid by Janus Capital. An illiquid investment is a security or other position
that cannot be disposed of quickly in the normal course of business. Some
securities cannot be sold to the U.S. public because of their terms or because
of SEC regulations. Janus Capital will follow guidelines established by the
Trustees of the Trust ("Trustees") in making liquidity determinations for Rule
144A securities and other securities, including privately placed commercial
paper and municipal lease obligations.
BORROWING AND LENDING
Each Portfolio may borrow money and lend securities or other assets, as follows:
o Each Portfolio may borrow money for temporary or emergency purposes in
amounts up to 25% of its total assets.
o Each Portfolio may mortgage or pledge securities as security for borrowings
in amounts up to 15% of its net assets.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
13
<PAGE>
o As a fundamental policy, each Portfolio may lend securities or other assets
if, as a result, no more than 25% of its total assets would be lent to
other parties.
Each Portfolio intends to seek permission from the SEC to borrow money from or
lend money to each other and 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 percentage limits. There is no assurance that such
permission will be granted.
ADDITIONAL RISK FACTORS OF THE PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
MAY INVOLVE GREATER RISKS THAN INVESTING IN COMPARABLE DOMESTIC SECURITIES.
Securities of some foreign companies and governments may be traded in the United
States, but many foreign securities are traded primarily in foreign markets. The
risks of foreign investing include:
o Currency Risk. A Portfolio may buy the local currency when it buys a
foreign currency denominated security and sell the local currency when it
sells the security. As long as a Portfolio holds a foreign security, its
value will be affected by the value of the local currency relative to the
U.S. dollar. When a Portfolio sells a foreign denominated security, its
value may be worth less in U.S. dollars even though the security increases
in value in its home country. U.S. dollar denominated securities of foreign
issuers may also be affected by currency risk.
o Political and Economic Risk. Foreign investments may be subject to
heightened political and economic risks, particularly in underdeveloped or
developing countries which may have relatively unstable governments and
economies based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations of a
company or that the government may impose taxes or limits on the removal of
a Portfolio's assets from that country. The Portfolios may invest in
emerging market countries. Emerging market countries involve greater risks
such as immature economic structures, national policies restricting
investments by foreigners, and different legal systems.
o Regulatory Risk. There may be less government supervision of foreign
markets. Foreign issuers may not be subject to the uniform accounting,
auditing and financial reporting standards and practices applicable to
domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers.
o Market Risk. Foreign securities markets, particularly those of
underdeveloped or developing countries, may be less liquid and more
volatile than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in settling
securities transactions. In some foreign markets, there may not be
protection against failure by other parties to complete transactions. There
may be limited legal recourse against an issuer in the event of a default
on a debt instrument.
o Transaction Costs. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody costs, are generally
higher than those involved in domestic transactions.
Foreign securities purchased indirectly (e.g., depositary receipts) are subject
to many of the above risks, including currency risk, because their values depend
on the performance of a foreign security denominated in its home currency.
INVESTMENTS IN SMALLER COMPANIES
SMALLER OR NEWER COMPANIES MAY SUFFER MORE SIGNIFICANT LOSSES AS WELL AS REALIZE
MORE SUBSTANTIAL GROWTH THAN LARGER OR MORE ESTABLISHED ISSUERS.
Smaller or newer companies may lack depth of management, they may be unable to
generate funds necessary for growth or potential development, or they may be
developing or marketing new products or services for which markets are not yet
established and may never become established. In addition, such companies may be
insignificant factors in their industries and may be subject to intense
competition from larger or more established companies. Securities of smaller or
newer companies may have more limited trading markets than the markets for
securities of larger or more established issuers, and may be subject to wider
price fluctuations. Investments in such companies tend to be more volatile and
somewhat more speculative.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Each Portfolio may enter into futures contracts on securities, financial indices
and foreign currencies and options on such contracts ("futures contracts") and
may invest in options on securities, financial indices and foreign currencies
("options"), forward contracts and interest rate swaps and swap-related products
(collectively "derivative instruments"). The Portfolios intend to use most
derivative instruments primarily to hedge against potential adverse movements in
securities prices, foreign currency markets or interest rates. To a limited
extent, the Portfolios may also use derivative instruments for non-hedging
purposes such as seeking to increase a Portfolio's income or otherwise seeking
to enhance return. Please refer to Appendix A to this Prospectus and the SAI for
a more detailed discussion of these instruments.
The use of derivative instruments exposes the Portfolios to additional
investment risks and transaction costs. Risks inherent in the use of derivative
instruments include:
o the risk that interest rates, securities prices and currency markets will
not move in the direction that a portfolio manager anticipates;
o imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies
being hedged;
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
14
<PAGE>
o the fact that skills needed to use these strategies are different from
those needed to select portfolio securities;
o inability to close out certain hedged positions to avoid adverse tax
consequences;
o the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits, either
of which may make it difficult or impossible to close out a position when
desired;
o leverage risk, that is, the risk that adverse price movements in an
instrument can result in a loss substantially greater than a Portfolio's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and
o particularly in the case of privately-negotiated instruments, the risk that
the counterparty will fail to perform its obligations, which could leave a
Portfolio worse off than if it had not entered into the position.
Although the Portfolios believe the use of derivative instruments will benefit
the Portfolios, a Portfolio's performance could be worse than if the Portfolio
had not used such instruments if the portfolio manager's judgement proves
incorrect.
When a Portfolio invests in a derivative instrument, it may be required to
segregate cash and other liquid assets or certain portfolio securities with its
custodian to "cover" the Portfolio's position. Assets segregated or set aside
generally may not be disposed of so long as the Portfolio maintains the
positions requiring segregation or cover. Segregating assets could diminish the
Portfolio's return due to the opportunity losses of foregoing other potential
investments with the segregated assets.
HIGH-YIELD/HIGH-RISK SECURITIES
HIGH-YIELD/HIGH-RISK SECURITIES (OR "JUNK" BONDS) ARE DEBT SECURITIES RATED
BELOW INVESTMENT GRADE BY THE PRIMARY RATING AGENCIES (SUCH AS STANDARD & POOR'S
AND MOODY'S).
The value of lower quality securities generally is more dependent on the ability
of the issuer to meet interest and principal payments (i.e., credit risk) than
is the case for higher quality securities. Conversely, the value of higher
quality securities may be more sensitive to interest rate movements than lower
rated securities. Issuers of high-yield/high-risk securities may not be as
strong financially as those issuing bonds with higher credit ratings.
Investments in such companies are considered to be more speculative than higher
quality investments.
Issuers of high-yield/high-risk securities are more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, a Portfolio would
experience a reduction of its income and could expect a decline in the market
value of the defaulted securities.
The market for lower quality securities is generally less liquid than the market
for higher quality securities. Adverse publicity and investor perceptions as
well as new or proposed laws may also have a greater negative impact on the
market for lower quality securities. Unrated debt, while not necessarily of
lower quality than rated securities, may not have as broad a market as higher
quality securities. 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.
The market prices of high-yield/high-risk securities structured as zero coupon
or pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically. In addition, zero coupon, pay-in-kind and delayed interest bonds
often do not pay interest until maturity. However, the Portfolios must recognize
a computed amount of interest income and pay dividends to shareholders even
though it has received no cash. In some instances, the Portfolios may have to
sell securities to have sufficient cash to pay the dividends.
Please refer to Appendix B for a description of bond rating categories.
SHORT SALES
Each Portfolio may engage in "short sales against the box." This technique
involves selling either a security that a Portfolio owns, or a security
equivalent in kind and amount that a Portfolio has the right to obtain, for
delivery at a specified date in the future. A Portfolio will enter into a short
sale against the box to hedge against anticipated declines in the market price
of portfolio securities or to defer an unrealized gain. If the value of the
securities sold short increases prior to the scheduled delivery date, the
Portfolio loses the opportunity to participate in the gain.
SPECIAL SITUATIONS
Each Portfolio may invest in "special situations" from time to time. A special
situation arises when, in the opinion of a Portfolio's manager, the securities
of a particular issuer will be recognized and appreciate in value due to a
specific development with respect to that issuer. Developments creating a
special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
See Appendix A for risks associated with certain other investments.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
15
<PAGE>
MONEY MARKET PORTFOLIO IS DESIGNED FOR INVESTORS WHO PRIMARILY SEEK MAXIMUM
CURRENT INCOME TO THE EXTENT CONSISTENT WITH STABILITY OF CAPITAL.
MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to seek maximum current income to the
extent consistent with stability of capital. There can be no assurance that the
Portfolio will achieve its investment objective or be able to maintain a stable
net asset value of $1.00 per share.
INVESTMENT POLICIES
The Portfolio will invest only in eligible high quality, short-term money market
instruments that present minimal credit risks, as determined by Janus Capital,
the Portfolio's investment adviser, pursuant to procedures adopted by the
Trustees. The Portfolio may invest only in U.S. dollar-denominated instruments
that have a remaining maturity of 397 days or less (as calculated pursuant to
Rule 2a-7 under the Investment Company Act of 1940) and will maintain a
dollar-weighted average portfolio maturity of 90 days or less.
Except to the limited extent permitted by Rule 2a-7 and except for U.S.
Government Securities (as defined below), the Portfolio will not invest more
than 5% of its total assets in the securities of any one issuer. A guarantor is
not considered an issuer for the purpose of this limit, provided that the value
of all securities held by the Portfolio that are issued or guaranteed by that
institution shall not exceed 10% of the Portfolio's total assets. The Portfolio
may not invest more than 25% of its total assets in any one industry, except
that this limit does not apply to U.S. Government Securities, bank obligations
or municipal securities. To ensure adequate liquidity, the Portfolio may not
invest more than 10% of its net assets in illiquid securities, including
repurchase agreements maturing in more than seven days (unless subject to a
demand feature) and certain time deposits that are subject to early withdrawal
penalties and mature in more than seven days. Janus Capital determines and
monitors the liquidity of portfolio securities under the supervision of the
Trustees.
RATINGS
High quality money market instruments include those that (i) are rated (or, if
unrated, are issued by an issuer with comparable outstanding short-term debt
that is rated) in one of the two highest rating categories for short-term debt
by any two nationally recognized statistical rating organizations ("NRSROs") or,
if only one NRSRO has issued a rating, by that NRSRO or (ii) are otherwise
unrated and determined by Janus Capital to be of comparable quality. The
Portfolio will invest at least 95% of its total assets in securities in the
highest rating category (as determined pursuant to Rule 2a-7). Descriptions of
the rating categories of Standard & Poor's, Moody's, and certain other NRSROs
are contained in Appendix B. A further description of the Money Market
Portfolio's investment policies is included in the Money Market Portfolio's SAI.
Although the Portfolio only invests in high quality money market instruments, an
investment in the Portfolio is subject to risk even if all securities in its
portfolio are paid in full at maturity. All money market instruments, including
U.S. Government Securities, can change in value as a result of changes in
interest rates, the issuer's actual or perceived creditworthiness or the
issuer's ability to meet its obligations.
TYPES OF INVESTMENTS
The Portfolio pursues its objective by investing primarily in high quality debt
obligations and obligations of financial institutions. It may invest in U.S.
Government Securities (as defined below) and municipal securities, although the
Portfolio expects to invest in such securities to a lesser degree.
DEBT OBLIGATIONS
The Portfolio may invest in debt obligations of domestic issuers, including
commercial paper (short-term promissory notes issued by companies to finance
their, or their affiliates', current obligations), notes and bonds, and variable
amount master demand notes. The payment obligations on these instruments may be
backed by securities, swap agreements or other assets, by a guarantee of a third
party or solely by the unsecured promise of the issuer to make payments when
due. The Portfolio may invest in privately issued commercial paper or other
securities that are restricted as to disposition under the federal securities
laws. In general, sales of these securities may not be made absent registration
under the Securities Act of 1933 (the "1933 Act") or the availability of an
appropriate exemption therefrom. Pursuant to Section 4(2) of the 1933 Act or
Rule 144A adopted under the 1933 Act, however, some of these securities are
eligible for resale to institutional investors, and accordingly, Janus Capital
may determine that a liquid market exists for such a security pursuant to
guidelines adopted by the Trustees.
OBLIGATIONS OF FINANCIAL INSTITUTIONS
The Portfolio may invest in obligations of financial institutions. Examples of
obligations in which it may invest include negotiable certificates of deposit,
bankers' acceptances and time deposits of U.S. banks (including savings and loan
associations) having total assets in excess of one billion dollars and U.S.
branches of foreign banks
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
16
<PAGE>
having total assets in excess of ten billion dollars. The Portfolio may also
invest in Eurodollar and Yankee bank obligations as discussed below.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Fixed time deposits, which
are payable at the stated maturity date and bear a fixed rate of interest,
generally may be withdrawn on demand by the Portfolio but may be subject to
early withdrawal penalties that could reduce the Portfolio's yield. Unless there
is a readily available market for them, time deposits that are subject to early
withdrawal penalties and that mature in more than seven days will be treated as
illiquid securities.
EURODOLLAR OR YANKEE OBLIGATIONS
The Portfolio may invest in Eurodollar and Yankee bank obligations. Eurodollar
bank obligations are dollar-denominated certificates of deposit or time deposits
issued outside the U.S. capital markets by foreign branches of U.S. banks and by
foreign banks. Yankee bank obligations are dollar-denominated obligations issued
in the U.S. capital markets by foreign banks.
Eurodollar (and to a limited extent, Yankee) bank obligations are subject to
certain sovereign risks. One such risk is the possibility that a foreign
government might prevent dollar-denominated funds from flowing across its
borders. Other risks include: adverse political and economic developments in a
foreign country; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes; and
expropriation or nationalization of foreign issuers.
U.S. GOVERNMENT SECURITIES
The Portfolio may invest without limit in U.S. Government Securities. U.S.
Government Securities shall have the meaning set forth in the 1940 Act. The 1940
Act defines U.S. Government Securities to include securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities. U.S.
Government Securities may also include repurchase agreements collateralized by
and municipal securities escrowed with or refunded with U.S. Government
Securities. U.S. Government Securities in which the Portfolio may invest include
U.S. Treasury securities and obligations issued or guaranteed by U.S. government
agencies and instrumentalities that are backed by the full faith and credit of
the U.S. government, such as those guaranteed by the Small Business
Administration or issued by the Government National Mortgage Association. In
addition, U.S. Government Securities in which the Portfolio may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities of the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation and the Tennessee Valley Authority. There is no
guarantee that the U.S. government will support securities not backed by its
full faith and credit. Accordingly, although these securities have historically
involved little risk of loss of principal if held to maturity, they may involve
more risk than securities backed by the full faith and credit of the U.S.
government.
MUNICIPAL SECURITIES
The municipal securities in which the Portfolio may invest include municipal
notes and short-term municipal bonds. Municipal notes are generally used to
provide for the issuer's short-term capital needs and generally have maturities
of 397 days or less. The Portfolio may also invest in high quality participation
interests in municipal securities. A more detailed description of various types
of municipal securities is contained in Appendix B in the SAI.
Yields on municipal securities are dependent on a variety of factors, including
the general conditions of the money market and of the municipal bond and
municipal note markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Obligations of issuers of municipal
securities are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Bankruptcy
Reform Act of 1978, as amended. Therefore, the possibility exists that, as a
result of litigation or other conditions, the ability of any issuer to pay, when
due, the principal of and interest on its municipal securities may be materially
affected.
PARTICIPATION INTERESTS
The Portfolio may invest in participation interests in any type of security in
which the Portfolio may invest. A participation interest gives a Portfolio an
undivided interest in the underlying securities in the proportion that the
Portfolio's participation interest bears to the total principal amount of the
underlying securities. Participation interests usually carry a demand feature,
as described below, backed by a letter of credit or guarantee of the institution
that issued the interests permitting the holder to tender them back to the
institution.
DEMAND FEATURES
The Portfolio may invest in securities that are subject to puts and stand-by
commitments ("demand features"). Demand features give the Portfolio the right to
resell securities at specified periods prior to their maturity dates to the
seller or to some third party at an agreed-upon price or yield. Securities with
demand features may involve certain expenses and risks, including the inability
of the issuer of the instrument to pay for the securities at the time the
instrument is exercised, non-marketability of the instrument and differences
between the
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
17
<PAGE>
maturity of the underlying security and the maturity of the
instrument. Securities may cost more with demand features than without them.
Demand features can serve three purposes: to shorten the maturity of a variable
or floating rate security, to enhance the instrument's credit quality and to
provide a source of liquidity. Demand features are often issued by third party
financial institutions, generally domestic and foreign banks. Accordingly, the
credit quality and liquidity of the Portfolio's investments may be dependent in
part on the credit quality of the banks supporting its investments. This will
result in exposure to risks pertaining to the banking industry, including the
foreign banking industry. Brokerage firms and insurance companies also provide
certain liquidity and credit support.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Portfolio invests may have variable or floating
rates of interest. These 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. Securities with ultimate maturities
of greater than 397 days may be purchased only pursuant to Rule 2a-7. Under that
Rule, only those long-term instruments that have demand features which comply
with certain requirements and certain variable rate U.S. Government Securities
may be purchased. Similar to fixed rate debt instruments, variable and floating
rate instruments are subject to changes in value based on changes in market
interest rates or changes in the issuer's or guarantor's creditworthiness. The
rate of interest on securities purchased by the Portfolio may be tied to
short-term Treasury or other government securities or indices on securities that
are permissible investments of the Portfolio, as well as other money market
rates of interest. The Portfolio will not purchase securities whose values are
tied to interest rates or indicies that are not appropriate for the duration and
volatility standards of a money market fund.
MORTGAGE- AND ASSET-BACKED SECURITIES
The Portfolio may purchase fixed or adjust- able rate mortgage-backed securities
issued by the Government National Mortgage Association, Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation, or other
governmental or government-related entities. In addition, the Portfolio may
purchase other asset-backed securities, including securities backed by
automobile loans, equipment leases or credit card receivables. These securities
directly or indirectly represent a participation in, or are secured by and
payable from, fixed or adjustable rate mortgage or other loans which may be
secured by real estate or other assets. Unlike traditional debt instruments,
payments on these securities include both interest and a partial payment of
principal. Prepayments of the principal of underlying loans may shorten the
effective maturities of these securities and may result in the Portfolio having
to reinvest proceeds at a lower interest rate.
REPURCHASE AGREEMENTS
The Portfolio may seek additional income by entering into collateralized
repurchase agreements with respect to obligations that it could otherwise
purchase. Repurchase agreements are transactions in which the Portfolio
purchases securities and simultaneously commits to resell those securities to
the seller at an agreed-upon price on an agreed-upon future date. The resale
price reflects a market rate of interest that is not related to the coupon rate
or maturity of the purchased securities.
REVERSE REPURCHASE AGREEMENTS
The Portfolio may enter into reverse repurchase agreements. Reverse repurchase
agreements are transactions in which the Portfolio sells a security and
simultaneously commits to repurchase that security from the buyer at an agreed
upon price on an agreed upon future date. This technique will be used primarily
for temporary or emergency purposes, such as meeting redemption requests.
DELAYED DELIVERY SECURITIES
The Portfolio may purchase securities on a when-issued or delayed delivery
basis. Securities so purchased are subject to market price fluctuation from the
time of purchase but no interest on the securities accrues to the Portfolio
until delivery and payment for the securities take place. Accordingly, the value
of the securities on the delivery date may be more or less than the purchase
price. Forward commitments will be entered into only when the Portfolio has the
intention of taking possession of the securities, but it may sell the securities
before the settlement date if deemed advisable.
BORROWING AND LENDING
The Portfolio may borrow money for temporary or emergency purposes in amounts up
to 25% of its total assets. It may not mortgage or pledge securities except to
secure permitted borrowings. As a fundamental policy, the Portfolio will not
lend securities or other assets if, as a result, more than 25% of its total
assets would be lent to other parties; however, it does not currently intend to
engage in securities lending. The Portfolio intends to seek permission from the
SEC to borrow money from or lend money to other funds that permit such
transactions and are advised by Janus Capital. There is no assurance that such
permission will be granted.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
18
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
TRUSTEES
The Trustees oversee the business affairs of the Trust and are responsible for
major decisions relating to each Portfolio's investment objective and policies.
The Trustees delegate the day-to-day management of the Portfolios to the
officers of the Trust and meet at least quarterly to review the Portfolios'
investment policies, performance, expenses and other business affairs.
INVESTMENT ADVISER
Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928, is the
investment adviser to each of the Portfolios and is responsible for the
day-to-day management of the investment portfolios and other business affairs of
the Portfolios.
Janus Capital has served as investment adviser to Janus Fund since its inception
in 1970 and currently serves as investment adviser to all of the Janus retail
funds, as well as adviser or subadviser to other mutual funds and individual,
corporate, charitable and retirement accounts.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus Capital, most of which it acquired in 1984.
KCSI is a publicly traded holding company whose primary subsidiaries are engaged
in transportation, information processing and financial services. Thomas H.
Bailey, 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.
Janus Capital furnishes continuous advice and recommendations concerning each
Portfolio's investments. Janus Capital also furnishes certain administrative,
compliance and accounting services for the Portfolios, and may be reimbursed by
the Portfolios for its costs in providing those services. In addition, Janus
Capital employees serve as officers of the Trust and Janus Capital provides
office space for the Portfolios and pays the salaries, fees and expenses of all
Portfolio officers and those Trustees who are affiliated with Janus Capital.
Participating insurance companies that purchase the Portfolios' Shares may
perform certain administrative services relating to the Portfolios and Janus
Capital or the Portfolios may pay those companies for such services.
INVESTMENT PERSONNEL
PORTFOLIO MANAGERS
James P. Craig, III is Chief Investment Officer of Janus Capital. He is also
Executive Vice President and portfolio manager of Growth Portfolio, which he has
managed since 1994. Mr. Craig previously managed Balanced Portfolio from
September 1993 through April 1996. He has managed Janus Fund since 1986 and has
co-managed Janus Venture Fund since February 1997. Mr. Craig previously managed
Janus Venture Fund from its inception to December 1993 and Janus Balanced Fund
from December 1993 through December 1995. He holds a Bachelor of Arts in
Business from the University of Alabama and a Master of Arts in Finance from the
Wharton School of the University of Pennsylvania.
- --------------------------------------------------------------------------------
James P. Goff is Executive Vice President and portfolio manager of Aggressive
Growth Portfolio. Mr. Goff joined Janus Capital in 1988 and has managed Janus
Enterprise Fund since its inception. Mr. Goff co-managed or managed Janus
Venture Fund from December 1993 to February 1, 1997. He holds a Bachelor of Arts
in Economics from Yale University and is a Chartered Financial Analyst.
- --------------------------------------------------------------------------------
Helen Young Hayes is Executive Vice President and portfolio manager of Worldwide
Growth Portfolio and International Growth Portfolio. Ms. Hayes joined Janus
Capital in 1987 and has managed or co-managed Janus Worldwide Fund and Janus
Overseas Fund since their inceptions. She holds a Bachelor of Arts in Economics
from Yale University and is a Chartered Financial Analyst.
- --------------------------------------------------------------------------------
Sharon S. Pichler is Executive Vice President and portfolio manager of Money
Market Portfolio, which she has managed since inception. She also has managed
Janus Money Market Fund, Janus Government Money Market Fund and Janus Tax-Exempt
Money Market Fund since their inception. She holds a Bachelor of Arts in
Economics from Michigan State University and a Master of Business Administration
from the University of Texas at San Antonio. Ms. Pichler is a Chartered
Financial Analyst.
- --------------------------------------------------------------------------------
Blaine P. Rollins is Executive Vice President and portfolio manager of Balanced
Portfolio, which he has managed since May 1996 and an assistant portfolio
manager of Growth Portfolio. Mr. Rollins joined Janus Capital in 1990 and has
managed Janus Balanced Fund since January 1996 and Janus Equity Income Fund
since January 1996. He has been an assistant portfolio manager of Janus Fund
since January 1995. He gained experience as a fixed-income trader and equity
research analyst prior to assuming management responsibility for the Portfolio.
He holds a Bachelor of Science in Finance from the University of Colorado and is
a Chartered Financial Analyst.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
19
<PAGE>
Sandy R. Rufenacht is Executive Vice President and portfolio manager of
Short-Term Bond Portfolio, which he has managed since May 1996. He is also the
co-manager of Flexible Income Portfolio and High-Yield Portfolio which he has
co-managed since October 24, 1996 and January 13, 1997, respectively. Mr.
Rufenacht joined Janus Capital in 1990 and has managed Janus Short-Term Bond
Fund since January 1996. He is also the co-manager of Janus Flexible Income Fund
and Janus High-Yield Fund. He holds a Bachelor of Arts in Business from the
University of Northern Colorado.
- --------------------------------------------------------------------------------
Ronald V. Speaker is Executive Vice President and co-manager of Flexible Income
Portfolio and High-Yield Portfolio, each of which he began managing at their
inception. He managed Short-Term Bond Portfolio from its inception through April
1996 and also co-manages Janus High-Yield Fund and Janus Flexible Income Fund.
Mr. Speaker joined Janus Capital in 1986. He has managed Janus Flexible Income
Fund since December 1991 and previously managed both Janus Short-Term Bond Fund
and Janus Federal Tax-Exempt Fund from inception through December 1995. He holds
a Bachelor of Arts in Finance from the University of Colorado and is a Chartered
Financial Analyst.
In January 1997, Mr. Speaker settled an SEC administrative action involving two
personal trades made by him in January of 1993. Without admitting or denying the
allegations, Mr. Speaker agreed to civil money penalty, disgorgement, and
interest payments totaling $37,199 and to a 90-day suspension ending on or about
April 26, 1997.
ASSISTANT PORTFOLIO MANAGERS
Laurence Chang is assistant portfolio manager of International Growth Portfolio
and Worldwide Growth Portfolio. He is also assistant portfolio manager of Janus
Overseas Fund and Janus Worldwide Fund. He received an undergraduate degree with
honors in religion and philosophy from Dartmouth College and a Master's Degree
in Political Science from Stanford University. He is a Chartered Financial
Analyst.
- --------------------------------------------------------------------------------
David Decker is an assistant portfolio manager of the Growth Portfolio. He is
also assistant portfolio manager of Janus Fund. He is Executive Vice President
and portfolio manager of Janus Special Situations Fund. Mr. Decker received a
Masters of Business Administration in Finance from the Fuqua School of Business
at Duke University and a Bachelor's Degree in Economics and Political Science
from Tufts University. He is a Chartered Financial Analyst.
PERSONAL INVESTING
Janus Capital does not permit portfolio managers to purchase and sell securities
for their own accounts, except under the limited exceptions contained in Janus
Capital's policy governing personal investing. Janus Capital's policy requires
investment and other personnel to conduct their personal investment activities
in a manner that Janus Capital believes is not detrimental to the Portfolios or
Janus Capital's other advisory clients. See the SAI for more detailed
information.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities on behalf of each Portfolio are executed by
broker-dealers selected by Janus Capital. Broker-dealers are selected on the
basis of their ability to obtain best price and execution for a Portfolio's
transactions and recognizing brokerage, research and other services provided to
the Portfolio and to Janus Capital. Janus Capital may consider sales of shares
of the Portfolios or other Janus funds by a broker-dealer or the recommendation
of a broker-dealer to its customers that they purchase a Portfolio's shares as a
factor in the selection of broker-dealers to execute Portfolio transactions.
Janus Capital may also consider payments made by brokers effecting transactions
for a Portfolio i) to the Portfolio or ii) to other persons on behalf of the
Portfolio for services provided to the Portfolio for which it would be obligated
to pay. The Trustees have authorized Janus Capital to place portfolio
transactions on an agency basis with a broker-dealer affiliated with Janus
Capital. When transactions for a Portfolio are effected with that broker-dealer,
the commissions payable by the Portfolio are credited against certain Portfolio
operating expenses serving to reduce those expenses. The SAI further explains
the selection of broker-dealers.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
20
<PAGE>
BREAKDOWN OF MANAGEMENT EXPENSES AND EXPENSE LIMITS
Each Portfolio pays Janus Capital a management fee which is calculated daily.
The advisory agreement with each Portfolio spells out the management fee and
other expenses that the Portfolios must pay. Each of the Portfolios is subject
to the following management fee schedule (expressed as an annual rate):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Daily Net Annual Rate Expense Limit
Fee Schedule Assets of Portfolio Percentage (%) Percentage (%)
-----------------------------------------------------------------------------------------------------------
Growth Portfolio First $ 30 Million 1.00* N/A
Aggressive Growth Portfolio Next $270 Million .75 N/A
International Growth Portfolio Next $200 Million .70 1.25**
Worldwide Growth Portfolio and Over $500 Million .65 N/A
Balanced Portfolio N/A
-----------------------------------------------------------------------------------------------------------
Flexible Income Portfolio First $300 Million .65 1.00
Over $300 Million .55
-----------------------------------------------------------------------------------------------------------
High-Yield Portfolio First $300 Million .75 1.00
Over $300 Million .65
-----------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio First $300 Million .65 .65
Over $300 Million .55
-----------------------------------------------------------------------------------------------------------
Money Market Portfolio All Asset Levels .25 .50
-----------------------------------------------------------------------------------------------------------
</TABLE>
*Janus Capital has agreed to reduce each Portfolio's advisory fee to
the extent that such fee exceeds the effective rate of the Janus
retail fund corresponding to such Portfolio. Janus Capital may
terminate this fee reduction or any of the expense limitations set
forth above at any time upon at least 90 days' notice to the Trustees.
The effective rate is the advisory fee calculated by the corresponding
retail fund as of the last day of each calendar quarter (expressed as
an annual rate). The effective rates of Janus Fund, Janus Enterprise
Fund, Janus Overseas Fund, Janus Worldwide Fund and Janus Balanced
Fund were .65%, .73%, .68%, .66% and .78%, respectively, for the
quarter ended March 31, 1997.
**Janus Capital has reduced the expense limit of International Growth
Portfolio to 1.25% of average net assets through at least April 30,
1998.
Differences in the actual management fees incurred by the Portfolios are due
primarily to variances in the asset sizes of the corresponding retail funds. As
asset size increases, the annual rate of the management fee rate declines in
accordance with the above schedule (except for the Money Market Portfolio). In
addition, the Shares of each Portfolio incur expenses not assumed by Janus
Capital, including transfer agent and custodian fees and expenses, legal and
auditing fees, printing and mailing costs of sending reports and other
information to existing shareholders, and independent Trustees' fees and
expenses.
OTHER SERVICE PROVIDERS
The following parties provide the Portfolios with administrative and other
services.
CUSTODIAN FOR PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
State Street Bank and Trust Company
P.O. Box 0351
Boston, Massachusetts 02117-0351
CUSTODIAN FOR MONEY MARKET PORTFOLIO
United Missouri Bank, N.A.
P.O. Box 419226
Kansas City, Missouri 64141-6226
TRANSFER AGENT
Janus Service Corporation
P.O. Box 173375
Denver, Colorado 80217-3375
Janus Service Corporation is a wholly-owned subsidiary of Janus Capital.
OTHER INFORMATION
ORGANIZATION
The Trust is a "mutual fund" that was organized as a Delaware business trust on
May 20, 1993. A mutual fund is an investment vehicle that pools money from
numerous investors and invests the money to achieve a specified objective. The
Trust offers Shares in eleven separate series, nine of which are offered by this
Prospectus.
Each Portfolio currently offers two classes of Shares, one of which, the
Institutional Shares, are offered pursuant to this prospectus and are sold under
the name Janus Aspen Series. The Shares offered by this Prospectus are available
only in connection with investment in and payments under variable contracts and
life insurance contracts as well as certain qualified retirement plans.
Retirement Shares of each Portfolio are offered by separate prospectus and are
available only to participant directed qualified plans using plan service
providers that are compensated for providing distribution and/or recordkeeping
and other administrative services provided to plan participants. Because the
expenses of each
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
21
<PAGE>
class may differ, the performance of each class is expected to differ. If you
would like additional information about the Retirement Shares, please call
1-800-525-0020.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
The Trust does not intend to hold annual shareholder meetings. However, special
meetings may be called for a specific class or Portfolio or for the Trust as a
whole for purposes such as electing or removing Trustees, terminating or
reorganizing the Trust, changing fundamental policies, or for any other purpose
requiring a shareholder vote under the 1940 Act. Separate votes are taken by
each class or Portfolio only if a matter affects or requires the vote of only
that class or Portfolio or the interest of a class or Portfolio in the matter
differs from the interest of the other class or Portfolios of the Trust. As a
shareholder, you are entitled to one vote for each share that you own.
An insurance company issuing a variable contract invested in Shares of a
Portfolio will request voting instructions from variable contract holders. Under
current law, the insurance company must vote all Shares held by the separate
account in proportion to the voting instructions received.
CONFLICTS OF INTEREST
Each Portfolio's Shares are available only to variable annuity and variable life
separate accounts of insurance companies that are unaffiliated with Janus
Capital and to certain qualified retirement plans. Retirement Shares of the
Portfolios (offered through a separate prospectus) are available to certain
participant directed qualified plans. Although the Portfolios currently do not
anticipate any disadvantages to policy owners arising out of the fact that each
Portfolio offers its shares to such entities, there is a possibility that a
material conflict may arise. The Trustees monitor events in order to identify
any anticipated disadvantages or material irreconcilable conflicts to determine
what action, if any, should be taken in response. If a material disadvantage or
conflict occurs, the Trustees may require one or more insurance company separate
accounts or plans to withdraw its investments in one or more Portfolios or
substitute shares of another Portfolio. If this occurs, a Portfolio may be
forced to sell securities at disadvantageous prices. In addition, the Trustees
may refuse to sell shares of any Portfolio to any separate account or may
suspend or terminate the offering of a Portfolio's shares if such action is
required by law or regulatory authority or is in the best interests of that
Portfolio's shareholders. It is possible that a qualified plan investing in the
Retirement Shares of the Portfolios could lose its qualified plan status under
the Internal Revenue Code, which could have adverse tax consequences on
insurance company separate accounts investing in the Shares. Janus Capital
intends to monitor such qualified plans and the Portfolios may discontinue sales
to a qualified plan and require plan participants with existing investments in
the Retirement Shares to redeem those investments if a plan loses (or in the
opinion of Janus Capital is at risk of losing) its qualified plan status.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve any Portfolio's investment objective
by investing all of that Portfolio's assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to that Portfolio. It is expected that any such
investment company would be managed by Janus Capital in substantially the same
manner as the existing Portfolio. The initial shareholder(s) of each Portfolio
voted to vest the authority to convert to a master/feeder structure in the sole
discretion of the Trustees. No further approval of the shareholders of the
Portfolios is required. You will receive at least 30 days' prior notice of any
such investment. Such investment would be made only if the Trustees determine it
to be in the best interests of a Portfolio and its shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although management of the Portfolios believes the Trustees will
not approve an arrangement that is likely to result in higher costs, no
assurance is given that costs will be materially reduced if this option is
implemented.
THE VALUATION OF SHARES
The NAV of the Shares of a Portfolio is determined at the close of the regular
trading session of the New York Stock Exchange (the "NYSE") (normally 4:00 p.m.,
New York time) each day that the NYSE is open. NAV per Share is determined by
dividing the total value of the securities and other assets, less liabilities,
by the total number of Shares outstanding.
For the Portfolios other than the Money Market Portfolio, securities are valued
at market value or, if a market quotation is not readily available, at their
fair value determined in good faith under procedures established by and under
the supervision of the Trustees. Short-term instruments maturing within 60 days
are valued at amortized cost, which approximates market value.
For the Money Market Portfolio, portfolio securities are valued at their
amortized cost. Amortized cost valuation involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity (or such other
date as permitted by Rule 2a-7) of any discount or premium. If fluctuating
interest rates cause the market value of a portfolio to deviate more than 1/2 of
1% from the value determined on the basis of amortized cost, the Trustees will
consider whether any action, such as adjusting the Share's NAV to reflect
current market conditions, should be initiated to prevent any material dilutive
effect on shareholders.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
22
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
TO AVOID TAXATION OF THE PORTFOLIOS, THE INTERNAL REVENUE CODE REQUIRES
EACH PORTFOLIO TO DISTRIBUTE NET INCOME AND ANY NET GAINS REALIZED BY ITS
INVESTMENTS ANNUALLY. INCOME FROM DIVIDENDS AND INTEREST AND ANY NET
REALIZED SHORT-TERM CAPITAL GAINS ARE PAID TO SHAREHOLDERS AS ORDINARY
INCOME DIVIDENDS. NET REALIZED LONG-TERM GAINS, IF ANY, ARE PAID TO
SHAREHOLDERS AS CAPITAL GAINS DISTRIBUTIONS.
PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
Each class of each Portfolio, other than Money Market Portfolio, makes
semi-annual distributions in June and December of substantially all of its
investment income and an annual distribution in June of its net realized capital
gains, if any. All dividends and capital gains distributions from Shares of a
Portfolio will automatically be reinvested into additional Shares of that
Portfolio.
HOW DISTRIBUTIONS AFFECT NAV
Distributions are paid to shareholders as of the record date of the distribution
of a Portfolio, regardless of how long the shares have been held. Dividends and
capital gains awaiting distribution are included in the daily NAV of a
Portfolio's Shares. The Share price of a Portfolio drops by the amount of the
distribution, net of any subsequent market fluctuations. As an example, assume
that on December 31, the Shares of Growth Portfolio declared a dividend in the
amount of $0.25 per share. If the price of Growth Portfolio's Shares was $10.00
on December 30, the Share price on December 31 would be $9.75, barring market
fluctuations.
MONEY MARKET PORTFOLIO
For the Shares of Money Market Portfolio, dividends representing substantially
all of the net investment income and any net realized gains on sales of
securities are declared daily, Saturdays, Sundays and holidays included, and
distributed on the last business day of each month. If a month begins on a
Saturday, Sunday or holiday, dividends for those days are declared at the end of
the preceding month and distributed on the first business day of the month. All
distributions will be automatically reinvested in Shares of the Portfolio.
- --------------------------------------------------------------------------------
TAXES
TAXES ON DISTRIBUTIONS
Because Shares of the Portfolios may be purchased only through variable
insurance contracts and qualified plans, it is anticipated that any income
dividends or capital gains distributions made by the Shares of a Portfolio will
be exempt from current taxation if left to accumulate within the variable
insurance contract or qualified plan. Generally, withdrawals from such contracts
may be subject to ordinary income tax and, if made before age 591/2, a 10%
penalty tax. The tax status of your investment in the Shares depends on the
features of the variable insurance contracts purchased from a participating
insurance company. Further information may be found in the prospectus of the
separate account offering such contract.
TAXATION OF THE PORTFOLIOS
Dividends, interest and some capital gains received by the Portfolios on foreign
securities may give rise to withholding and other taxes imposed by foreign
countries. It is expected that foreign taxes paid by the Portfolios will be
treated as expenses of the Portfolios. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes.
The Portfolios do not expect to pay any federal income or excise taxes because
they intend to meet certain requirements of the Internal Revenue Code. In
addition, each Portfolio intends to qualify under the Internal Revenue Code with
respect to the diversification requirements related to the tax-deferred status
of insurance company separate accounts.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
23
<PAGE>
SHAREHOLDER'S GUIDE
INVESTORS MAY NOT PURCHASE OR REDEEM SHARES OF THE PORTFOLIOS DIRECTLY. SHARES
MAY BE PURCHASED OR REDEEMED ONLY THROUGH VARIABLE INSURANCE CONTRACTS OFFERED
BY THE SEPARATE ACCOUNTS OF PARTICIPATING INSURANCE COMPANIES OR THROUGH
QUALIFIED RETIREMENT PLANS. REFER TO THE PROSPECTUS FOR THE PARTICIPATING
INSURANCE COMPANY'S SEPARATE ACCOUNT OR YOUR PLAN DOCUMENTS FOR INSTRUCTIONS ON
PURCHASING OR SELLING OF VARIABLE INSURANCE CONTRACTS AND ON HOW TO SELECT
SPECIFIC PORTFOLIOS AS INVESTMENT OPTIONS FOR A CONTRACT OR A QUALIFIED PLAN.
PURCHASES
Purchases of Shares may be made only by the separate accounts of insurance
companies for the purpose of funding variable insurance contracts or by
qualified plans. Refer to the prospectus of the appropriate insurance company
separate account or your plan documents for information on how to invest in the
Shares of each Portfolio.
All investments in the Portfolios are credited to a participating insurance
company's separate account or a qualified plan immediately upon acceptance of
the investment by a Portfolio. Investments will be processed at the NAV next
determined after an order is received and accepted by a Portfolio.
Each Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Janus Capital's opinion, they are of a
size that would disrupt the management of a Portfolio. Any Portfolio may
discontinue sales of its shares if management believes that a substantial
further increase may adversely affect that Portfolio's ability to achieve its
investment objective. In such event, however, it is anticipated that existing
policy owners and plan participants invested in that Portfolio would be
permitted to continue to authorize investment in such Portfolio and to reinvest
any dividends or capital gains distributions.
REDEMPTIONS
Redemptions, like purchases, may be effected only through the separate accounts
of participating insurance companies or through qualified plans. Please refer to
the appropriate separate account prospectus or plan documents for details.
Shares of any Portfolio may be redeemed on any business day. Redemptions are
processed at the NAV next calculated after receipt and acceptance of the
redemption order by the Portfolio. Redemption proceeds will normally be wired to
the participating insurance company the business day following receipt of the
redemption order, but in no event later than seven days after receipt of such
order.
SHAREHOLDER COMMUNICATIONS
Shareholders will receive annual and semiannual reports including the financial
statements of the Shares of the Portfolios that they have authorized for
investment. Each report will show the investments owned by each Portfolio and
the market values thereof, as well as other information about the Portfolios and
their operations. The Trust's fiscal year ends December 31.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
24
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the non-Money Market Portfolios may
invest. These Portfolios may invest in these instruments to the extent permitted
by their investment objective and policies. The Portfolios are not limited by
this discussion and may invest in any other types of instruments not precluded
by the policies discussed elsewhere in this Prospectus. Please refer to the SAI
for a more detailed discussion of certain instruments.
I. EQUITY AND DEBT SECURITIES
Bonds are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
Commercial paper is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. For example, the Portfolios may purchase commercial
paper issued under Section 4(2) of the Securities Act of 1933.
Common stock represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
Convertible securities are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
Depositary receipts are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
Fixed-income securities are securities that pay a specified rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a specified rate of interest or coupons for a specified
period of time and preferred stock, which pays fixed dividends. Coupon and
dividend rates may be fixed for the life of the issue or, in the case of
adjustable and floating rate securities, for a shorter period.
High-yield/High-risk securities are securities that are rated below investment
grade by the primary rating agencies (e.g., BB or lower by Standard &Poor's and
Ba or lower by Moody's). Other terms commonly used to describe such securities
include "lower rated bonds," "noninvestment grade bonds" and "junk bonds."
Mortgage- and asset-backed securities are shares in a pool of mortgages or other
debt. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, a portfolio manager may have
to reinvest the proceeds from the securities at a lower rate. Potential market
gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
Passive foreign investment companies (PFICs) are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, interest,
royalties, rents and annuities. Income tax regulations may require the
Portfolios to recognize income associated with the PFIC prior to the actual
receipt of any such income.
Pay-in-kind bonds are debt securities that 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.
Preferred stock is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
Repurchase agreements involve the purchase of a security by a Portfolio and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Portfolio at a specified date or upon demand. This
technique offers a method of earning income on idle cash. These securities
involve the risk that the seller will fail to repurchase the security, as
agreed. In that case, a Portfolio will bear the risk of market value
fluctuations until the security can be sold and may encounter delays and incur
costs in liquidating the security.
Reverse repurchase agreements involve the sale of a security by a Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually high
redemption requests, or for other temporary or emergency purposes.
Rule 144A securities are securities that are not registered for sale to the
general public under the Securities Act of 1933, but that may be resold to
certain institutional investors.
Standby commitments are obligations purchased by a Portfolio from a dealer that
give the Portfolio the option to sell a security to the dealer at a specified
price.
Step coupon bonds are debt securities that trade at a discount from their face
value and pay coupon interest. The discount from the face 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.
Strip bonds are debt securities that are stripped of their interest (usually by
a financial intermediary) after the securities are issued. The market value of
these securities generally fluctuates more in response to
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
25
<PAGE>
changes in interest rates than interest-paying securities of comparable
maturity.
Tender option bonds are generally long-term securities that are coupled with an
option to tender the securities to a bank, broker-dealer or other financial
institution at periodic intervals and receive the face value of the bond. This
type of security is commonly used as a means of enhancing the security's
liquidity.
U.S. government securities include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
Variable and floating rate securities have variable or floating rates of
interest and, under certain limited circumstances, may have varying principal
amounts. These 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 floating rate tends to decrease the
security's price sensitivity to changes in interest rates.
Warrants are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
When-issued, delayed delivery and forward transactions generally involve the
purchase of a security with payment and delivery at some time in the future -
i.e., beyond normal settlement. The Portfolios do not earn interest on such
securities until settlement and bear the risk of market value fluctuations
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
Zero coupon bonds are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable securities.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
Forward contracts are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Portfolios may enter into forward currency contracts to hedge against
declines in the value of non-dollar denominated securities or to reduce the
impact of currency appreciation on purchases of non-dollar denominated
securities. They may also enter into forward contracts to purchase or sell
securities or other financial indices.
Futures contracts are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Portfolios may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The
Portfolios may also buy options on futures contracts. An option on a futures
contract gives the buyer the right, but not the obligation, to buy or sell a
futures contract at a specified price on or before a specified date. Futures
contracts and options on futures are standardized and traded on designated
exchanges.
Indexed/structured securities are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. A Portfolio bears the market risk of
an investment in the underlying instruments, as well as the credit risk of the
issuer.
Interest rate swaps involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
Inverse floaters are debt instruments whose interest rate bears an inverse
relationship to the interest rate on another instrument or index. For example,
upon reset the interest rate payable on a security may go down when the
underlying index has risen. Certain inverse floaters may have an interest rate
reset mechanism that multiplies the effects of change in the underlying index.
Such mechanism may increase the volatility of the security's market value.
Options are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Portfolios may purchase and write put and call options on securities,
securities indices and foreign currencies.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
26
<PAGE>
APPENDIX B
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
CCC, CC, C issuer's capacity to meet required interest and
principal payments. BB - lowest degree of
speculation; C - the highest degree of
speculation. Quality and protective
characteristics outweighed by large uncertainties
or major risk exposure to adverse conditions.
D In default.
- --------------------------------------------------------------------------------
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 different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
SECURITIES HOLDINGS BY RATING CATEGORY
During the fiscal year ended December 31, 1996, the percentage of securities
holdings for the Flexible Income Portfolio and High-Yield Portfolio by rating
category based upon a weighted monthly average was:
<TABLE>
<CAPTION>
Bonds - S&P Rating Flexible Income Portfolio High-Yield Portfolio
<S> <C> <C>
AAA 12% 0%
AA 0% 0%
A 14% 0%
BBB 13% 0%
BB 16% 13%
B 34% 83%
CCC 0% 0%
CC 0% 0%
C 0% 0%
Preferred Stock 1% 3%
Cash and Options 10% 1%
- --------------------------------------------------------------------------------------------------------------
TOTAL 100% 100%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
No other Portfolio held 5% or more of its assets in bonds rated
below investment grade for the fiscal year ended December 31,
1996.
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
27
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-0020
{LOGO} JANUS Funds distributed by Janus Distributors, Inc.
Member NASD.
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
THE PORTFOLIO AT A GLANCE
Brief description of the Portfolio ............................................1
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
..............................................................................1
- --------------------------------------------------------------------------------
THE PORTFOLIO IN DETAIL
The Portfolio's Investment
Objective and Policies .....................................................2
General Portfolio Policies ....................................................3
Additional Risk Factors .......................................................4
- --------------------------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIO
Investment Adviser and
Portfolio Manager ..........................................................6
Portfolio Transactions ........................................................6
Management Expenses ...........................................................7
Other Service Providers .......................................................7
Other Information .............................................................7
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
Distributions .................................................................9
Taxes .........................................................................9
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
An Explanation of
Performance Terms ..........................................................9
- --------------------------------------------------------------------------------
SHAREHOLDER'S GUIDE
Purchases ....................................................................10
Redemptions ..................................................................10
Shareholder Communications ...................................................10
- --------------------------------------------------------------------------------
APPENDIX A
Glossary of Investment Terms .................................................11
JANUS ASPEN SERIES
CAPITAL APPRECIATION PORTFOLIO
Prospectus
May 1, 1997
Capital Appreciation Portfolio (the "Portfolio") is a no-load, nondiversified
mutual fund that seeks long-term growth of capital. The Portfolio pursues its
objective by investing primarily in common stocks of issuers of any size, which
may include larger well-established issuers and/or smaller emerging growth
companies. The Portfolio is a series of Janus Aspen Series (the "Trust"), and
currently offers two classes of shares. The Institutional Shares are sold under
the name "Janus Aspen Series." The Trust is registered with the Securities and
Exchange Commission as an open-end management investment company. The Portfolio
is recently organized and has a limited operating history.
The Institutional Shares (the "Shares") of the Portfolio offered by this
Prospectus are issued and redeemed only in connection with investment in and
payments under variable annuity contracts and variable life insurance contracts
(collectively, "variable insurance contracts"), as well as certain qualified
retirement plans.
The Trust sells and redeems its Shares at net asset value without any sales
charges, commissions or redemption fees. Each variable insurance contract
involves fees and expenses not described in this Prospectus. The Portfolio may
not be available in connection with a particular contract. See the accompanying
contract prospectus for information regarding contract fees and expenses and any
restrictions on purchases or allocations.
This Prospectus contains information about the Portfolio that a prospective
purchaser of a variable insurance contract or plan participant should consider
before allocating purchase payments or premiums to the Portfolio. It should be
read carefully in conjunction with the separate account prospectus of the
specific insurance product that accompanies this Prospectus and retained for
future reference. Additional information about the Portfolio is contained in the
Statement of Additional Information ("SAI") dated May 1, 1997, which is filed
with the Securities and Exchange Commission ("SEC") and is incorporated by
reference into this Prospectus. The SAI is available upon request and without
charge by writing or calling your insurance company or plan sponsor.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC NOR HAS THE SEC PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR
OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH STATE OR OTHER JURISDICTION.
<PAGE>
PORTFOLIO AT A GLANCE
This section is designed to provide you with a brief overview of the Portfolio
and its investment emphasis. A more detailed discussion of the Portfolio's
investment objectives and policies begins on page 2.
INVESTMENT OBJECTIVE:
The investment objective of the Portfolio is long-term growth of capital.
PRIMARY HOLDINGS:
The Portfolio is a nondiversified portfolio that pursues its investment
objective by investing primarily in common stocks of companies of any size.
SHAREHOLDER'S INVESTMENT HORIZON:
The Portfolio is designed for long-term investors who seek growth of capital
and who can tolerate the greater risks associated with investments in foreign
and domestic common stocks. The Portfolio is not designed as a short-term
trading vehicle and should not be relied upon for short-term financial needs.
PORTFOLIO ADVISER:
Janus Capital Corporation ("Janus Capital") serves as the Portfolio's investment
adviser. Janus Capital has been in the investment advisory business for over 26
years and currently manages approximately $50 billion in assets.
PORTFOLIO MANAGER:
Scott W. Schoelzel
ASSISTANT PORTFOLIO MANAGER:
Mike Lu
PORTFOLIO INCEPTION:
May 1997
EXPENSE INFORMATION
The tables and example below are designed to assist participants in qualified
plans that invest in the Portfolio in understanding the various costs and
expenses that you will bear directly or indirectly as an investor in the
Portfolio. OWNERS OF VARIABLE INSURANCE CONTRACTS THAT INVEST IN THE PORTFOLIO
SHOULD REFER TO THE VARIABLE INSURANCE CONTRACT PROSPECTUS FOR A DESCRIPTION OF
COSTS AND EXPENSES, AS THE TABLES AND EXAMPLE DO NOT REFLECT DEDUCTIONS AT THE
SEPARATE ACCOUNT LEVEL OR CONTRACT LEVEL FOR ANY CHARGES THAT MAY BE INCURRED
UNDER A CONTRACT.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales charges on redemptions None
Redemption fees None
Exchange fee None
ANNUAL OPERATING EXPENSES (after fee waivers and reductions)(1)
(expressed as a percentage of average net assets)
- --------------------------------------------------------------------------------
Management Fee(1) .75%
Other Expenses(1) .30%
- --------------------------------------------------------------------------------
Total Operating Expenses(1) 1.05%
- --------------------------------------------------------------------------------
(1) The fees and expenses in the table above are based on the estimated gross
expenses before estimated expense offset arrangements that the Shares of
the Portfolio expect to incur in their initial fiscal year, net of fee
waivers or reductions or waivers from Janus Capital. Fee reductions reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
Management Fee, Other Expenses and Total Operating Expenses for the Shares
are estimated to be 1.00%, .30% and 1.30%, respectively. Janus Capital may
modify or terminate the waivers or reductions at any time upon at least 90
days' notice to the Trustees.
EXAMPLE
- --------------------------------------------------------------------------------
1 Year 3 Years
- --------------------------------------------------------------------------------
Assume you invest $1,000, the Shares of the Portfolio
return 5% annually and the expense ratio remains as
listed above. The example shows the operating expenses
that you would indirectly bear as an investor in the
Shares of the Portfolio. $11 $33
- --------------------------------------------------------------------------------
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
1
<PAGE>
THE PORTFOLIO IN DETAIL
This section takes a closer look at the Portfolio's investment objectives,
policies and the securities in which it invests. Please carefully review the
"Additional Risk Factors" section of this Prospectus for a more detailed
discussion of the risks associated with certain investment techniques and refer
to Appendix A for a more detailed description of the Portfolio's investments
(and certain of the risks associated with those investments). You should
carefully consider your own investment goals, time horizon and risk tolerance
before investing in the Portfolio.
The Portfolio's investment objectives and policies are similar to those of Janus
Olympus Fund, a Janus retail fund. Although it is anticipated that the Portfolio
and its corresponding retail fund will hold similar securities, differences in
asset size and cash flow needs as well as the relative weightings of securities
selections may result in differences in investment performance. Expenses of the
Portfolio and its corresponding retail fund are expected to differ.
Policies that are noted as "fundamental" cannot be changed without a shareholder
vote. All other policies, including the Portfolio's investment objectives, are
not fundamental and may be changed by the Portfolio's Trustees without a
shareholder vote. You will be notified of any such changes that are material. If
there is a material change in the Portfolio's objectives or policies, you should
consider whether the Portfolio remains an appropriate investment for your
variable insurance contract or qualified retirement plan.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is long-term growth of capital. It is
a non-diversified portfolio that pursues its objective by investing primarily in
common stocks of issuers of any size, which may include larger well-established
issuers and/or smaller emerging growth companies.
TYPES OF INVESTMENTS
The Portfolio invests primarily in common stocks of foreign and domestic
companies. The Portfolio may invest to a lesser degree in other types of
securities including preferred stock, warrants, convertible securities and debt
securities when its portfolio manager perceives an opportunity for capital
growth from such securities or to receive a return on idle cash. The Portfolio
may purchase securities on a when-issued, delayed delivery or forward commitment
basis. The Portfolio may invest up to 25% of its assets in mortgage- and
asset-backed securities, up to 10% of its assets in zero coupon, pay-in-kind and
step coupon securities, and without limit in indexed/structured securities. The
Portfolio will not invest 35% or more of its assets in high-yield/high-risk
securities.
The Portfolio may invest without limit in foreign equity and debt securities.
The Portfolio may invest directly in foreign securities denominated in a foreign
currency and not publicly traded in the United States. Other ways of investing
in foreign securities include depositary receipts or shares, and passive foreign
investment companies. The Portfolio may use futures, options and other
derivatives for hedging purposes or for non-hedging purposes such as seeking to
enhance return. See "Additional Risk Factors" on page 4 for a discussion of the
risks associated with foreign investing and derivatives.
See Appendix A for a further description of the Portfolio's investments.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN THE PORTFOLIO.
HOW ARE COMMON STOCKS SELECTED?
The Portfolio may invest substantially all of its assets in common stocks to the
extent its portfolio manager believes that the relevant market environment
favors profitable investing in those securities. The portfolio manager generally
takes a "bottom up" approach to building the portfolio. In other words, the
manager seeks to identify individual companies with earnings growth potential
that may not be recognized by the market at large. Although themes may emerge in
the Portfolio, securities are generally selected without regard to any defined
industry sector or other similarly defined selection procedure. Realization of
income is not a significant investment consideration. Any income realized on the
Portfolio's investments will be incidental to its primary objective.
ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. The portfolio manager seeks companies that meet his selection
criteria, regardless of country of organization or place of principal business
activity. Foreign securities are generally selected on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
However, certain factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign
securities. See "Additional Risk Factors" on page 4.
- --------------------------------------------------------------------------------
WHAT IS THE MAIN RISK OF INVESTING IN A COMMON STOCK FUND?
The fundamental risk associated with any common stock fund is the risk that the
value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative. See "Additional Risk Factors" on page 4.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
2
<PAGE>
HOW DOES A DIVERSIFIED FUND DIFFER FROM A NONDIVERSIFIED FUND?
A "nondiversified" fund, such as the Portfolio, has the ability to take larger
positions in a smaller number of issuers than a "diversified" fund. Because the
appreciation or depreciation of a single stock may have a greater impact on the
net asset value per share ("NAV") of a nondiversified fund, its share price can
be expected to fluctuate more than a comparable diversified fund.
- --------------------------------------------------------------------------------
HOW DOES THE PORTFOLIO TRY TO REDUCE RISK?
The Portfolio may use futures, options and other derivative instruments to
protect the portfolio from movements in securities prices and interest rates.
The Portfolio may also use a variety of currency hedging techniques, including
forward currency contracts, to manage exchange rate risk. See "Additional Risk
Factors" on page 4. In addition, to the extent that the Portfolio holds a larger
cash position, it might not participate in market declines to the same extent as
if it had remained more fully invested in common stocks.
GENERAL PORTFOLIO POLICIES
The Portfolio will follow the general policies listed below in investing its
portfolio assets. The percentage limitations included in these policies and
elsewhere in this Prospectus apply at the time of purchase of the security. For
example, if the Portfolio exceeds a limit as a result of market fluctuations or
the sale of other securities, it will not be required to dispose of any
securities.
CASH POSITION
When the Portfolio's manager believes that market conditions are not favorable
for profitable investing or when the portfolio manager is otherwise unable to
locate favorable investment opportunities, the Portfolio's investments may be
hedged to a greater degree and/or its cash or similar investments may increase.
In other words, the Portfolio does not always stay fully invested in stocks and
bonds. Cash or similar investments are a residual - they represent the assets
that remain after a portfolio manager has committed available assets to
desirable investment opportunities. Larger hedged positions and/or larger cash
positions may serve as a means of preserving capital in unfavorable market
conditions.
Securities that the Portfolio may invest in as means of receiving a return on
idle cash include high-grade commercial paper, certificates of deposit,
repurchase agreements or other short-term debt obligations. The Portfolio may
also invest in money market funds (including funds managed by Janus Capital).
When a Portfolio's investments in cash or similar investments increase, a
Portfolio may not participate in stock or bond market advances or declines to
the same extent that it would if the Portfolio remained more fully invested in
stocks or bonds.
DIVERSIFICATION
The Investment Company Act of 1940 (the "1940 Act") classifies investment
companies as either diversified or non- diversified. The Portfolio is a
nondiversified fund under the 1940 Act and is subject to the following
requirements:
o As a fundamental policy, the Portfolio may not own more than 10% of the
outstanding voting shares of any issuer.
o As a fundamental policy, with respect to 50% of its total assets, the
Portfolio will not purchase a security of any issuer (other than cash items
and U.S. government securities, as defined in the 1940 Act) if such
purchase would cause the Portfolio's holdings of that issuer to amount to
more than 5% of the Portfolio's total assets.
o The Portfolio will invest no more than 25% of its total assets in a single
issuer (other than U.S. government securities).
o The Portfolio reserves the right to become a diversified portfolio by
limiting the investments in which more than 5% of its total assets are
invested.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS
In addition to the diversification requirements stated above, each Portfolio
intends to comply with the diversification requirements currently imposed by the
IRS on separate accounts of insurance companies as a condition of maintaining
the tax-deferred status of variable contracts. More specific information may be
contained in the participating insurance company's seperate account prospectus.
INDUSTRY CONCENTRATION
As a fundamental policy, the Portfolio will not invest 25% or more of its total
assets in any particular industry (excluding U.S. government securities).
PORTFOLIO TURNOVER
The Portfolio generally intends to purchase securities for long-term investment
rather than short-term gains. However, short-term transactions may result from
liquidity needs, securities having reached a price or yield objective,
anticipated changes in interest rates or the credit standing of an issuer, or by
reason of economic or other developments not foreseen at the time of the
investment decision. Changes are made in the Portfolio whenever its portfolio
manager believes such changes are desirable. The portfolio turnover rate is
generally not a factor in making buy and sell decisions. The Portfolio's
turnover rate is not expected to exceed 200%.
To a limited extent, the Portfolio may purchase securities in anticipation of
relatively short-term price gains. The Portfolio may also sell one security and
simultaneously purchase the same or a comparable security to take advantage of
short-term differentials in bond yields or securities prices. Increased
portfolio turnover may result in higher costs for brokerage commissions, dealer
mark-ups and other transaction costs and may also result in taxable capital
gains. Certain tax rules may restrict the Portfolio's ability to engage in
short-term trading if the security has been held for less than three months.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
3
<PAGE>
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in illiquid investments,
including restricted securities or private placements that are not deemed to be
liquid by Janus Capital. An illiquid investment is a security or other position
that cannot be disposed of quickly in the normal course of business. Some
securities cannot be sold to the U.S. public because of their terms or because
of SEC regulations. Janus Capital will follow guidelines established by the
Trustees of the Trust ("Trustees") in making liquidity determinations for Rule
144A securities and certain other securities, including privately placed
commercial paper and municipal lease obligations.
BORROWING AND LENDING
The Portfolio may borrow money and lend securities or other assets, as follows:
o The Portfolio may borrow money for temporary or emergency purposes in
amounts up to 25% of its total assets.
o The Portfolio may mortgage or pledge securities as security for borrowings
in amounts up to 15% of its net assets.
o As a fundamental policy, the Portfolio may lend securities or other assets
if, as a result, no more than 25% of its total assets would be lent to
other parties.
The Portfolio intends to seek 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.
ADDITIONAL RISK FACTORS
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
MAY INVOLVE GREATER RISKS THAN INVESTING IN COMPARABLE DOMESTIC SECURITIES.
Securities of some foreign companies and governments may be traded in the United
States, but most foreign securities are traded primarily in foreign markets. The
risks of foreign investing include:
o Currency Risk. The Portfolio may buy the local currency when it buys a
foreign currency denominated security and sell the local currency when it
sells the security. As long as the Portfolio holds a foreign security, its
value will be affected by the value of the local currency relative to the
U.S. dollar. When the Portfolio sells a foreign denominated security, its
value may be worth less in U.S. dollars even though the security increases
in value in its home country. U.S. dollar denominated securities of foreign
issuers may also be affected by currency risk.
o Political and Economic Risk. Foreign investments may be subject to
heightened political and economic risks, particularly in underdeveloped or
developing countries which may have relatively unstable governments and
economies based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations of a
company or that the government may impose taxes or limits on the removal of
the Portfolio's assets from that country. The Portfolio may invest in
emerging market countries. Emerging market countries involve greater risks
such as immature economic structures, national policies restricting
investments by foreigners, and different legal systems.
o Regulatory Risk. There may be less government supervision of foreign
markets. Foreign issuers may not be subject to the uniform accounting,
auditing and financial reporting standards and practices applicable to
domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers.
o Market Risk. Foreign securities markets, particularly those of
underdeveloped or developing countries, may be less liquid and more
volatile than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in settling
securities transactions. In some foreign markets, there may not be
protection against failure by other parties to complete transactions. There
may be limited legal recourse against an issuer in the event of a default
on a debt instrument.
o Transaction Costs. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody costs, are generally
higher than those involved in domestic transactions.
Foreign securities purchased indirectly (e.g., depositary receipts) are subject
to many of the above risks, including currency risk, because their values depend
on the performance of a foreign security denominated in its home currency.
INVESTMENTS IN SMALLER COMPANIES
SMALLER OR NEWER COMPANIES MAY SUFFER MORE SIGNIFICANT LOSSES AS WELL AS
REALIZE MORE SUBSTANTIAL GROWTH THAN LARGER OR MORE ESTABLISHED ISSUERS.
The Portfolio may invest in companies that have relatively small revenues, have
a small share of the market for their products or services, or have limited
geographic or product markets. Small companies may lack depth of management,
they may be unable to generate internally funds necessary for growth or
potential development or to generate such funds through external financing on
favorable terms, or they may be developing or marketing new products or services
for which markets are not yet established and may never become established. In
addition, such companies may be insignificant factors in their industries and
may become subject to intense competition from larger companies. Securities of
small companies held by the Portfolio may have limited trading markets that may
be subject to wide price fluctuations. Investments in such companies tend to be
more volatile and somewhat more speculative.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
The Portfolio may enter into futures contracts on securities, financial indices
and foreign currencies and options on such contracts ("futures contracts") and
may invest in options on securities, financial indices and foreign currencies
("options"), forward contracts and interest rate swaps and swap-related products
(collectively, "derivative instruments"). The Portfolio intends to use most
derivative instruments primarily to hedge the value of its portfolio holdings
against potential adverse movements in securities prices, foreign currency
markets or interest rates. To a limited extent, the Portfolio may also use
derivative instruments for non-hedging purposes
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
4
<PAGE>
such as seeking to increase the Portfolio's income or otherwise seeking to
enhance return. Please refer to Appendix A to this Prospectus and the SAI for a
more detailed discussion of these instruments.
The use of derivative instruments exposes the Portfolio to additional investment
risks and transaction costs. Risks inherent in the use of derivative instruments
include:
o the risk that interest rates, securities prices and currency markets will
not move in the directions that the portfolio manager anticipates;
o imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies
being hedged;
o the fact that skills needed to use these strategies are different from
those needed to select portfolio securities;
o inability to close out certain hedged positions to avoid adverse tax
consequences;
o the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits, either
of which may make it difficult or impossible to close out a position when
desired;
o leverage risk, that is, the risk that adverse price movements in an
instrument can result in a loss substantially greater than the Portfolio's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and
o particularly in the case of privately negotiated instruments, the risk that
the counterparty will fail to perform its obligations, which could leave
the Portfolio worse off than if it had not entered into the position.
Although the portfolio manager believes the use of derivative instruments will
benefit the Portfolio, the Portfolio's performance could be worse than if it had
not used such instruments if the portfolio manager's judgment proves incorrect.
When the Portfolio invests in a derivative instrument, it may be required to
segregate cash and other liquid assets or portfolio securities with its
custodian to "cover" the Portfolio's position. Assets segregated or set aside
generally may not be disposed of so long as the Portfolio maintains the
positions requiring segregation or cover. Segregating assets could diminish the
Portfolio's return due to the opportunity losses of foregoing other potential
investments with the segregated assets.
HIGH-YIELD/HIGH-RISK SECURITIES
High-yield/high-risk securities (or "junk" bonds) are debt securities rated
below investment grade by the primary rating agencies (such as, Standard &
Poor's Ratings Services and Moody's Investors Service, Inc.)
The value of lower quality securities generally is more dependent on the ability
of the issuer to meet interest and principal payments (i.e., credit risk) than
is the case for higher quality securities. Conversely, the value of higher
quality securities may be more sensitive to interest rate movements than lower
quality securities. Issuers of high-yield/high-risk securities may not be as
strong financially as those issuing bonds with higher credit ratings.
Investments in such companies are considered to be more speculative than higher
quality investments.
Issuers of high-yield/high-risk securities may be more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, the Portfolio
would experience a reduction of its income and could expect a decline in the
market value of the defaulted securities.
The market for lower quality securities is generally less liquid than the market
for higher quality securities. Adverse publicity and investor perceptions as
well as new or proposed laws may also have a greater negative impact on the
market for lower quality securities. Unrated debt, while not necessarily of
lower quality than rated securities, may not have as broad a market as rated
securities. 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.
The market prices of high-yield/high-risk securities structured as zero coupon
or pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically. In addition, zero coupon, pay-in-kind and delayed interest bonds
often do not pay interest until maturity. However, the Portfolio must recognize
a computed amount of interest income and pay dividends to shareholders even
though it has received no cash. In some instances, the Portfolio may have to
sell securities to have sufficient cash to pay the dividends.
Please refer to the SAI for a description of bond rating categories.
SHORT SALES
The Portfolio may engage in "short sales against the box." This technique
involves selling either a security that the Portfolio owns, or a security
equivalent in kind and amount that the Portfolio has the right to obtain, for
delivery at a specified date in the future. The Portfolio will enter into a
short sale against the box to hedge against anticipated declines in the market
price of portfolio securities or to defer an unrealized gain. If the value of
the securities sold short increases prior to the scheduled delivery date, the
Portfolio loses the opportunity to participate in the gain.
SPECIAL SITUATIONS
The Portfolio may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Portfolio's portfolio manager, the
securities of a particular issuer will be recognized and appreciate in value due
to a specific development with respect to that issuer. Developments creating a
special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
See Appendix A for risks associated with certain other investments.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
5
<PAGE>
MANAGEMENT OF THE PORTFOLIO
TRUSTEES
The Trustees oversee the business affairs of the Trust and are responsible for
major decisions relating to the Portfolio's investment objective and policies.
The Trustees delegate the day-to-day management of the Portfolio to the officers
of the Trust and meet at least quarterly to review the Portfolio's investment
policies, performance, expenses and other business affairs.
INVESTMENT ADVISER
Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928, is the
investment adviser to the Portfolio and is responsible for the day-to-day
management of its investment portfolio and other business affairs.
Janus Capital has served as investment adviser to Janus Fund since its inception
in 1970 and currently serves as investment adviser to all of the Janus retail
funds, as well as adviser or subadviser to other mutual funds and individual,
corporate, charitable and retirement accounts.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus Capital, most of which it acquired in 1984.
KCSI is a publicly traded holding company whose primary subsidiaries are engaged
in transportation, information processing and financial services. Thomas H.
Bailey, 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.
Janus Capital furnishes continuous advice and recommendations concerning the
Portfolio's investments. Janus Capital also furnishes certain administrative,
compliance and accounting services for the Portfolio, and may be reimbursed by
the Portfolio for its costs in providing those services. In addition, Janus
Capital employees serve as officers of the Trust and Janus Capital provides
office space for the Portfolio and pays the salaries, fees and expenses of all
Portfolio officers and those Trustees who are affiliated with Janus Capital.
The Portfolio pays all of its expenses not assumed by Janus Capital, including
transfer agent and custodian fees and expenses, legal and auditing fees,
registration fees and expenses, and independent Trustees' fees and expenses and
certain other expenses. Participating insurance companies that purchase the
Portfolio's shares may perform certain administrative services relating to the
Portfolio and Janus Capital or the Portfolio may pay those companies for such
services.
PORTFOLIO MANAGER
Scott W. Schoelzel is the Executive Vice President and portfolio manager of the
Portfolio. He is also portfolio manager of Janus Olympus Fund which he has
managed since its inception. Mr. Schoelzel is Vice President of Janus Capital,
where he has been employed since January 1994. From 1991 to 1993, Mr. Schoelzel
was a portfolio manager with Founders Asset Management, Denver, Colorado. He
holds a Bachelor of Arts in Business from Colorado College.
ASSISTANT PORTFOLIO MANAGER
Mike Lu is an assistant portfolio manager of the Portfolio. He is also assistant
portfolio manager of Janus Olympus Fund. He received an undergraduate degree in
Economics and History from Yale University. He is a Chartered Financial Analyst.
PERSONAL INVESTING
Janus Capital does not permit portfolio managers to purchase and sell securities
for their own accounts, except under the limited exceptions contained in Janus
Capital's policy governing personal investing. Janus Capital's policy requires
investment and other personnel to conduct their personal investment activities
in a manner that Janus Capital believes is not detrimental to the Portfolio or
Janus Capital's other advisory clients. See the SAI for more detailed
information.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities on behalf of the Portfolio are executed by
broker-dealers selected by Janus Capital. Broker-dealers are selected on the
basis of their ability to obtain best price and execution for the Portfolio's
transactions and recognizing brokerage, research and other services provided to
the Portfolio and to Janus Capital. Janus Capital may consider sales of shares
of the Portfolios or other Janus funds by a broker-dealer or the recommendation
of a broker-dealer to its customers that they purchase a Portfolio's 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. Janus Capital may also consider sales of shares of the Portfolio as a
factor in the selection of broker-dealers. The Portfolio's Trustees have
authorized Janus Capital to place portfolio transactions on an agency basis with
a broker-dealer affiliated with Janus Capital. When transactions for the
Portfolio are effected with that broker-dealer, the commissions payable by the
Portfolio are credited against certain Portfolio operating expenses serving to
reduce those expenses. The SAI further explains the selection of broker-dealers.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
6
<PAGE>
BREAKDOWN OF MANAGEMENT EXPENSES
The Portfolio pays Janus Capital a management fee which is calculated daily. The
advisory agreement with the Portfolio spells out the management fee and other
expenses that the Portfolio must pay. The Portfolio is subject to the following
management fee schedule (expressed as an annual rate):
<TABLE>
<CAPTION>
<S> <C> <C>
Average Daily Net Annual Rate
Fee Schedule Assets of Portfolio Percentage (%)
- -------------------------------------------------------------------------------------------------------------------
First $ 30 Million 1.00*
Next $270 Million .75
Next $200 Million .70
Over $500 Million .65
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Janus Capital has agreed to reduce the Portfolio's advisory fee to the
extent that such fee exceeds the effective rate of Janus Olympus Fund,
the Janus retail fund corresponding to the Portfolio. Janus Capital
may terminate this fee reduction at any time upon at least 90 days'
notice to the Trustees. The effective rate is the advisory fee
calculated by the corresponding retail fund as of the last day of each
calendar quarter (expressed as an annual rate). The effective rate of
Janus Olympus Fund was .75% for the quarter ended March 31, 1997. In
addition, Janus Capital has agreed to limit the expenses of the
Portfolio's Shares to an annual rate of 1.25% of average net assets
through at least April 30, 1998.
As asset size increases, the annual rate of the management fee declines in
accordance with the above schedule. In addition, the Shares of the Portfolio
incur expenses not assumed by Janus Capital, including transfer agent and
custodian fees and expenses, legal and auditing fees, printing and mailing costs
of sending reports and other information to existing shareholders, and
independent Trustees' fees and expenses.
OTHER SERVICE PROVIDERS
The following parties provide the Portfolio with administrative and other
services.
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 0351
Boston, Massachusetts 02117-0351
TRANSFER AGENT
Janus Service Corporation
P.O. Box 173375
Denver, Colorado 80217-3375
Janus Service Corporation is a wholly-owned subsidiary of Janus Capital.
OTHER INFORMATION
ORGANIZATION
The Trust is an open-end management investment company organized as a Delaware
business trust on May 20, 1993. The Portfolio has been established as a separate
series of the Trust.
The Portfolios currently offer two classes of shares, one of which, the
Institutional Shares, are offered pursuant to this prospectus. The Institutional
Shares of the Portfolio, as well as other Janus Aspen Series - Institutional
Shares are sold under the name Janus Aspen Series. The Shares offered by this
Prospectus are available only in connection with investment in and payments
under variable contracts and life insurance contracts, as well as certain
qualified retirement plans. Retirement Shares are offered by a separate
prospectus and are available only to participant directed qualified plans using
plan service providers that are compensated for providing distribution and/or
recordkeeping and other administrative services to plan participants. Because
the expenses of each class may differ, the performance in each class is expected
to differ. If you would like additional information about the Retirement Shares,
please call 1-800-525-0020.
SHAREHOLDER MEETINGS
The Trust does not intend to hold annual shareholder meetings. However, special
meetings may be called for a specific Portfolio or for the Trust as a whole for
purposes such as electing or removing Trustees, terminating or reorganizing the
Trust, changing fundamental policies, or for any other purpose requiring a
shareholder vote under the 1940 Act. Separate votes are taken by each class or
Portfolio only if a matter affects or requires the vote of only that class or
Portfolio or the interest in the matter differs from the interest of the other
class or portfolios of the Trust. As a shareholder, you are entitled to one vote
for each share that you own.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
7
<PAGE>
An insurance company issuing a variable contract invested in shares of the
Portfolio will request voting instructions from variable contract holders. Under
current law, the insurance company must vote all shares held by the separate
account in proportion to the voting instructions received.
CONFLICTS OF INTEREST
Portfolio shares are available only to variable annuity and variable life
separate accounts of insurance companies that are unaffiliated with Janus
Capital and to certain qualified retirement plans. Although the Portfolio
currently does not anticipate any disadvantages to policy owners arising out of
the fact that the Portfolio offers its shares to such entities, there is a
possibility that disadvantages could occur or that a material conflict may
arise. The Trustees monitor events in order to identify any anticipated
disadvantages or material irreconcilable conflicts and to determine what action,
if any, should be taken in response. If a material disadvantage or conflict
occurs, the Trustees may require one or more insurance company separate accounts
or plans to withdraw its investments in the Portfolio or substitute shares of
another Portfolio. As a result, the Portfolio may be forced to sell securities
at disadvantageous prices. In addition, the Trustees may refuse to sell shares
of the Portfolio to any separate account or may suspend or terminate the
offering of shares of the Portfolio if such action is required by law or
regulatory authority or is in the best interests of the Portfolio's
shareholders. It is possible that a qualified plan investing in the Retirement
Shares of the Portfolio could lose it qualified plan status under the Internal
Revenue Code, which could have adverse tax consequences on insurance company
separate accounts investing in the shares. Janus Capital intends to monitor such
qualified plans and the Portfolio may discontinue sales to a qualified plan and
require plan participants with existing investments in the Retirement Shares to
reedeem those investments if a plan loses (or in the opinion of Janus Capital is
at risk of losing) its qualified plan status.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve the Portfolio's investment objective
by investing all of the Portfolio's assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to the Portfolio. It is expected that any such
investment company would be managed by Janus Capital in substantially the same
manner as the Portfolio. The shareholders of the Trust of record on April 30,
1992, and the initial shareholder(s) of the Portfolio, have voted to vest
authority to use this investment structure in the sole discretion of the
Trustees. No further approval of the shareholders of the Portfolio is required.
You will receive at least 30 days' prior notice of any such investment. Such
investment would be made only if the Trustees determine it to be in the best
interests of the Portfolio and its shareholders. In making that determination,
the Trustees will consider, among other things, the benefits to shareholders
and/or the opportunity to reduce costs and achieve operational efficiencies.
Although management of the Portfolio believes that the Trustees will not approve
an arrangement that is likely to result in higher costs, no assurance is given
that costs will be materially reduced if this option is implemented.
THE VALUATION OF SHARES
The net asset value ("NAV") of the Shares of the Portfolio is determined at the
close of the regular trading session of the New York Stock Exchange (the "NYSE")
(normally 4:00 p.m., New York time) each day that the NYSE is open. NAV per
share is determined by dividing the total value of the securities and other
assets, less liabilities, by the total number of shares outstanding.
Securities are valued at market value or, if market information is not readily
available, at their fair value determined in good faith under procedures
established by and under the supervision of the Trustees. Short-term instruments
maturing within 60 days are valued at amortized cost, which approximates market
value.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
8
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
TO AVOID TAXATION OF THE PORTFOLIO, THE INTERNAL REVENUE CODE REQUIRES THE
PORTFOLIO TO DISTRIBUTE NET INCOME AND ANY NET GAINS REALIZED BY ITS
INVESTMENTS ANNUALLY. INCOME FROM DIVIDENDS AND INTEREST AND ANY NET
REALIZED SHORT-TERM CAPITAL GAINS ARE PAID TO SHAREHOLDERS AS ORDINARY
INCOME DIVIDENDS. NET REALIZED LONG-TERM GAINS, IF ANY, ARE PAID TO
SHAREHOLDERS AS CAPITAL GAINS DISTRIBUTIONS. EACH CLASS OF THE PORTFOLIO
MAKES SEMIANNUAL DISTRIBUTIONS IN JUNE AND DECEMBER OF SUBSTANTIALLY ALL OF
ITS INVESTMENT INCOME AND AN ANNUAL DISTRIBUTION IN JUNE OF ITS NET
REALIZED CAPITAL GAINS, IF ANY. ALL DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS FROM THE SHARES OF THE PORTFOLIO WILL BE AUTOMATICALLY
REINVESTED INTO ADDITIONAL SHARES OF THE PORTFOLIO.
HOW DISTRIBUTIONS AFFECT NAV
Distributions are paid to shareholders as of the record date of the distribution
of the Portfolio, regardless of how long the shares have been held. Dividends
and capital gains awaiting distribution are included in the daily NAV of the
portfolio's Shares. The share price drops by the amount of the distribution, net
of any subsequent market fluctuations. As an example, assume that on December
31, the Shares of the Portfolio declared a dividend in the amount of $0.25 per
share. If the price of the Portfolio's Shares was $10.00 on December 30, the
Share price on December 31 would be $9.75, barring market fluctuations.
- --------------------------------------------------------------------------------
TAXES
TAXES ON DISTRIBUTIONS
Because shares of the Portfolio may be purchased only through variable insurance
contracts and qualified plans, it is anticipated that any income dividends or
capital gains distributions made by the Portfolio will be exempt from current
taxation if left to accumulate within the variable insurance contract or
qualified plan. Generally, withdrawals from such contracts may be subject to
ordinary income tax and, if made before age 591/2, a 10% penalty tax. The tax
status of your investment in the Portfolio depends on the features of the
variable insurance contracts purchased from a participating insurance company.
Further information may be found in the prospectus of the separate account
offering such contract.
TAXATION OF THE PORTFOLIO
Dividends, interest and some capital gains received by the Portfolio on foreign
securities may give rise to withholding and other taxes imposed by foreign
countries. It is expected that foreign taxes paid by the Portfolio will be
treated as expenses of the Portfolio. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes.
The Portfolio does not expect to pay any federal income or excise taxes because
it intends to meet certain requirements of the Internal Revenue Code. In
addition, the Portfolio intends to qualify under the Internal Revenue Code with
respect to the diversification requirements related to the tax-deferred status
of insurance company separate accounts.
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
This section will help you understand various terms that are commonly used to
describe the Portfolio's performance. You may see references to these terms in
our newsletters, advertisements (or those published by participating insurance
companies) and in media articles. Newsletters and advertisements may include
comparisons of the Portfolio's performance to the performance of other mutual
funds, mutual fund averages or recognized stock market indices. The Portfolio
generally measures performance in terms of total return.
Cumulative total return represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (e.g., the life of the Portfolio). A cumulative total return does
not show interim fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the cumulative
total return for the stated period and determining what constant annual return
would have produced the same cumulative return. Average annual returns for more
than one year tend to smooth out variations in the Portfolio's return and are
not the same as actual annual results.
THE PORTFOLIO IMPOSES NO SALES OR OTHER CHARGES THAT WOULD AFFECT TOTAL RETURN
COMPUTATIONS. TOTAL RETURN FIGURES OF THE PORTFOLIO INCLUDES THE EFFECT OF
DEDUCTING THE PORTFOLIO'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. PORTFOLIO PERFORMANCE FIGURES
ARE BASED UPON HISTORICAL RESULTS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. INVESTMENT RETURNS AND NET ASSET VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
9
<PAGE>
SHAREHOLDER'S GUIDE
INVESTORS MAY NOT PURCHASE OR REDEEM SHARES OF THE PORTFOLIO DIRECTLY. SHARES
MAY BE PURCHASED OR REDEEMED ONLY THROUGH VARIABLE INSURANCE CONTRACTS OFFERED
BY THE SEPARATE ACCOUNTS OF PARTICIPATING INSURANCE COMPANIES OR THROUGH
QUALIFIED RETIREMENT PLANS. REFER TO THE PROSPECTUS FOR THE PARTICIPATING
INSURANCE COMPANY'S SEPARATE ACCOUNT OR YOUR PLAN DOCUMENTS FOR INSTRUCTIONS ON
PURCHASING OR SELLING A VARIABLE INSURANCE CONTRACT AND ON HOW TO SELECT THE
PORTFOLIO AS AN INVESTMENT OPTION FOR A CONTRACT OR A QUALIFIED PLAN.
PURCHASES
Purchases of Portfolio shares may be made only by the separate accounts of
insurance companies for the purpose of funding variable insurance contracts or
by qualified plans. Refer to the prospectus of the appropriate insurance
company's separate account or to your plan documents for information on how to
invest in the Shares of the Portfolio.
All investments in the Portfolio are credited to a participating insurance
company's separate account or a qualified plan immediately upon acceptance of
the investment by the Portfolio. Investments will be processed at the NAV next
calculated after an order is received and accepted by the Portfolio.
The Portfolio reserves the right to reject any specific purchase order. Purchase
orders may be refused if, in Janus Capital's opinion, they are of the size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
may adversely affect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing policy owners
and plan participants invested in the Portfolio would be permitted to continue
to authorize investment in the Portfolio and to reinvest any dividends or
capital gains distribution.
REDEMPTIONS
Redemptions, like purchases, may be effected only through the separate accounts
of participating insurance companies or through qualified plans. Please refer to
the appropriate separate account prospectus or plan documents for details.
Shares of the Portfolio may be redeemed on any business day. Redemptions are
processed at the NAV next calculated after receipt and acceptance of the
redemption order by the Portfolio. Redemption proceeds will normally be wired to
the participating insurance company the business day following receipt of the
redemption order, but in no event later than seven days after receipt of such
order.
SHAREHOLDER COMMUNICATIONS
Shareholders will receive annual and semiannual reports including the financial
statements of the Shares of the Portfolio. Each report will show the investments
owned by the Portfolio and market values thereof, as well as other information
about the Portfolio and its operations. The Trust's fiscal year ends December
31.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
10
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the Portfolio may invest. The
Portfolio may invest in these instruments to the extent permitted by its
investment objective and policies. The Portfolio is not limited by this
discussion and may invest in any other types of instruments not precluded by the
policies discussed elsewhere in this Prospectus. Please refer to the SAI for a
more detailed discussion of certain instruments.
I. EQUITY AND DEBT SECURITIES
Bonds are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
Commercial paper is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. For example, the Portfolio may purchase commercial
paper issued under Section 4(2) of the Securities Act of 1933.
Common stock represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
Convertible securities are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
Depositary receipts are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
Fixed-income securities are securities that pay a specified rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a specified rate of interest or coupons for a specified
period of time and preferred stock, which pays fixed dividends. Coupon and
dividend rates may be fixed for the life of the issue or, in the case of
adjustable and floating rate securities, for a shorter period.
High-yield/High-risk securities are securities that are rated below investment
grade by the primary rating agencies ( BB or lower by Standard &Poor's and Ba or
lower by Moody's). Other terms commonly used to describe such securities include
"lower rated bonds," "noninvestment grade bonds" and "junk bonds."
Mortgage- and asset-backed securities are shares in a pool of mortgages or other
debt. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, the portfolio manager may
have to reinvest the proceeds from the securities at a lower rate. Potential
market gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
Passive foreign investment companies (PFICs) are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, interest,
royalties, rents and annuities. Income tax regulations may require the Portfolio
to recognize income associated with the PFIC prior to the actual receipt of any
such income.
Pay-in-kind bonds are debt securities that 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.
Preferred stock is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
Repurchase agreements involve the purchase of a security by the Portfolio and
a simultaneous agreement by the seller (generally a bank or dealer) to
repurchase the security from the Portfolio at a specified date or upon demand.
This technique offers a method of earning income on idle cash. These securities
involve the risk that the seller will fail to repurchase the security, as
agreed. In that case, the Portfolio will bear the risk of market value
fluctuations until the security can be sold and may encounter delays and incur
costs in liquidating the security.
Reverse repurchase agreements involve the sale of a security by the Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually high
redemption requests or for other temporary or emergency purposes.
Rule 144A securities are securities that are not registered for sale to the
general public under the Securities Act of 1933, but that may be resold to
certain institutional investors.
Standby commitments are obligations purchased by the Portfolio from a dealer
that give the Portfolio the option to sell a security to the dealer at a
specified price.
Step coupon bonds are debt securities that trade at a discount from their face
value and pay coupon interest. The discount from the face 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.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
11
<PAGE>
Strip bonds are debt securities that are stripped of their interest (usually by
a financial intermediary) after the securities are issued. The market value of
these securities generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
U.S. government securities include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
Warrants are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
When-issued, delayed delivery and forward transactions generally involve the
purchase of a security with payment and delivery at some time in the future -
i.e., beyond normal settlement. The Portfolio does not earn interest on such
securities until settlement and bears the risk of market value fluctuations
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
Zero coupon bonds are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
Forward contracts are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Portfolio may enter into forward currency contracts to hedge against
declines in the value of securities denominated in, or whose value is tied to, a
currency other than the U.S. dollar or to reduce the impact of currency
appreciation on purchases of such securities. The Portfolio may also enter into
forward contracts to purchase or sell securities or other financial indices.
Futures contracts are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Portfolio may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The Portfolio
may also buy options on futures contracts. An option on a futures contract gives
the buyer the right, but not the obligation, to buy or sell a futures contract
at a specified price on or before a specified date. Futures contracts and
options on futures are standardized and traded on designated exchanges.
Indexed/structured securities are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. The Portfolio bears the market risk of
an investment in the underlying instruments, as well as the credit risk of the
issuer.
Interest rate swaps involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
Options are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Portfolio may purchase and write put and call options on securities,
securities indices and foreign currencies.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS
12
<PAGE>
This page intentionally left blank.
<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4920
(800) 525-0020
[LOGO] JANUS Funds distributed by Janus Distributors, Inc.
Member NASD.
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
THE PORTFOLIO AT A GLANCE
Brief description of the Portfolio ............................................1
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
..............................................................................1
- --------------------------------------------------------------------------------
THE PORTFOLIO IN DETAIL
The Portfolio's Investment
Objective and Policies .....................................................2
General Portfolio Policies ....................................................3
Additional Risk Factors .......................................................4
- --------------------------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIO
Investment Adviser and
Portfolio Manager ..........................................................6
Portfolio Transactions ........................................................6
Management Expenses ...........................................................7
Other Service Providers .......................................................7
Other Information .............................................................7
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
Distributions .................................................................9
Taxes .........................................................................9
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
An Explanation of
Performance Terms ..........................................................9
- --------------------------------------------------------------------------------
SHAREHOLDER'S GUIDE
Purchases ....................................................................10
Redemptions ..................................................................10
Shareholder Communications ...................................................10
- --------------------------------------------------------------------------------
APPENDIX A
Glossary of Investment Terms .................................................11
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
Prospectus
May 1, 1997
Equity Income Portfolio (the "Portfolio") is a no-load, diversified mutual fund
that seeks current income and long-term growth of capital by investing primarily
in income-producing equity securities. The Portfolio is a series of Janus Aspen
Series (the "Trust"), and currently offers two classes of shares. The
Institutional Shares are sold under the name "Janus Aspen Series." The Trust is
registered with the Securities and Exchange Commission as an open-end management
investment company. The Portfolio is recently organized and has a limited
operating history.
The Institutional Shares of the Portfolio (the "Shares") offered by this
Prospectus are issued and redeemed only in connection with investment in and
payments under variable annuity contracts and variable life insurance contracts
(collectively, "variable insurance contracts"), as well as certain qualified
retirement plans.
The Trust sells and redeems its Shares at net asset value without any sales
charges, commissions or redemption fees. Each variable insurance contract
involves fees and expenses not described in this Prospectus. The Portfolio may
not be available in connection with a particular contract. See the accompanying
contract prospectus for information regarding contract fees and expenses and any
restrictions on purchases or allocations.
This Prospectus contains information about the Portfolio that a prospective
purchaser of a variable insurance contract should consider before allocating
purchase payments or premiums to the Portfolio. It should be read carefully in
conjunction with the separate account prospectus of the specific insurance
product that accompanies this Prospectus and retained for future reference.
Additional information about the Portfolio is contained in the Statement of
Additional Information ("SAI") dated May 1, 1997, which is filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference into
this Prospectus. The SAI is available upon request and without charge by writing
or calling your insurance company.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC NOR HAS THE SEC PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR
OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH STATE OR OTHER JURISDICTION.
<PAGE>
PORTFOLIO AT A GLANCE
This section is designed to provide you with a brief overview of the Portfolio
and its investment emphasis. A more detailed discussion of the Portfolio's
investment objectives and policies begins on page 2.
INVESTMENT OBJECTIVE:
The investment objective of the Portfolio is current income and long-term growth
of capital.
PRIMARY HOLDINGS:
The Portfolio is a diversified portfolio that pursues its objective by investing
primarily in income-producing equity securities.
SHAREHOLDER'S INVESTMENT HORIZON:
The Portfolio is designed for long-term investors who seek income and growth of
capital with lower investment risk and volatility than the stock market, as
measured by the Standard and Poor's 500 Stock Index ("S&P 500"). The Portfolio
is not designed as a short-term trading vehicle and should not be relied upon
for short-term financial needs.
PORTFOLIO ADVISER:
Janus Capital Corporation ("Janus Capital") serves as the Portfolio's investment
adviser. Janus Capital has been in the investment advisory business for over 26
years and currently manages approximately $50 billion in assets.
PORTFOLIO MANAGER:
Blaine P. Rollins
PORTFOLIO INCEPTION:
May 1997
EXPENSE INFORMATION
The tables and example below are designed to assist participants in qualified
plans that invest in the Portfolio in understanding the various costs and
expenses that you will bear directly or indirectly as an investor in the
Portfolio. OWNERS OF VARIABLE INSURANCE CONTRACTS THAT INVEST IN THE PORTFOLIO
SHOULD REFER TO THE VARIABLE INSURANCE CONTRACT PROSPECTUS FOR A DESCRIPTION OF
COSTS AND EXPENSES, AS THE TABLES AND EXAMPLE DO NOT REFLECT DEDUCTIONS AT THE
SEPARATE ACCOUNT LEVEL OR CONTRACT LEVEL FOR ANY CHARGES THAT MAY BE INCURRED
UNDER A CONTRACT.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales charges on redemptions None
Redemption fees None
Exchange fee None
ANNUAL OPERATING EXPENSES (after fee waivers and reductions)(1)
(expressed as a percentage of average net assets)
- --------------------------------------------------------------------------------
Management Fee(1) .95%
Other Expenses(1) .30%
- --------------------------------------------------------------------------------
Total Operating Expenses(1) 1.25%
- --------------------------------------------------------------------------------
(1) The fees and expenses in the table above are based on the estimated gross
expenses before estimated expense offset arrangements that the Shares of
the Portfolio expect to incur in their initial fiscal year, net of fee
reductions or waivers from Janus Capital. Fee reductions reduce the
management fee to the level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the management fee and
then against other expenses. Without such waivers or reductions, the
Management Fee, Other Expenses and Total Operating Expenses for the Shares
are estimated to be 1.00%, .30% and 1.30%, respectively. Janus Capital may
modify or terminate the waivers or reductions at any time upon at least 90
days' notice to the Trustees.
EXAMPLE
- --------------------------------------------------------------------------------
1 Year 3 Years
- --------------------------------------------------------------------------------
Assume you invest $1,000, the Shares of the Portfolio
return 5% annually and the expense ratio remains as
listed above. The example shows the operating expenses
that you would indirectly bear as an investor in the
Shares of the Portfolio. $13 $40
- --------------------------------------------------------------------------------
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
1
<PAGE>
THE PORTFOLIO IN DETAIL
This section takes a closer look at the Portfolio's investment objectives,
policies and the securities in which it invests. Please carefully review the
"Additional Risk Factors" section of this Prospectus for a more detailed
discussion of the risks associated with certain investment techniques and refer
to Appendix A for a more detailed description of the Portfolio's investments
(and certain of the risks associated with those investments). You should
carefully consider your own investment goals, time horizon and risk tolerance
before investing in the Portfolio.
The Portfolio's investment objectives and policies are similar to those of Janus
Equity Income Fund, a Janus retail fund. Although it is anticipated that the
Portfolio and its corresponding retail fund will hold similar securities,
differences in asset size and cash flow needs as well as the relative weightings
of securities selections may result in differences in investment performance.
Expenses of the Portfolio and its corresponding retail fund are expected to
differ. The variable contract owner will also bear various insurance-related
costs at the insurance company level. You should review the accompanying
separate account prospectus for a summary of contract fees and expenses.
Policies that are noted as "fundamental" cannot be changed without a shareholder
vote. All other policies, including the Portfolio's investment objectives, are
not fundamental and may be changed by the Portfolio's Trustees without a
shareholder vote. You will be notified of any such changes that are material. If
there is a material change in the Portfolio's objectives or policies, you should
consider whether the Portfolio remains an appropriate investment for your
variable insurance contract or qualified retirement plan.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is current income and long-term growth
of capital. It is a diversified portfolio that pursues its objective by normally
investing at least 65% of invested assets in income-producing equity securities.
Equity securities include common stocks, preferred stocks, warrants and
securities convertible into common or preferred stocks. Growth potential is a
significant investment consideration and the Portfolio may hold securities
selected solely for their growth potential. The Portfolio seeks to provide a
lower level of volatility than the stock market at large, as measured by the S&P
500. The lower volatility sought by the Portfolio is expected to result
primarily from investments in dividend-paying common stocks and other equity
securities that are characterized by relatively greater price stability. The
greater price stability sought by the Portfolio may be characteristic of
companies that generate above average positive cash flows. A company may use
positive cash flows for a number of purposes including commencing or increasing
dividend payments, repurchasing its own stock or retiring outstanding debt.
TYPES OF INVESTMENTS
The Portfolio invests primarily in common stocks of foreign and domestic
companies. The Portfolio may invest to a lesser degree in other types of
securities including preferred stock, warrants, convertible securities and debt
securities when its portfolio manager perceives an opportunity for capital
growth from such securities or to receive a return on idle cash. The Portfolio
may purchase securities on a when-issued, delayed delivery or forward commitment
basis. The Portfolio may invest up to 25% of its assets in mortgage- and
asset-backed securities, up to 10% of its assets in zero coupon, pay-in-kind and
step coupon securities, and without limit in indexed/structured securities. The
Portfolio will not invest 35% or more of its assets in high-yield/high-risk
securities.
The Portfolio may invest without limit in foreign equity and debt securities.
The Portfolio may invest directly in foreign securities denominated in a foreign
currency and not publicly traded in the United States. Other ways of investing
in foreign securities include depositary receipts or shares, and passive foreign
investment companies. The Portfolio may use futures, options and other
derivatives for hedging purposes or for non-hedging purposes such as seeking to
enhance return. See "Additional Risk Factors" on page 4 for a discussion of the
risks associated with foreign investing and derivatives.
See Appendix A for a further description of the Portfolio's investments
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN THE PORTFOLIO.
HOW ARE EQUITY SECURITIES SELECTED?
The Portfolio invests substantially all of its assets in common stocks and other
equity securities to the extent its portfolio manager believes that the relevant
market environment favors profitable investing in those securities. The
Portfolio seeks to provide a lower level of volatility than the stock market at
large, as measured by the S&P 500. The lower volatility sought by the Portfolio
is expected to result primarily from investments in dividend-paying common
stocks and other equity securities that are characterized by relatively greater
price stability. The greater price stability sought by the Portfolio may be
characteristic of companies that generate above average positive cash flows. A
company may use positive cash flows for a number of purposes including
commencing or increasing dividend payments, repurchasing its own stock or
retiring outstanding debt. The portfolio manager also considers growth potential
in selecting the Portfolio's securities and may hold securities selected solely
for their growth potential. The portfolio manager generally takes a "bottom up"
approach to building the portfolio. Although themes may emerge in the Portfolio,
securities are generally selected without regard to any defined industry sector
or similarly defined selection procedure.
- --------------------------------------------------------------------------------
ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. The portfolio manager seeks companies that meet his selection
criteria regardless of country of organization or place of principal business
activity. Foreign securities are generally selected on a stock-by-stock basis
without regard to any
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
2
<PAGE>
defined allocation among countries or geographic regions. However, certain
factors such as expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships, and prospects for
economic growth among countries, regions or geographic areas may warrant greater
consideration in selecting foreign securities.
See "Additional Risk Factors" on page 4.
- --------------------------------------------------------------------------------
WHAT IS THE MAIN RISK OF INVESTING IN A COMMON STOCK FUND?
The fundamental risk associated with any common stock fund is the risk that the
value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative. See "Additional Risk Factors" on page 4.
- --------------------------------------------------------------------------------
HOW DOES THE PORTFOLIO TRY TO REDUCE RISK?
Diversification of the Portfolio's assets reduces the effect of any single
holding on its overall portfolio value. The Portfolio may use futures, options
and other derivative instruments to protect the portfolio from movements in
securities prices and interest rates. The Portfolio may also use a variety of
currency hedging techniques, including forward currency contracts, to manage
exchange rate risk. See "Additional Risk Factors," on page 4. In addition, to
the extent that the Portfolio holds a larger cash position, it might not
participate in market declines to the same extent as if it had remained more
fully invested in common stocks.
GENERAL PORTFOLIO POLICIES
The Portfolio will follow the general policies listed below in investing its
portfolio assets. The percentage limitations included in these policies and
elsewhere in this Prospectus apply at the time of purchase of the security. For
example, if the Portfolio exceeds a limit as a result of market fluctuations or
the sale of other securities, it will not be required to dispose of any
securities.
CASH POSITION
When the Portfolio's manager believes that market conditions are not favorable
for profitable investing or when the portfolio manager is otherwise unable to
locate favorable investment opportunities, the Portfolio's investments may be
hedged to a greater degree and/or its cash or similar investments may increase.
In other words, the Portfolio does not always stay fully invested in stocks and
bonds. Cash or similar investments are a residual - they represent the assets
that remain after a portfolio manager has committed available assets to
desirable investment opportunities. Larger hedged positions and/or larger cash
positions may serve as a means of preserving capital in unfavorable market
conditions.
Securities that the Portfolio may invest in as means of receiving a return on
idle cash include high-grade commercial paper, certificates of deposit,
repurchase agreements or other short-term debt obligations. The Portfolio may
also invest in money market funds (including funds managed by Janus Capital).
When a Portfolio's investments in cash or similar investments increase, a
Portfolio may not participate in stock or bond market advances or declines to
the same extent that it would if the Portfolio remained more fully invested in
stocks or bonds.
DIVERSIFICATION
The Investment Company Act of 1940 (the "1940 Act") classifies investment
companies as either diversified or nondiversified. The Portfolio qualifies as a
diversified fund under the 1940 Act and is subject to the following
requirements:
o As a fundamental policy, the Portfolio may not own more than 10% of the
outstanding voting shares of any issuer.
o As a fundamental policy, with respect to 75% of its total assets, the
Portfolio will not purchase a security of any issuer (other than cash items
and U.S. government securities, as defined in the 1940 Act) if such
purchase would cause the Portfolio's holdings of that issuer to amount to
more than 5% of the Portfolio's total assets.
o The Portfolio will invest no more than 25% of its total assets in a single
issuer (other than U.S. government securities).
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS
In addition to the diversification requirements stated above, each Portfolio
intends to comply with the diversification requirements currently imposed by the
IRS on separate accounts of insurance companies as a condition of maintaining
the tax-deferred status of variable contracts. More specific information may be
contained in the participating insurance company's separate account prospectus.
INDUSTRY CONCENTRATION
As a fundamental policy, the Portfolio will not invest 25% or more of its total
assets in any particular industry (excluding U.S. government securities).
PORTFOLIO TURNOVER
The Portfolio generally intends to purchase securities for long-term investment
rather than short-term gains. However, short-term transactions may result from
liquidity needs, securities having reached a price or yield objective,
anticipated changes in interest rates or the credit standing of an issuer, or by
reason of economic or other developments not foreseen at the time of the
investment decision. Changes are made in the Portfolio whenever its portfolio
manager believes such changes are desirable. The portfolio turnover rate is
generally not a factor in making buy and sell decisions. The Portfolio's
turnover rate is not expected to exceed 200%.
To a limited extent, the Portfolio may purchase securities in anticipation of
relatively short-term price gains. The Portfolio may also sell one security and
simultaneously purchase the same or a comparable security to take advantage of
short-term differentials
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
3
<PAGE>
in bond yields or securities prices. Increased portfolio turnover may result in
higher costs for brokerage commissions, dealer mark-ups and other transaction
costs and may also result in taxable capital gains. Certain tax rules may
restrict the Portfolio's ability to engage in short-term trading if the security
has been held for less than three months.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in illiquid investments,
including restricted securities or private placements that are not deemed to be
liquid by Janus Capital. An illiquid investment is a security or other position
that cannot be disposed of quickly in the normal course of business. Some
securities cannot be sold to the U.S. public because of their terms or because
of SEC regulations. Janus Capital will follow guidelines established by the
Trustees of the Trust ("Trustees") in making liquidity determinations for Rule
144A securities and certain other securities, including privately placed
commercial paper and municipal lease obligations.
BORROWING AND LENDING
The Portfolio may borrow money and lend securities or other assets, as follows:
o The Portfolio may borrow money for temporary or emergency purposes in
amounts up to 25% of its total assets.
o The Portfolio may mortgage or pledge securities as security for borrowings
in amounts up to 15% of its net assets.
o As a fundamental policy, the Portfolio may lend securities or other assets
if, as a result, no more than 25% of its total assets would be lent to
other parties.
The Portfolio intends to seek 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.
ADDITIONAL RISK FACTORS
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
MAY INVOLVE GREATER RISKS THAN INVESTING IN COMPARABLE DOMESTIC SECURITIES.
Securities of some foreign companies and governments may be traded in the United
States, but most foreign securities are traded primarily in foreign markets. The
risks of foreign investing include:
o Currency Risk. The Portfolio may buy the local currency when it buys a
foreign currency denominated security and sell the local currency when it
sells the security. As long as the Portfolio holds a foreign security, its
value will be affected by the value of the local currency relative to the
U.S. dollar. When the Portfolio sells a foreign denominated security, its
value may be worth less in U.S. dollars even though the security increases
in value in its home country. U.S. dollar denominated securities of foreign
issuers may also be affected by currency risk.
o Political and Economic Risk. Foreign investments may be subject to
heightened political and economic risks, particularly in underdeveloped or
developing countries which may have relatively unstable governments and
economies based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations of a
company or that the government may impose taxes or limits on the removal of
the Portfolio's assets from that country. The Portfolio may invest in
emerging market countries. Emerging market countries involve greater risks
such as immature economic structures, national policies restricting
investments by foreigners, and different legal systems.
o Regulatory Risk. There may be less government supervision of foreign
markets. Foreign issuers may not be subject to the uniform accounting,
auditing and financial reporting standards and practices applicable to
domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers.
o Market Risk. Foreign securities markets, particularly those of
underdeveloped or developing countries, may be less liquid and more
volatile than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in settling
securities transactions. In some foreign markets, there may not be
protection against failure by other parties to complete transactions. There
may be limited legal recourse against an issuer in the event of a default
on a debt instrument.
o Transaction Costs. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody costs, are generally
higher than those involved in domestic transactions.
Foreign securities purchased indirectly (e.g., depositary receipts) are subject
to many of the above risks, including currency risk, because their values depend
on performance of a foreign security denominated in its home currency.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
The Portfolio may enter into futures contracts on securities, financial indices
and foreign currencies and options on such contracts ("futures contracts") and
may invest in options on securities, financial indices and foreign currencies
("options"), forward contracts and interest rate swaps and swap-related products
(collectively, "derivative instruments"). The Portfolio intends to use most
derivative instruments primarily to hedge the value of its portfolio holdings
against potential adverse movements in securities prices, foreign currency
markets or interest rates. To a limited extent, the Portfolio may also use
derivative instruments for non-hedging purposes such as seeking to increase the
Portfolio's income or otherwise seeking to enhance return. Please refer to
Appendix A to this Prospectus and the SAI for a more detailed discussion of
these instruments.
The use of derivative instruments exposes the Portfolio to additional investment
risks and transaction costs. Risks inherent in the use of derivative instruments
include:
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
4
<PAGE>
o the risk that interest rates, securities prices and currency markets will
not move in the directions that the portfolio manager anticipates;
o imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies
being hedged;
o the fact that skills needed to use these strategies are different from
those needed to select portfolio securities;
o inability to close out certain hedged positions to avoid adverse tax
consequences;
o the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits, either
of which may make it difficult or impossible to close out a position when
desired;
o leverage risk, that is, the risk that adverse price movements in an
instrument can result in a loss substantially greater than the Portfolio's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and
o particularly in the case of privately negotiated instruments, the risk that
the counterparty will fail to perform its obligations, which could leave
the Portfolio worse off than if it had not entered into the position.
Although the portfolio manager believes the use of derivative instruments will
benefit the Portfolio, the Portfolio's performance could be worse than if it had
not used such instruments if the portfolio manager's judgment proves incorrect.
When the Portfolio invests in a derivative instrument, it may be required to
segregate cash and other liquid assets or portfolio securities with its
custodian to "cover" the Portfolio's position. Assets segregated or set aside
generally may not be disposed of so long as the Portfolio maintains the
positions requiring segregation or cover. Segregating assets could diminish the
Portfolio's return due to the opportunity losses of foregoing other potential
investments with the segregated assets.
HIGH-YIELD/HIGH-RISK SECURITIES
High-yield/high-risk securities (or "junk" bonds) are debt securities rated
below investment grade by the primary rating agencies (such as, Standard &
Poor's Ratings Services and Moody's Investors Service, Inc.)
The value of lower quality securities generally is more dependent on the ability
of the issuer to meet interest and principal payments (i.e., credit risk) than
is the case for higher quality securities. Conversely, the value of higher
quality securities may be more sensitive to interest rate movements than lower
quality securities. Issuers of high-yield/high-risk securities may not be as
strong financially as those issuing bonds with higher credit ratings.
Investments in such companies are considered to be more speculative than higher
quality investments.
Issuers of high-yield/high-risk securities may be more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, the Portfolio
would experience a reduction of its income and could expect a decline in the
market value of the defaulted securities.
The market for lower quality securities is generally less liquid than the market
for higher quality securities. Adverse publicity and investor perceptions as
well as new or proposed laws may also have a greater negative impact on the
market for lower quality securities. Unrated debt, while not necessarily of
lower quality than rated securities, may not have as broad a market as rated
securities. 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.
The market prices of high-yield/high-risk securities structured as zero coupon
or pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically. In addition, zero coupon, pay-in-kind and delayed interest bonds
often do not pay interest until maturity. However, the Portfolio must recognize
a computed amount of interest income and pay dividends to shareholders even
though it has received no cash. In some instances, the Portfolio may have to
sell securities to have sufficient cash to pay the dividends.
Please refer to the SAI for a description of bond rating categories.
SHORT SALES
The Portfolio may engage in "short sales against the box." This technique
involves selling either a security that the Portfolio owns, or a security
equivalent in kind and amount that the Portfolio has the right to obtain, for
delivery at a specified date in the future. The Portfolio will enter into a
short sale against the box to hedge against anticipated declines in the market
price of portfolio securities or to defer an unrealized gain. If the value of
the securities sold short increases prior to the scheduled delivery date, the
Portfolio loses the opportunity to participate in the gain.
SPECIAL SITUATIONS
The Portfolio may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Portfolio's manager, the securities
of a particular issuer will be recognized and appreciate in value due to a
specific development with respect to that issuer. Developments creating a
special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
See Appendix A for risks associated with certain other investments.
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
5
<PAGE>
MANAGEMENT OF THE PORTFOLIO
TRUSTEES
The Trustees oversee the business affairs of the Trust and are responsible for
major decisions relating to the Portfolio's investment objective and policies.
The Trustees delegate the day-to-day management of the Portfolio to the officers
of the Trust and meet at least quarterly to review the Portfolio's investment
policies, performance, expenses and other business affairs.
INVESTMENT ADVISER
Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928, is the
investment adviser to the Portfolio and is responsible for the day-to-day
management of its investment portfolio and other business affairs.
Janus Capital has served as investment adviser to Janus Fund since its inception
in 1970 and currently serves as investment adviser to all of the Janus retail
funds, as well as adviser or subadviser to other mutual funds and individual,
corporate, charitable and retirement accounts.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus Capital, most of which it acquired in 1984.
KCSI is a publicly traded holding company whose primary subsidiaries are engaged
in transportation, information processing and financial services. Thomas H.
Bailey, 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.
Janus Capital furnishes continuous advice and recommendations concerning the
Portfolio's investments. Janus Capital also furnishes certain administrative,
compliance and accounting services for the Portfolio, and may be reimbursed by
the Portfolio for its costs in providing those services. In addition, Janus
Capital employees serve as officers of the Trust and Janus Capital provides
office space for the Portfolio and pays the salaries, fees and expenses of all
Portfolio officers and those Trustees who are affiliated with Janus Capital.
The Portfolio pays all of its expenses not assumed by Janus Capital, including
transfer agent and custodian fees and expenses, legal and auditing fees,
registration fees and expenses, and independent Trustees' fees and expenses and
certain other expenses. Participating insurance companies that purchase the
Portfolio's Shares may perform certain administrative services relating to the
Portfolio and Janus Capital or the Portfolio may pay those companies for such
services.
PORTFOLIO MANAGER
Blaine P. Rollins is Executive Vice President and portfolio manager of the
Portfolio, which he has managed since inception. He is also portfolio manager of
Balanced Portfolio, which he has managed since May 1996, Janus Balanced Fund and
Janus Equity Income Fund. He has been an assistant portfolio manager of Janus
Fund since January 1995. Mr. Rollins joined Janus Capital in 1990 and has gained
experience as a fixed-income trader and equity research analyst prior to
assuming management responsibility for the Portfolio. He holds a Bachelor of
Science in Finance from the University of Colorado and is a Chartered Financial
Analyst.
PERSONAL INVESTING
Janus Capital does not permit portfolio managers to purchase and sell securities
for their own accounts, except under the limited exceptions contained in Janus
Capital's policy governing personal investing. Janus Capital's policy requires
investment and other personnel to conduct their personal investment activities
in a manner that Janus Capital believes is not detrimental to the Portfolio or
Janus Capital's other advisory clients. See the SAI for more detailed
information.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities on behalf of the Portfolio are executed by
broker-dealers selected by Janus Capital. Broker-dealers are selected on the
basis of their ability to obtain best price and execution for the Portfolio's
transactions and recognizing brokerage, research and other services provided to
the Portfolio and to Janus Capital. Janus Capital may consider sales of shares
of the Portfolios of other Janus funds by a broker-dealer or the recommendation
of a broker-dealer to its customers that they purchase a Portfolio's 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. Janus Capital may also consider sales of shares of the Portfolio as a
factor in the selection of broker-dealers. The Portfolio's Trustees have
authorized Janus Capital to place portfolio transactions on an agency basis with
a broker-dealer affiliated with Janus Capital. When transactions for the
Portfolio are effected with that broker-dealer, the commissions payable by the
Portfolio are credited against certain Portfolio operating expenses serving to
reduce those expenses. The SAI further explains the selection of broker-dealers.
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
6
<PAGE>
BREAKDOWN OF MANAGEMENT EXPENSES
The Portfolio pays Janus Capital a management fee which is calculated daily. The
advisory agreement with the Portfolio spells out the management fee and other
expenses that the Portfolio must pay. The Portfolio is subject to the following
management fee schedule (expressed as an annual rate):
<TABLE>
<CAPTION>
Average Daily Net Annual Rate
Fee Schedule Assets of Portfolio Percentage (%)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First $ 30 Million 1.00*
Next $270 Million .75
Next $200 Million .70
Over $500 Million .65
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Janus Capital has agreed to reduce the Portfolio's advisory fee to the
extent that such fee exceeds the effective rate of Janus Equity Income
Fund, the Janus retail fund corresponding to the Portfolio. Janus
Capital may terminate this fee reduction at any time upon at least 90
days notice to the Trustees. The effective rate is the advisory fee
calculated by the corresponding retail fund as of the last day of each
calendar quarter (expressed as an annual rate). The effective rate of
Janus Equity Income Fund was .94% for the quarter ended March 31,
1997. In addition, Janus Capital has agreed to limit the expenses of
the Portfolio's Shares to an annual rate of 1.25% of average net
assets through at least April 30, 1998.
As asset size increases, the annual rate of the management fee declines in
accordance with the above schedule. In addition, the Shares of the Portfolio
incur expenses not assumed by Janus Capital, including transfer agent and
custodian fees and expenses, legal and auditing fees, printing and mailing costs
of sending reports and other information to existing shareholders, and
independent Trustees' fees and expenses.
OTHER SERVICE PROVIDERS
The following parties provide the Portfolio with administrative and other
services.
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 0351
Boston, Massachusetts 02117-0351
TRANSFER AGENT
Janus Service Corporation
P.O. Box 173375
Denver, Colorado 80217-3375
Janus Service Corporation is a wholly-owned subsidiary of Janus Capital.
OTHER INFORMATION
ORGANIZATION
The Trust is an open-end management investment company organized as a Delaware
business trust on May 20, 1993. The Portfolio has been established as a separate
series of the Trust.
The Portfolio currently offers two classes of shares, one of which, the
Institutional Shares, are offered pursuant to this prospectus. The Institutional
Shares of the Portfolio, as well as other Janus Aspen Series - Institutional
Shares are sold under the name Janus Aspen Series. The Shares offered by this
Prospectus are available only in connection with investment in and payments
under variable contracts and life insurance contracts, as well as certain
qualified retirement plans. Retirement Shares are offered by a separate
prospectus and are available only to participant directed qualified plans using
plan service providers that are compensated for providing distribution and/or
recordkeeping and other administrative services to plan participants. Because
the expenses of each class may differ, the performance in each class is expected
to differ. If you would like additional information about the Retirement Shares,
please call 1-800-525-0020.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
The Trust does not intend to hold annual shareholder meetings. However, special
meetings may be called for a specific Portfolio or for the Trust as a whole for
purposes such as electing or removing Trustees, terminating or reorganizing the
Trust, changing fundamental policies, or for any other purpose requiring a
shareholder vote under the 1940 Act. Separate votes are taken by each class or
Portfolio only if a matter affects or requires the vote of only that class or
Portfolio or the interest of a class or Portfolio in the matter differs from the
interest of the other class or portfolios of the Trust. As a shareholder, you
are entitled to one vote for each share that you own.
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
7
<PAGE>
An insurance company issuing a variable contract invested in shares of the
Portfolio will request voting instructions from variable contract holders. Under
current law, the insurance company must vote all shares held by the separate
account in proportion to the voting instructions received.
CONFLICTS OF INTEREST
Portfolio shares are available only to variable annuity and variable life
separate accounts of insurance companies that are unaffiliated with Janus
Capital and to certain qualified retirement plans. Although the Portfolio does
not currently anticipate any disadvantages to policy owners will develop arising
out of the fact that the Portfolio offers its shares to such entities, there is
a possibility that disadvantages could occur or a material conflict may arise.
The Trustees monitor events in order to identify any anticipated disadvantages
or material irreconcilable conflicts that may arise and to determine what
action, if any, should be taken in response. If a material disadvantage or
conflict occurs, the Trustees may require one or more insurance company separate
accounts or plans to withdraw its investments in the Portfolio or substitute
shares of another Portfolio. As a result, the Portfolio may be forced to sell
securities at disadvantageous prices. In addition, the Trustees may refuse to
sell shares of the Portfolio to any separate account or may suspend or terminate
the offering of shares of the Portfolio if such action is required by law or
regulatory authority or is in the best interests of the Portfolio's
shareholders. It is possible that a qualified plan investing in the Retirement
Shares of the Portfolio could lose its qualified plan status under the Internal
Revenue Code, which could have adverse tax consequences on insurance company
separate accounts investing in the shares. Janus Capital intends to monitor such
qualified plans and the Portfolio may discontinue sales to a qualified plan and
require plan participants with existing investments in the Retirement Shares to
reedeem those investments if a plan loses (or in the opinion of Janus Capital is
at risk of losing) its qualified plan status.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve the Portfolio's investment objective
by investing all of the Portfolio's assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to the Portfolio. It is expected that any such
investment company would be managed by Janus Capital in substantially the same
manner as the Portfolio. The shareholders of the Trust of record on April 30,
1992, and the initial shareholder(s) of the Portfolio, have voted to vest
authority to use this investment structure in the sole discretion of the
Trustees. No further approval of the shareholders of the Portfolio is required.
You will receive at least 30 days' prior notice of any such investment. Such
investment would be made only if the Trustees determine it to be in the best
interests of the Portfolio and its shareholders. In making that determination,
the Trustees will consider, among other things, the benefits to shareholders
and/or the opportunity to reduce costs and achieve operational efficiencies.
Although management of the Portfolio believes that the Trustees will not approve
an arrangement that is likely to result in higher costs, no assurance is given
that costs will be materially reduced if this option is implemented.
THE VALUATION OF SHARES
The net asset value ("NAV") of the Shares of the Portfolio is determined at the
close of the regular trading session of the New York Stock Exchange (the "NYSE")
(normally 4:00 p.m., New York time) each day that the NYSE is open. NAV per
Share is determined by dividing the total value of the securities and other
assets, less liabilities, by the total number of Shares outstanding.
Securities are valued at market value or, if market information is not readily
available, at their fair value determined in good faith under procedures
established by and under the supervision of the Trustees. Short-term instruments
maturing within 60 days are valued at amortized cost, which approximates market
value.
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
8
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
TO AVOID TAXATION OF THE PORTFOLIO, THE INTERNAL REVENUE CODE REQUIRES THE
PORTFOLIO TO DISTRIBUTE NET INCOME AND ANY NET GAINS REALIZED BY ITS
INVESTMENTS ANNUALLY. INCOME FROM DIVIDENDS AND INTEREST AND ANY NET
REALIZED SHORT-TERM CAPITAL GAINS ARE PAID TO SHAREHOLDERS AS ORDINARY
INCOME DIVIDENDS. NET REALIZED LONG-TERM GAINS, IF ANY, ARE PAID TO
SHAREHOLDERS AS CAPITAL GAINS DISTRIBUTIONS. EACH CLASS OF THE PORTFOLIO
MAKES SEMIANNUAL DISTRIBUTIONS IN JUNE AND DECEMBER OF SUBSTANTIALLY ALL OF
ITS INVESTMENT INCOME AND AN ANNUAL DISTRIBUTION IN JUNE OF ITS NET
REALIZED CAPITAL GAINS, IF ANY. ALL DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS FROM SHARES OF THE PORTFOLIO WILL BE AUTOMATICALLY REINVESTED
INTO ADDITIONAL SHARES OF THE PORTFOLIO.
HOW DISTRIBUTIONS AFFECT NAV
Distributions are paid to shareholders as of the record date of the distribution
of the Portfolio, regardless of how long the shares have been held. Dividends
and capital gains awaiting distribution are included in the daily NAV of the
Portfolio's Shares. The Share price drops by the amount of the distribution, net
of any subsequent market fluctuations. As an example, assume that on December
31, the Shares of the Portfolio declared a dividend in the amount of $0.25 per
share. If the price of the Portfolio's Shares was $10.00 on December 30, the
Share price on December 31 would be $9.75, barring market fluctuations.
- --------------------------------------------------------------------------------
TAXES
TAXES ON DISTRIBUTIONS
Because Shares of the Portfolio may be purchased only through variable insurance
contracts and qualified plans, it is anticipated that any income dividends or
capital gains distributions made by the Portfolio will be exempt from current
taxation if left to accumulate within the variable insurance contract or
qualified plan. Generally, withdrawals from such contracts may be subject to
ordinary income tax and, if made before age 591/2, a 10% penalty tax. The tax
status of your investment in the Portfolio depends on the features of the
variable insurance contracts purchased from a participating insurance company.
Further information may be found in the prospectus of the separate account
offering such contract.
TAXATION OF THE PORTFOLIO
Dividends, interest and some capital gains received by the Portfolio on foreign
securities may give rise to withholding and other taxes imposed by foreign
countries. It is expected that foreign taxes paid by the Portfolio will be
treated as expenses of the Portfolio. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes.
The Portfolio does not expect to pay any federal income or excise taxes because
it intends to meet certain requirements of the Internal Revenue Code. In
addition, the Portfolio intends to qualify under the Internal Revenue Code with
respect to the diversification requirements related to the tax-deferred status
of insurance company separate accounts.
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
This section will help you understand various terms that are commonly used to
describe the Portfolio's performance. You may see references to these terms in
our newsletters, advertisements (or those published by participating insurance
companies) and in media articles. Newsletters and advertisements may include
comparisons of the Portfolio's performance to the performance of other mutual
funds, mutual fund averages or recognized stock market indices. The Portfolio
generally measures performance in terms of total return.
Cumulative total return represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (e.g., the life of the Portfolio). A cumulative total return does
not show interim fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the cumulative
total return for the stated period and determining what constant annual return
would have produced the same cumulative return. Average annual returns for more
than one year tend to smooth out variations in the Portfolio's return and are
not the same as actual annual results.
THE PORTFOLIO IMPOSES NO SALES OR OTHER CHARGES THAT WOULD AFFECT TOTAL RETURN
COMPUTATIONS. TOTAL RETURN FIGURES OF THE PORTFOLIO INCLUDES THE EFFECT OF
DEDUCTING THE PORTFOLIO'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. PORTFOLIO PERFORMANCE FIGURES
ARE BASED UPON HISTORICAL RESULTS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. INVESTMENT RETURNS AND NET ASSET VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
9
<PAGE>
SHAREHOLDER'S GUIDE
INVESTORS MAY NOT PURCHASE OR REDEEM SHARES OF THE PORTFOLIO DIRECTLY. SHARES
MAY BE PURCHASED OR REDEEMED ONLY THROUGH VARIABLE INSURANCE CONTRACTS OFFERED
BY THE SEPARATE ACCOUNTS OF PARTICIPATING INSURANCE COMPANIES OR THROUGH
QUALIFIED RETIREMENT PLANS. REFER TO THE PROSPECTUS FOR THE PARTICIPATING
INSURANCE COMPANY'S SEPARATE ACCOUNT OR YOUR PLAN DOCUMENTS FOR INSTRUCTIONS ON
PURCHASING OR SELLING A VARIABLE INSURANCE CONTRACT AND ON HOW TO SELECT THE
PORTFOLIO AS AN INVESTMENT OPTION FOR A CONTRACT OR A QUALIFIED PLAN.
PURCHASES
Purchases of Portfolio Shares may be made only by the separate accounts of
insurance companies for the purpose of funding variable insurance contracts or
by qualified plans. Refer to the prospectus of the appropriate insurance
company's separate account or to your plan documents for information on how to
invest in the Shares of the Portfolio.
All investments in the Portfolio are credited to a participating insurance
company's separate account or a qualified plan immediately upon acceptance of
the investment by the Portfolio. Investments will be processed at the NAV next
calculated after an order is received and accepted by the Portfolio.
The Portfolio reserves the right to reject any specific purchase order. Purchase
orders may be refused if, in Janus Capital's opinion, they are of the size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
may adversely affect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing policy owners
and plan participants invested in the Portfolio would be permitted to continue
to authorize investment in the Portfolio and to reinvest any dividends or
capital gains distribution.
REDEMPTIONS
Redemptions, like purchases, may be effected only through the separate accounts
of participating insurance companies or through qualified plans. Please refer to
the appropriate separate account prospectus or plan documents for details.
Shares of the Portfolio may be redeemed on any business day. Redemptions are
processed at the NAV next calculated after receipt and acceptance of the
redemption order by the Portfolio. Redemption proceeds will normally be wired to
the participating insurance company the business day following receipt of the
redemption order, but in no event later than seven days after receipt of such
order.
SHAREHOLDER COMMUNICATIONS
Shareholders will receive annual and semiannual reports including the financial
statements of the Shares of the Portfolio. Each report will show the investments
owned by the Portfolio and market values thereof, as well as other information
about the Portfolio and its operations. The Trust's fiscal year ends December
31.
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
10
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the Portfolio may invest. The
Portfolio may invest in these instruments to the extent permitted by its
investment objective and policies. The Portfolio is not limited by this
discussion and may invest in any other types of instruments not precluded by the
policies discussed elsewhere in this Prospectus. Please refer to the SAI for a
more detailed discussion of certain instruments.
I. EQUITY AND DEBT SECURITIES
Bonds are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
Commercial paper is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. For example, the Portfolio may purchase commercial
paper issued under Section 4(2) of the Securities Act of 1933.
Common stock represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
Convertible securities are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
Depositary receipts are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
Fixed-income securities are securities that pay a specified rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a specified rate of interest or coupons for a specified
period of time and preferred stock, which pays fixed dividends. Coupon and
dividend rates may be fixed for the life of the issue or, in the case of
adjustable and floating rate securities, for a shorter period.
High-yield/High-risk securities are securities that are rated below investment
grade by the primary rating agencies ( BB or lower by Standard &Poor's and Ba or
lower by Moody's). Other terms commonly used to describe such securities include
"lower rated bonds," "noninvestment grade bonds" and "junk bonds."
Mortgage- and asset-backed securities are shares in a pool of mortgages or other
debt. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, the portfolio manager may
have to reinvest the proceeds from the securities at a lower rate. Potential
market gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
Passive foreign investment companies (PFICs) are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, interest,
royalties, rents and annuities. Income tax regulations may require the Portfolio
to recognize income associated with the PFIC prior to the actual receipt of any
such income.
Pay-in-kind bonds are debt securities that 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.
Preferred stock is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
Repurchase agreements involve the purchase of a security by the Portfolio and
a simultaneous agreement by the seller (generally a bank or dealer) to
repurchase the security from the Portfolio at a specified date or upon demand.
This technique offers a method of earning income on idle cash. These securities
involve the risk that the seller will fail to repurchase the security, as
agreed. In that case, the Portfolio will bear the risk of market value
fluctuations until the security can be sold and may encounter delays and incur
costs in liquidating the security.
Reverse repurchase agreements involve the sale of a security by the Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually high
redemption requests, or for other temporary emergency purposes.
Rule 144A securities are securities that are not registered for sale to the
general public under the Securities Act of 1933, but that may be resold to
certain institutional investors.
Standby commitments are obligations purchased by the Portfolio from a dealer
that give the Portfolio the option to sell a security to the dealer at a
specified price.
Step coupon bonds are debt securities that trade at a discount from their face
value and pay coupon interest. The discount from the face value depends on the
time
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
11
<PAGE>
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer.
Strip bonds are debt securities that are stripped of their interest (usually by
a financial intermediary) after the securities are issued. The market value of
these securities generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
U.S. government securities include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
Variable and floating rate securities have variable or floating rates of
interest and, under certain limited circumstances, may have varying principal
amounts. These 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 floating rate tends to decrease the
security's price sensitivity to changes in interest rates.
Warrants are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
When-issued, delayed delivery and forward transactions generally involve the
purchase of a security with payment and delivery at some time in the future -
i.e., beyond normal settlement. The Portfolio does not earn interest on such
securities until settlement and bears the risk of market value fluctuations
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
Zero coupon bonds are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
Forward contracts are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Portfolio may enter into forward currency contracts to hedge against
declines in the value of securities denominated in, or whose value is tied to, a
currency other than the U.S. dollar or to reduce the impact of currency
appreciation on purchases of such securities. The Portfolio may also enter into
forward contracts to purchase or sell securities or other financial indices.
Futures contracts are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Portfolio may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The Portfolio
may also buy options on futures contracts. An option on a futures contract gives
the buyer the right, but not the obligation, to buy or sell a futures contract
at a specified price on or before a specified date. Futures contracts and
options on futures are standardized and traded on designated exchanges.
Indexed/structured securities are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. The Portfolio bears the market risk of
an investment in the underlying instruments, as well as the credit risk of the
issuer.
Interest rate swaps involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
Options are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Portfolio may purchase and write put and call options on securities,
securities indices and foreign currencies.
JANUS ASPEN SERIES EQUITY INCOME MAY 1, 1997
PORTFOLIO PROSPECTUS
12
<PAGE>
This page intentionally left blank.
<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-0020
[LOGO] JANUS Funds distributed by Janus Distributors, Inc.
Member NASD.
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
PORTFOLIOS AT A GLANCE
Brief description of the Portfolios ...........................................1
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
Each Portfolio's annual
operating expenses .........................................................3
- --------------------------------------------------------------------------------
THE PORTFOLIOS IN DETAIL
Investment Objectives and Policies of
the Growth, Combination and Fixed-
Income Funds ...............................................................4
General Portfolio Policies of the Portfolios
other than Money Market Portfolio ..........................................9
Additional Risk Factors Policies of
the Portfolios other than Money
Market Portfolio ..........................................................10
- --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO IN DETAIL
Investment Objectives,
Policies and Techniques ...................................................12
- --------------------------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIOS
Investment Adviser and
Investment Personnel ......................................................15
Portfolio Transactions .......................................................16
Management Expenses ..........................................................17
Other Service Providers ......................................................17
Participant Administration Fee
and Distribution Fee ......................................................17
Other Information ............................................................18
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
An Explanation of
Performance Terms .........................................................19
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
Distributions ................................................................20
Taxes ........................................................................20
- --------------------------------------------------------------------------------
SHAREHOLDER'S GUIDE
Purchases ....................................................................21
Redemptions ..................................................................21
Shareholder Communications ...................................................21
- --------------------------------------------------------------------------------
APPENDIX A
Glossary of Investment Terms .................................................22
- --------------------------------------------------------------------------------
APPENDIX B
Explanation of Rating Categories .............................................24
JANUS ASPEN SERIES
RETIREMENT SHARES
Prospectus
May 1, 1997
This prospectus describes nine mutual funds with a variety of investment
objectives, including growth of capital, current income and a combination of
growth and income (the "Portfolios"). This prospectus offers a separate class of
shares of each Portfolio (collectively, the "Shares") to certain participant
directed qualified retirement plans. Janus Capital Corporation ("Janus Capital")
serves as investment adviser to each Portfolio. Janus Capital has been in the
investment advisory business for over 26 years and currently manages
approximately $50 billion in assets.
Each Portfolio is a series of Janus Aspen Series (the "Trust"). The Trust is
registered with the Securities and Exchange Commission ("SEC") as an open-end
management investment company. The Trust sells and redeems its Shares at net
asset value without any sales charges, commissions or redemption fees. Certain
Portfolios may not be available in connection with a particular qualified plan.
Contact your plan sponsor for further information.
This Prospectus contains information about the Shares that a plan participant
should consider before investing and should be read carefully and retained for
future reference. Additional information about the Shares is contained in a
Statement of Additional Information ("SAI") filed with the SEC. The SAI dated
May 1, 1997 is incorporated by reference into this Prospectus. Copies of the SAI
are available upon request and without charge by writing or calling your plan
sponsor.
FLEXIBLE INCOME PORTFOLIO AND HIGH-YIELD PORTFOLIO MAY INVEST ALL OF THEIR
RESPECTIVE ASSETS IN HIGH-YIELD CORPORATE DEBT SECURITIES, COMMONLY KNOWN AS
"JUNK BONDS." SEE "ADDITIONAL RISK FACTORS" ON PAGE 10 FOR THE RISKS ASSOCIATED
WITH INVESTING IN THESE SECURITIES.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC NOR HAS THE SEC PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR
OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH STATE OR OTHER JURISDICTION.
<PAGE>
PORTFOLIOS AT A GLANCE
This section is designed to provide you with a brief overview of the Portfolios
and their investment emphasis. A more detailed discussion of the Portfolios'
investment objectives and policies begins on page 4.
GROWTH PORTFOLIO
Focus: A diversified portfolio that seeks long-term growth of capital by
investing primarily in common stocks, with an emphasis on companies with larger
market capitalizations.
Inception: September 1993
Manager: James P. Craig, III
Assistant Managers: David Decker
Blaine Rollins
AGGRESSIVE GROWTH PORTFOLIO
Focus: A nondiversified portfolio that seeks long-term growth of capital by
investing primarily in common stocks, with an emphasis on securities issued by
medium-sized companies.
Inception: September 1993
Manager: James P. Goff
INTERNATIONAL GROWTH PORTFOLIO
Focus: A diversified portfolio that seeks long-term growth of capital by
investing primarily in common stocks of foreign issuers.
Inception: May 1994
Manager: Helen Young Hayes
Assistant Manager: Laurence Chang
WORLDWIDE GROWTH PORTFOLIO
Focus: A diversified portfolio that seeks long-term growth of capital by
investing primarily in common stocks of foreign and domestic issuers.
Inception: September 1993
Manager: Helen Young Hayes
Assistant Manager: Laurence Chang
BALANCED PORTFOLIO
Focus: A diversified portfolio that seeks long-term growth of capital, balanced
by current income. The Portfolio normally invests 40-60% of its assets in
securities selected primarily for their growth potential and 40-60% of its
assets in securities selected primarily for their income potential.
Inception: September 1993
Manager: Blaine P. Rollins
FLEXIBLE INCOME PORTFOLIO
Focus: A diversified portfolio that seeks to maximize total return from a
combination of income and capital appreciation by investing primarily in
income-producing securities.
Inception: September 1993
Managers: Ronald V. Speaker
Sandy R. Rufenacht
HIGH-YIELD PORTFOLIO
Focus: A diversified portfolio that seeks high current income as its primary
objective. Capital appreciation is a secondary objective when consistent with
the primary objective. The Portfolio seeks to achieve these objectives by
investing primarily in high-yield/ high risk fixed-income securities.
Fund Inception: May 1996
Fund Managers: Ronald V. Speaker
Sandy R. Rufenacht
SHORT-TERM BOND PORTFOLIO
Focus: A diversified portfolio that seeks a high level of current income while
minimizing interest rate risk by investing in shorter term fixed-income
securities. Its average-weighted effective maturity is normally less than three
years.
Inception: September 1993
Manager: Sandy R. Rufenacht
MONEY MARKET PORTFOLIO
Focus: A money market mutual fund that seeks maximum current income to the
extent consistent with stability of capital. The Portfolio seeks to achieve this
objective by investing primarily in high quality debt obligations and
obligations of financial institutions.
Inception: May 1995
Manager: Sharon S. Pichler
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
1
<PAGE>
JANUS SPECTRUM
The spectrum below shows Janus Capital's assessment of the potential volatility
of the Portfolios relative to one another and should not be used to compare the
Portfolios to other mutual funds or other types of investments. A Portfolio's
position in the spectrum was determined based on a number of factors such as
selected historic volatility measurements, the types of securities in which the
Portfolio intends to invest, the degree of diversification intended and/or
permitted, and the size of the Portfolio. In addition, the spectrum is
significantly affected by the portfolio managers' investment styles. These
factors were considered as of the date of this prospectus and will be reassessed
with each new prospectus. Increased volatility results in increased fluctuations
in a Portfolio's net asset value per share. Increased volatility may be
associated with a Portfolio that undertakes more risk in order to seek greater
returns. Specific risks of certain types of instruments in which some of the
Portfolios may invest, including foreign securities, junk bonds and derivative
instruments such as futures contracts and options, are described under
"Additional Risk Factors" on page 10. The spectrum is not indicative of the
future volatility or performance of a Portfolio and relative positions of
Portfolios within the spectrum may change.
[SPECTRUM CHART)
The spectrum illustrates the potential volatility of the Portfolios relative to
one another. The Portfolios' volatility ranges from low to high. The Growth
Portfolios are illustrated as follows: Growth Portfolio is shown as moderate;
Aggressive Growth Portfolio is shown as high; Capital Appreciation Portfolio* is
shown as high; International Growth Portfolio is shown as moderately-high;
Worldwide Growth Portfolio is shown as moderately-high (but less volatile than
International Growth Portfolio). The Combination Portfolios are illustrated as
follows: Balanced Portfolio is shown as moderate; Equity Income Portfolio* is
shown as moderate (but more volatile than Janus Balanced Fund). The Fixed-Income
Portfolios are illustrated as follows: Flexible Income Portfolio is shown as
low-moderate; High-Yield Portfolio is shown as moderate; Short-Term Bond
Portfolio is shown as low. Janus Money Market Fund is shown as low (but less
volatile than Janus Short-Term Bond Fund).
*These Portfolios commenced operations on May 1, 1997 and are offered by
separate prospectuses.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
2
<PAGE>
EXPENSE INFORMATION
The tables and example below are designed to assist participants in qualified
plans that invest in the Shares of the Portfolios in understanding the various
costs and expenses that you will bear directly or indirectly as an investor in
the Shares.
SHAREHOLDER TRANSACTION EXPENSES (applicable to each Portfolio)
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales charges on redemptions None
Redemption fee None
Exchange fee None
ANNUAL OPERATING EXPENSES (after fee waivers and reductions)(1)
(expressed as a percentage of average net assets)
<TABLE>
<CAPTION>
Total Operating
Management Fee(1) 12b-1 Fee(2) Other Expenses(1,3) Expenses(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio - Retirement Shares 0.65% 0.25% 0.29% 1.19%
Aggressive Growth Portfolio - Retirement Shares 0.72% 0.25% 0.29% 1.26%
International Growth Portfolio - Retirement Shares 0.05% 0.25% 1.46% 1.76%
Worldwide Growth Portfolio - Retirement Shares 0.66% 0.25% 0.39% 1.30%
Balanced Portfolio - Retirement Shares 0.79% 0.25% 0.40% 1.44%
Flexible Income Portfolio - Retirement Shares 0.65% 0.25% 0.44% 1.34%
High-Yield Portfolio - Retirement Shares 0.00% 0.25% 1.26% 1.51%
Short-Term Bond Portfolio - Retirement Shares 0.47% 0.25% 0.44% 1.16%
Money Market Portfolio - Retirement Shares 0.00% 0.25% 0.75% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fees and expenses in the table above are based on the estimated gross
expenses before expense offset arrangements that the Shares of the
Portfolios expect to incur in their initial fiscal year, net of fee
reductions and waivers from Janus Capital. Fee reductions for the Growth,
Aggressive Growth, International Growth, Worldwide Growth and Balanced
Portfolios reduce the management fee to the level of the corresponding
Janus retail fund. Other waivers, if applicable, are first applied against
the management fee and then against other expenses. Without such waivers or
reductions, the Management Fee, Other Expenses and Total Operating Expenses
for the Shares are estimated to be 0.79%, 0.54% and 1.33% for Growth
Portfolio; 0.79%, 0.54% and 1.33% for Aggressive Growth Portfolio; 1.00%,
1.71% and 2.71% for International Growth Portfolio; 0.77%, 0.64% and 1.41%
for Worldwide Growth Portfolio; 0.92%, 0.65% and 1.57% for Balanced
Portfolio; 0.65%, 0.69% and 1.34% for Flexible Income Portfolio; 0.75%,
6.04% and 6.79% for High-Yield Portfolio; 0.65%, 0.69% and 1.34% for
Short-Term Bond Portfolio; and 0.25%, 1.03% and 1.28% for Money Market
Portfolio, respectively. Janus Capital may modify or terminate the waivers
or reductions at any time upon at least 90 days' notice to the Trustees.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
(3) Includes compensation to service providers who provide recordkeeping,
subaccounting, and other administrative services to plan participants who
invest in the Shares. See "Participant Administration Fee" for more
details.
EXAMPLE
You would indirectly pay the following expenses on a $1,000 investment assuming
expense ratios remain as listed above and assuming a 5% annual return with or
without redemption at the end of each period.
1 Year 3 Years
- --------------------------------------------------------------------------------
Growth Portfolio - Retirement Shares $12 $38
Aggressive Growth Portfolio - Retirement Shares $13 $40
International Growth Portfolio - Retirement Shares $18 $55
Worldwide Growth Portfolio - Retirement Shares $13 $41
Balanced Portfolio - Retirement Shares $15 $46
Flexible Income Portfolio - Retirement Shares $14 $42
High-Yield Portfolio - Retirement Shares $15 $48
Short-Term Bond Portfolio - Retirement Shares $12 $37
Money Market Portfolio - Retirement Shares $10 $32
- --------------------------------------------------------------------------------
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
No Financial Highlights are presented for the Shares because the Shares did not
commence operations before May 1, 1997.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
3
<PAGE>
THE PORTFOLIOS IN DETAIL
This section takes a closer look at the Portfolios' investment objectives,
policies and the securities in which they invest. Please carefully review the
"Additional Risk Factors" section of this Prospectus for a more detailed
discussion of the risks associated with certain investment techniques as well as
the risk spectrum on page 2. Appendix A contains a more detailed description of
investment terms used throughout this Prospectus. You should carefully consider
your investment goals, time horizon and risk tolerance before choosing a
Portfolio.
Each Portfolio has an investment objective and policies that are similar to
those of a Janus retail fund, as illustrated in the chart below. Although it is
anticipated that each Portfolio and its corresponding retail fund will hold
similar securities, differences in asset size and cash flow needs as well as the
relative weightings of securities selections may result in differences in
investment performance. Expenses of each Portfolio and its corresponding retail
fund are expected to differ.
Policies that are noted as "fundamental" cannot be changed without a shareholder
vote. All other policies, including each Portfolio's investment objective, are
not fundamental and may be changed by the Portfolios' Trustees without a
shareholder vote. You will be notified of any such changes that are material. If
there is a material change in a Portfolio's objective or policies, you should
consider whether that Portfolio remains an appropriate investment for your
qualified retirement plan.
- --------------------------------------------------------------------------------
EACH OF THE PORTFOLIOS HAS A SIMILAR INVESTMENT OBJECTIVE AND SIMILAR INVESTMENT
POLICIES TO AN EXISTING JANUS RETAIL FUND.
Growth Portfolio .....................................................Janus Fund
Aggressive Growth Portfolio ...............................Janus Enterprise Fund
International Growth Portfolio ..............................Janus Overseas Fund
Worldwide Growth Portfolio .................................Janus Worldwide Fund
Balanced Portfolio ..........................................Janus Balanced Fund
Flexible Income Portfolio ............................Janus Flexible Income Fund
High-Yield Portfolio ......................................Janus High-Yield Fund
Short-Term Bond Portfolio ............................Janus Short-Term Bond Fund
Money Market Portfolio ..................................Janus Money Market Fund
GROWTH PORTFOLIO, AGGRESSIVE GROWTH PORTFOLIO, INTERNATIONAL GROWTH
PORTFOLIO AND WORLDWIDE GROWTH PORTFOLIO ARE DESIGNED FOR LONG-TERM
INVESTORS WHO SEEK GROWTH OF CAPITAL ONLY AND WHO CAN TOLERATE THE GREATER
RISKS ASSOCIATED WITH COMMON STOCK INVESTMENTS.
GROWTH PORTFOLIOS
Investment Objective: .........................................Growth of Capital
Primary Holdings: .................................................Common Stocks
Shareholder's Investment Horizon: .....................................Long-Term
GROWTH PORTFOLIO
The investment objective of this Portfolio is long-term growth of capital in a
manner consistent with the preservation of capital. It is a diversified
portfolio that pursues its objective by investing in common stocks of issuers of
any size. This Portfolio generally invests in larger, more established issuers.
AGGRESSIVE GROWTH PORTFOLIO
The investment objective of this Portfolio is long-term growth of capital. It is
a nondiversified portfolio that pursues its investment objective by normally
investing at least 50% of its equity assets in securities issued by medium-sized
companies. Medium-sized companies are those whose market capitalizations fall
within the range of companies in the S&P MidCap 400 Index (the "MidCap Index").
Companies whose capitalization falls outside this range after the Portfolio's
initial purchase continue to be considered medium-sized companies for the
purpose of this policy. As of December 30, 1996, the MidCap Index included
companies with capitalizations between approximately $192 million to $6.5
billion. The range of the MidCap Index is expected to change on a regular basis.
Subject to the above policy, the Portfolio may also invest in smaller or larger
issuers.
INTERNATIONAL GROWTH PORTFOLIO
The investment objective of this Portfolio is long-term growth of capital. It is
a diversified portfolio that pursues its objective primarily through investments
in common stocks of issuers located outside the United States. The Portfolio has
the flexibility to invest on a worldwide basis in companies and other
organizations of any size, regardless of country of organization or place of
principal business activity. The Portfolio normally invests at least 65% of its
total assets in securities of issuers from at least five different countries,
excluding the United States. Although the Portfolio intends to invest
substantially all of its assets in issuers located outside the United States, it
may at times invest in U.S. issuers, and it may at times invest all of its
assets in fewer than five countries or even a single country.
WORLDWIDE GROWTH PORTFOLIO
The investment objective of this Portfolio is long-term growth of capital in a
manner consistent with the preservation of capital. It is a diversified
portfolio that pursues its objective primarily through investments in common
stocks of foreign and domestic issuers. The Portfolio has the flexibility to
invest on a worldwide basis in companies and other organizations of any size,
regardless of country of organization or place of principal business activity.
Worldwide Growth Portfolio normally invests in issuers from at least five
different countries, including the United States. The Portfolio may at times
invest in fewer than five countries or even a single country.
TYPES OF INVESTMENTS
Each of these Portfolios invests primarily in common stocks of foreign and
domestic
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
4
<PAGE>
companies. However, the percentage of each Portfolio's assets invested in common
stocks will vary and each Portfolio may at times hold substantial positions in
cash equivalents or interest bearing securities. See "General Portfolio
Policies" on page 9. Each Portfolio may invest to a lesser degree in other types
of securities including preferred stocks, warrants, convertible securities and
debt securities when its portfolio manager perceives an opportunity for capital
growth from such securities or to receive a return on idle cash. Some securities
that the Portfolios purchase may be on a when-issued, delayed delivery or
forward commitment basis. The Portfolios may invest up to 25% of their assets in
mortgage- and asset-backed securities, up to 10% of their assets in zero coupon,
pay-in-kind and step coupon securities, and without limit in indexed/ structured
securities. No Growth Portfolio will invest 35% or more of its assets in
high-yield/high-risk securities.
Although Worldwide Growth Portfolio and International Growth Portfolio are
committed to foreign investing, Growth Portfolio and Aggressive Growth Portfolio
may also invest without limit in foreign equity and debt securities. The
Portfolios may invest directly in foreign securities denominated in a foreign
currency and not publicly traded in the United States. Other ways of investing
in foreign securities include depositary receipts or shares, and passive foreign
investment companies ("PFICs"). These Portfolios may use futures, options and
other derivatives for hedging purposes or for non-hedging purposes such as
seeking to enhance return. See "Additional Risk Factors" on page 10 for a
discussion of the risks associated with foreign investing and derivatives.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN GROWTH PORTFOLIO, AGGRESSIVE GROWTH PORTFOLIO, INTERNATIONAL GROWTH PORTFOLIO
OR WORLDWIDE GROWTH PORTFOLIO.
HOW ARE COMMON STOCKS SELECTED?
Each of these Portfolios invests substantially all of its assets in common
stocks to the extent its portfolio manager believes that the relevant market
environment favors profitable investing in those securities. Portfolio managers
generally take a "bottom up" approach to building their portfolios. In other
words, they seek to identify individual companies with earnings growth potential
that may not be recognized by the market at large. Although themes may emerge in
any Portfolio, securities are generally selected without regard to any defined
industry sector or other similarly defined selection procedure. Realization of
income is not a significant investment consideration. Any income realized on
these Portfolios' investments will be incidental to their objectives.
- --------------------------------------------------------------------------------
ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. Portfolio managers seek companies that meet their selection
criteria, regardless of country of organization or place of principal business
activity. Foreign securities are generally selected on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
However, certain factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign
securities. See "Additional Risk Factors" on page 10.
- --------------------------------------------------------------------------------
WHAT IS THE MAIN RISK OF INVESTING IN A COMMON STOCK FUND?
The fundamental risk associated with any common stock fund is the risk that the
value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative. See "Additional Risk Factors" on page 10.
WHAT IS MEANT BY "MARKET CAPITALIZATION"?
Market capitalization is the most commonly used measure of the size and value of
a company. It is computed by multiplying the current market price of a share of
the company's stock by the total number of its shares outstanding. As noted
previously, market capitalization is an important investment criteria for
Aggressive Growth Portfolio which may invest in small to medium sized companies
to a greater degree. Although Growth Portfolio, International Growth Portfolio
and Worldwide Growth Portfolio do not emphasize companies of any particular
size, Portfolios with a larger asset base are more likely to invest in larger,
more-established issuers.
- --------------------------------------------------------------------------------
HOW DOES A DIVERSIFIED PORTFOLIO DIFFER FROM A NONDIVERSIFIED PORTFOLIO?
Diversification is a means of reducing risk by investing a Portfolio's assets in
a broad range of stocks or other securities. A "nondiversified" portfolio has
the ability to take larger positions in a smaller number of issuers. Because the
appreciation or depreciation of a single stock may have a greater impact on the
net asset value ("NAV") of a nondiversified portfolio, its share price can be
expected to fluctuate more than a comparable diversified portfolio. Aggressive
Growth Portfolio is a nondiversified portfolio.
- --------------------------------------------------------------------------------
HOW DO THESE PORTFOLIOS TRY TO REDUCE RISK?
Diversification of a Portfolio's assets reduces the effect of any single holding
on its overall portfolio value. A Portfolio may also use futures, options and
other derivative instruments to protect its portfolio from movements in
securities' prices and interest rates. The Portfolios may use a variety of
currency hedging techniques, including forward currency contracts, to manage
exchange rate risk. See "Additional Risk Factors" on page 10. In addition, to
the extent that a Portfolio holds a larger cash position, it might not
participate in market declines to the same extent as if the Portfolio remained
more fully invested in common stocks.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
5
<PAGE>
BALANCED PORTFOLIO IS DESIGNED FOR INVESTORS WHO PRIMARILY SEEK GROWTH OF
CAPITAL WITH A DEGREE OF EMPHASIS ON INCOME. IT IS NOT DESIGNED FOR INVESTORS
WHO DESIRE A CONSISTENT LEVEL OF INCOME.
COMBINATION PORTFOLIO
Investment Objective: ................Growth of Capital; Some Emphasis on Income
Primary Holdings: .................Common Stocks and Income-Producing Securities
Shareholder's Investment Horizon: .....................................Long-Term
BALANCED PORTFOLIO
The investment objective of this Portfolio is long-term capital growth,
consistent with preservation of capital and balanced by current income. It is a
diversified portfolio that, under normal circumstances, pursues its objective by
investing 40-60% of its assets in securities selected primarily for their growth
potential and 40-60% of its assets in securities selected primarily for their
income potential. This Portfolio normally invests at least 25% of its assets in
fixed-income senior securities, which include debt securities and preferred
stocks.
TYPES OF INVESTMENTS
Balanced Portfolio may invest in the types of investments previously described
on pages 4-5. The Portfolio may also invest in the types of income-producing
securities described below for Flexible Income Portfolio except that its
investments in high-yield/ high risk will not exceed 35% of net assets and
investments in mortgage- and asset-backed securities will not exceed 25% of
assets.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN BALANCED PORTFOLIO.
HOW ARE ASSETS ALLOCATED BETWEEN THE GROWTH AND INCOME COMPONENTS OF BALANCED
PORTFOLIO?
Balanced Portfolio may invest in a combination of common stocks, preferred
stocks, convertible securities, debt securities and other fixed-income
securities. Balanced Portfolio may shift assets between the growth and income
components of its portfolio based on its portfolio manager's analysis of
relevant market, financial and economic conditions. If the portfolio manager
believes that growth securities will provide better returns than the yields then
available or expected on income-producing securities, then the Portfolio will
place a greater emphasis on the growth component.
WHAT TYPES OF SECURITIES MAKE UP THE GROWTH COMPONENT OF BALANCED PORTFOLIO?
The growth component of Balanced Portfolio is expected to consist primarily of
common stocks. The selection criteria for common stocks are described on page 5.
Because income is a part of the investment objective of Balanced Portfolio, the
portfolio manager may consider dividend-paying characteristics to a greater
degree in selecting equity securities. Balanced Portfolio may also find
opportunities for capital growth from debt securities because of anticipated
changes in interest rates, credit standing, currency relationships or other
factors.
- --------------------------------------------------------------------------------
WHAT TYPES OF SECURITIES MAKE UP THE INCOME COMPONENT OF BALANCED PORTFOLIO?
The income component of the Balanced Portfolio will consist of securities that
the portfolio manager believes have income potential. Such securities may
include equity securities, convertible securities and all types of debt
securities. Equity securities may be included in the income component of the
Balanced Portfolio if they currently pay dividends or a portfolio manager
believes they have potential for either increasing their dividends or commencing
dividends, if none are currently paid. Investors in the Balanced Portfolio
should keep in mind that the Portfolio is not designed to produce a consistent
level of income.
- --------------------------------------------------------------------------------
FLEXIBLE INCOME PORTFOLIO, HIGH-YIELD PORTFOLIO AND SHORT-TERM BOND PORTFOLIO
ARE DESIGNED FOR THOSE INVESTORS WHO PRIMARILY SEEK CURRENT INCOME.
FIXED-INCOME PORTFOLIOS
Investment Objective:
Flexible Income Portfolio ........................................Total Return
Others .................................................................Income
Primary Holdings: ...................................Income-Producing Securities
Shareholder's Investment Horizon:
Short-Term Bond Portfolio .........................Short- to Intermediate-Term
Others .............................................Intermediate- to Long-Term
FLEXIBLE INCOME PORTFOLIO
The investment objective of this Portfolio is to obtain maximum total return,
consistent with preservation of capital. The Portfolio pursues its objective
primarily through investments in income-producing securities. Total return is
expected to result from a combination of current income and capital
appreciation, although income will normally be the dominant component of total
return. As a fundamental policy, this Portfolio will invest at least 80% of its
assets in income-producing securities.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
6
<PAGE>
Flexible Income Portfolio may invest in a wide variety of income-producing
securities including corporate bonds and notes, government securities,
index/structured securities, preferred stock, income-producing common stocks,
debt securities that are convertible or exchangeable into equity securities, and
debt securities that carry with them the right to acquire equity securities as
evidenced by warrants attached to or acquired with the securities. The Portfolio
may invest to a lesser degree in common stocks, other equity securities or debt
securities that are not currently paying dividends or interest. The Portfolio
may purchase securities of any maturity and quality and the average maturity and
quality of its portfolio may vary substantially.
Flexible Income Portfolio may invest without limit in foreign securities,
including those of corporate and government issuers. The Portfolio may invest
without limit in high-yield/high-risk securities and may have substantial
holdings of such securities. The Portfolio may invest without limit in mortgage-
and asset-backed securities and up to 10% of its assets in zero coupon,
pay-in-kind and step coupon securities. The risks of foreign securities and
high-yield securities are described under "Additional Risk Factors" on page 10.
The Portfolio may purchase defaulted debt securities if, in the opinion of Janus
Capital it appears likely that the issuer may resume interest payments or other
advantageous developments appear likely in the near term. Defaulted debt
securities may be illiquid and subject to the Portfolio's limit on illiquid
investments.
HIGH-YIELD PORTFOLIO
The primary investment objective of this Portfolio is to obtain high current
income. Capital appreciation is a secondary objective when consistent with its
primary objective. Capital appreciation may result, for example, from an
improvement in the credit standing of an issuer whose securities are held by
this Portfolio or from a general lowering of interest rates, or both. This
Portfolio pursues its objectives by investing primarily in high-yield/high-risk
fixed-income securities. This Portfolio will normally invest at least 65% of its
total assets in those securities.
In addition, the Portfolio may invest in all of the types of securities
previously described under Flexible Income Portfolio (except it may invest
without limit in zero coupon, pay-in-kind and step coupon securities).
The high yields sought by this Portfolio are expected to result primarily from
investments in longer-term, lower quality corporate bonds, commonly referred to
as "junk" bonds. This Portfolio considers lower quality securities to be
securities rated below investment grade by established rating agencies or
unrated securities of comparable quality. 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") are below investment grade. Lower
quality securities are often considered to be more speculative and involve
greater risk of default or price changes due to changes in interest rates,
economic conditions and the issuer's credit-worthiness. As a result, their
market prices tend to fluctuate more than higher quality securities of
comparable maturity. Additional risks of lower quality securities are described
under "Additional Risk Factors" on page 10.
SHORT-TERM BOND PORTFOLIO
The investment objective of this Portfolio is to seek as high a level of current
income as is consistent with preservation of capital. The Portfolio pursues its
objective by investing primarily in short- and intermediate-term fixed-income
securities. Under normal circumstances, it is expected that this Portfolio's
dollar-weighted average portfolio effective maturity will not exceed three
years.
Effective maturity is the weighted average period over which a security's
principal is expected to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call provisions.
Targeting effective maturity provides additional flexibility in portfolio
management but, all else being equal, could result in higher volatility than a
fund targeting a stated maturity or maturity range. See the question and answer
section below for a more detailed discussion of the Portfolio's maturity policy.
Short-Term Bond Portfolio will normally invest at least 65% of its assets in
debt securities. Subject to this policy and subject to its maturity limits, the
Portfolio may invest in the types of securities previously described under
Flexible Income Portfolio except that the Portfolio will invest less than 35% of
its net assets in high-yield/ high-risk securities and its investments in
mortgage- and asset-backed securities will not exceed 25% of assets.
TYPES OF INVESTMENTS
Each Portfolio may purchase securities on a when-issued, delayed delivery or
forward commitment basis. In addition, each Portfolio may use futures, options
and other derivatives for hedging purposes or for non-hedging purposes, such as
seeking to enhance return. See "Additional Risk Factors" on page 10. When its
portfolio manager is unable to locate investment opportunities with favorable
risk/reward characteristics, the cash position of any Portfolio may increase and
the Portfolio may have substantial holdings of cash or cash equivalent
short-term obligations. See "General Portfolio Policies" on page 9.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN FLEXIBLE INCOME PORTFOLIO, HIGH-YIELD PORTFOLIO OR SHORT-TERM BOND PORTFOLIO.
HOW DO INTEREST RATES AFFECT THE VALUE OF MY INVESTMENT?
A fundamental risk associated with any fund that invests in fixed-income
securities (e.g., a bond fund) is the risk that the value of the securities it
holds will rise or fall as interest rates change. Generally, a fixed-income
security will increase in value when interest rates fall and decrease in value
when interest rates rise. Longer-term securities are generally more sensitive to
interest rate changes than shorter-term securities, but they generally offer
higher yields to compensate investors for the associated risks. A bond fund's
average-weighted maturity and its duration are measures of how the portfolio may
react to interest rate changes. High-yield bond prices are generally less
directly responsive to interest rate changes than investment grade issues and
may not always follow this pattern.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
7
<PAGE>
WHAT IS MEANT BY A PORTFOLIO'S "AVERAGE-WEIGHTED EFFECTIVE MATURITY"?
The stated maturity of a bond is the date when the issuer must repay the bond's
entire principal value to an investor, such as a Portfolio. Some types of bonds,
such as mortgage-backed securities and securities with call provisions, may also
have an "effective maturity" that is shorter than the stated date. With respect
to GNMA securities and other mortgage-backed securities, effective maturity is
likely to be substantially less than the stated maturities of the mortgages in
the underlying pools. With respect to obligations with call provisions,
effective maturity is typically the next call date on which the obligation
reasonably may be expected to be called. Securities without prepayment or call
provisions generally have an effective maturity equal to their stated maturity.
Dollar-weighted effective maturity is calculated by averaging the effective
maturity of bonds held by a Portfolio with each effective maturity "weighted"
according to the percentage of net assets that it represents.
- --------------------------------------------------------------------------------
WHAT IS MEANT BY A PORTFOLIO'S "DURATION"?
A bond's duration indicates the time it will take an investor to recoup his
investment. Unlike average maturity, duration reflects both principal and
interest payments. Generally, the higher the coupon rate on a bond, the lower
its duration will be. The duration of a bond fund is calculated by averaging the
duration of bonds held by a Portfolio with each duration "weighted" according to
the percentage of net assets that it represents. Because duration accounts for
interest payments, a Portfolio's duration is usually shorter than its average
maturity.
- --------------------------------------------------------------------------------
HOW DO FLEXIBLE INCOME PORTFOLIO, HIGH-YIELD PORTFOLIO AND SHORT-TERM BOND
PORTFOLIO MANAGE INTEREST RATE RISK?
Each of these Portfolios may vary the average-weighted effective maturity of its
portfolio to reflect its portfolio manager's analysis of interest rate trends
and other factors. A Portfolio's average-weighted effective maturity will tend
to be shorter when its portfolio manager expects interest rates to rise and
longer when its portfolio manager expects interest rates to fall. The Portfolios
may also use futures, options and other derivatives to manage interest rate
risk. See "Additional Risk Factors" on page 10.
Primary Interest Rate
Investment Type Credit Risk Risk
- --------------------------------------------------------------------------------
Flexible Income Portfolio Corporate Bonds High High
- --------------------------------------------------------------------------------
High-Yield Portfolio Corporate Bonds Highest Moderate
- --------------------------------------------------------------------------------
Short-Term Bond Portfolio Corporate Bonds Moderate Low
- --------------------------------------------------------------------------------
WHAT IS MEANT BY "CREDIT QUALITY"?
Credit quality measures the likelihood that the issuer will meet its obligations
on a bond. One of the fundamental risks associated with all fixed-income funds
is credit risk, which is the risk that an issuer will be unable to make
principal and interest payments when due. U.S. government securities are
generally considered to be the safest type of investment in terms of credit
risk. Municipal obligations generally rank between U.S. government securities
and corporate debt securities in terms of credit safety. Corporate debt
securities, particularly those rated below investment grade, present the highest
credit risk.
- --------------------------------------------------------------------------------
HOW IS CREDIT QUALITY MEASURED?
Ratings published by nationally recognized rating agencies such as Standard &
Poor's and Moody's are widely accepted measures of credit risk. The lower a bond
issue is rated by an agency, the more credit risk it is considered to represent.
Lower rated bonds generally pay higher yields to compensate investors for the
associated risk. Please refer to Appendix B for a description of rating
categories.
- --------------------------------------------------------------------------------
WHAT IS A HIGH-YIELD/HIGH-RISK SECURITY?
A high-yield security (also called a "junk" bond) is a debt security rated below
investment grade by major rating agencies (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's) or an unrated bond of similar quality. It
presents greater risk of default (the failure to make timely interest and
principal payments) than higher quality bonds.
- --------------------------------------------------------------------------------
WHAT RISKS DO HIGH-YIELD/HIGH-RISK SECURITIES PRESENT?
High-yield securities are often considered to be more speculative and involve
greater risk of default or price changes due to changes in economic and industry
conditions and the issuer's creditworthiness. Their market prices tend to
fluctuate more than higher quality securities as a result of changes in these
factors.
The default rate of lower quality debt securities is likely to be higher when
issuers have difficulty meeting projected goals or obtaining additional
financing. This could occur during economic recessions or periods of high
interest rates. In addition, there may be a smaller market for lower quality
securities than for higher quality securities, making lower quality securities
more difficult to sell promptly at an acceptable price.
The junk bond market can experience sudden and sharp price swings. Because
Flexible Income portfolio and High-Yield Portfolio may invest a significant
portion of their portfolios in high-yield/high-risk securities, investors in
such Portfolios should be willing to tolerate a corre-sponding increase in the
risk of significant and sudden changes in NAV.
- --------------------------------------------------------------------------------
HOW DO THE FLEXIBLE INCOME PORTFOLIO, HIGH-YIELD PORTFOLIO AND SHORT-TERM BOND
PORTFOLIO DIFFER FROM EACH OTHER?
The chart above shows that these Portfolios differ in terms of the type,
credit quality and interest rate risk of the securities in which they invest.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
8
<PAGE>
GENERAL PORTFOLIO POLICIES OF PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
Unless otherwise stated, each of the following policies applies to all of the
Portfolios other than the Money Market Portfolio. The percentage limitations
included in these policies and elsewhere in this Prospectus apply only at the
time of purchase of the security. For example, if a Portfolio exceeds a limit as
a result of market fluctuations or the sale of other securities, it will not be
required to dispose of any securities.
CASH POSITION
When a Portfolio's manager believes that market conditions are not favorable for
profitable investing or when the portfolio manager is otherwise unable to locate
favorable investment opportunities, a Portfolio's investments may be hedged to a
greater degree and/or its cash or similar investments may increase. In other
words, the Portfolios do not always stay fully invested in stocks and bonds.
Cash or similar investments are a residual they represent the assets that remain
after a portfolio manager has committed available assets to desirable investment
opportunities. Partly because the portfolio managers act independently of each
other, the cash positions of the Portfolios may vary significantly. Larger
hedged positions and/or larger cash positions may serve as a means of preserving
capital in unfavorable market conditions.
Securities that the Portfolios may invest in as means of receiving a return on
idle cash include high-grade commercial paper, certificates of deposit,
repurchase agreements or other short-term debt obligations. The Portfolios may
also invest in money market funds (including funds managed by Janus Capital).
When a Portfolio's investments in cash or similar investments increase, a
Portfolio may not participate in stock or bond market advances or declines to
the same extent that it would if the Portfolio remained more fully invested in
stocks or bonds.
DIVERSIFICATION
The Investment Company Act of 1940 (the "1940 Act") classifies investment
companies as either diversified or nondiversified. All of the Portfolios (except
Aggressive Growth Portfolio) qualify as diversified funds under the 1940 Act.
The Portfolios are subject to the following diversification requirements:
o As a fundamental policy, no Portfolio may own more than 10% of the
outstanding voting shares of any issuer.
o As a fundamental policy, with respect to 50% of the total assets of
Aggressive Growth Portfolio and 75% of the total assets of the other
Portfolios, no Portfolio will purchase a security of any issuer (other than
cash items and U.S. government securities, as defined in the 1940 Act) if
such purchase would cause a Portfolio's holdings of that issuer to amount
to more than 5% of that Portfolio's total assets.
o No Portfolio will invest more than 25% of its total assets in a single
issuer (other than U.S. government securities).
o Aggressive Growth Portfolio reserves the right to become a diversified
portfolio by limiting the investments in which more than 5% of its total
assets are invested.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS
In addition to the diversification requirements stated above, because a class of
shares of the Portfolios are sold in connection with variable insurance
contracts, each Portfolio intends to comply with the diversification
requirements currently imposed by the IRS on separate accounts of insurance
companies as a condition of maintaining the tax-deferred status of variable
contracts.
INDUSTRY CONCENTRATION
As a fundamental policy, no Portfolio will invest 25% or more of its total
assets in any particular industry (excluding U.S. government securities).
PORTFOLIO TURNOVER
Each Portfolio generally intends to purchase securities for long-term investment
rather than short-term gains. However, short-term transactions may result from
liquidity needs, securities having reached a price or yield objective, changes
in interest rates or the credit standing of an issuer, or by reason of economic
or other developments not foreseen at the time of the initial investment
decision. Changes are made in a Portfolio whenever its portfolio manager
believes such changes are desirable. Portfolio turnover rates are generally not
a factor in making buy and sell decisions.
To a limited extent, a Portfolio may purchase securities in anticipation of
relatively short-term price gains. A Portfolio may also sell one security and
simultaneously purchase the same or a comparable security to take advantage of
short-term differentials in bond yields or securities prices. Increased
portfolio turnover may result in higher costs for brokerage commissions, dealer
mark-ups and other transaction costs and may also result in taxable capital
gains. Certain tax rules may restrict the Portfolios' ability to engage in
short-term trading if a security has been held for less than three months.
ILLIQUID INVESTMENTS
Each Portfolio may invest up to 15% of its net assets in illiquid investments,
including restricted securities or private placements that are not deemed to be
liquid by Janus Capital. An illiquid investment is a security or other position
that cannot be disposed of quickly in the normal course of business. Some
securities cannot be sold to the U.S. public because of their terms or because
of SEC regulations. Janus Capital will follow guidelines established by the
Trustees of the Trust ("Trustees") in making liquidity determinations for Rule
144A securities and other securities, including privately placed commercial
paper and municipal lease obligations.
BORROWING AND LENDING
Each Portfolio may borrow money and lend securities or other assets, as follows:
o Each Portfolio may borrow money for temporary or emergency purposes in
amounts up to 25% of its total assets.
o Each Portfolio may mortgage or pledge securities as security for borrowings
in amounts up to 15% of its net assets.
o As a fundamental policy, each Portfolio may lend securities or other assets
if, as a result, no more than 25% of its total assets would be lent to
other parties.
Each Portfolio intends to seek permission from the SEC to borrow money from or
lend money to each other and 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 percentage limits. There is no assurance that such
permission will be granted.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
9
<PAGE>
ADDITIONAL RISK FACTORS OF PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
MAY INVOLVE GREATER RISKS THAN INVESTING IN COMPARABLE DOMESTIC SECURITIES.
Securities of some foreign companies and governments may be traded in the United
States, but many foreign securities are traded primarily in foreign markets. The
risks of foreign investing include:
o Currency Risk. A Portfolio may buy the local currency when it buys a
foreign currency denominated security and sell the local currency when it
sells the security. As long as a Portfolio holds a foreign security, its
value will be affected by the value of the local currency relative to the
U.S. dollar. When a Portfolio sells a foreign denominated security, its
value may be worth less in U.S. dollars even though the security increases
in value in its home country. U.S. dollar denominated securities of foreign
issuers may also be affected by currency risk.
o Political and Economic Risk. Foreign investments may be subject to
heightened political and economic risks, particularly in underdeveloped or
developing countries which may have relatively unstable governments and
economies based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations of a
company or that the government may impose taxes or limits on the removal of
a Portfolio's assets from that country. The Portfolios may invest in
emerging market countries. Emerging market countries involve greater risks
such as immature economic structures, national policies restricting
investments by foreigners, and different legal systems.
o Regulatory Risk. There may be less government supervision of foreign
markets. Foreign issuers may not be subject to the uniform accounting,
auditing and financial reporting standards and practices applicable to
domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers.
o Market Risk. Foreign securities markets, particularly those of
underdeveloped or developing countries, may be less liquid and more
volatile than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in settling
securities transactions. In some foreign markets, there may not be
protection against failure by other parties to complete transactions. There
may be limited legal recourse against an issuer in the event of a default
on a debt instrument.
o Transaction Costs. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody costs, are generally
higher than those involved in domestic transactions.
Foreign securities purchased indirectly (e.g., depositary receipts) are subject
to many of the above risks, including currency risk, because their values depend
on the performance of a foreign security denominated in its home currency.
INVESTMENTS IN SMALLER COMPANIES
SMALLER OR NEWER COMPANIES MAY SUFFER MORE SIGNIFICANT LOSSES AS WELL AS
REALIZE MORE SUBSTANTIAL GROWTH THAN LARGER OR MORE ESTABLISHED ISSUERS.
Smaller or newer companies may lack depth of management, they may be unable to
generate funds necessary for growth or potential development, or they may be
developing or marketing new products or services for which markets are not yet
established and may never become established. In addition, such companies may be
insignificant factors in their industries and may be subject to intense
competition from larger or more established companies. Securities of smaller or
newer companies may have more limited trading markets than the markets for
securities of larger or more established issuers, and may be subject to wider
price fluctuations. Investments in such companies tend to be more volatile and
somewhat more speculative.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Each Portfolio may enter into futures contracts on securities, financial indices
and foreign currencies and options on such contracts ("futures contracts") and
may invest in options on securities, financial indices and foreign currencies
("options"), forward contracts and interest rate swaps and swap-related products
(collectively "derivative instruments"). The Portfolios intend to use most
derivative instruments primarily to hedge against potential adverse movements in
securities prices, foreign currency markets or interest rates. To a limited
extent, the Portfolios may also use derivative instruments for non-hedging
purposes such as seeking to increase a Portfolio's income or otherwise seeking
to enhance return. Please refer to Appendix A to this Prospectus and the SAI for
a more detailed discussion of these instruments.
The use of derivative instruments exposes the Portfolios to additional
investment risks and transaction costs. Risks inherent in the use of derivative
instruments include:
o the risk that interest rates, securities prices and currency markets will
not move in the direction that a portfolio manager anticipates;
o imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies
being hedged;
o the fact that skills needed to use these strategies are different from
those needed to select portfolio securities;
o inability to close out certain hedged positions to avoid adverse tax
consequences;
o the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits, either
of which may make it difficult or impossible to close out a position when
desired;
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
10
<PAGE>
o leverage risk, that is, the risk that adverse price movements in an
instrument can result in a loss substantially greater than a Portfolio's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and
o particularly in the case of privately-negotiated instruments, the risk that
the counterparty will fail to perform its obligations, which could leave a
Portfolio worse off than if it had not entered into the position.
Although the Portfolios believe the use of derivative instruments will benefit
the Portfolios, a Portfolio's performance could be worse than if the Portfolio
had not used such instruments if the portfolio manager's judgement proves
incorrect.
When a Portfolio invests in a derivative instrument, it may be required to
segregate cash and other liquid assets or certain portfolio securities with its
custodian to "cover" the Portfolio's position. Assets segregated or set aside
generally may not be disposed of so long as the Portfolio maintains the
positions requiring segregation or cover. Segregating assets could diminish the
Portfolio's return due to the opportunity losses of foregoing other potential
investments with the segregated assets.
HIGH-YIELD/HIGH-RISK SECURITIES
HIGH-YIELD/HIGH-RISK SECURITIES (OR "JUNK" BONDS) ARE DEBT SECURITIES RATED
BELOW INVESTMENT GRADE BY THE PRIMARY RATING AGENCIES (SUCH AS STANDARD &
POOR'S AND MOODY'S).
The value of lower quality securities generally is more dependent on the ability
of the issuer to meet interest and principal payments (i.e., credit risk) than
is the case for higher quality securities. Conversely, the value of higher
quality securities may be more sensitive to interest rate movements than lower
rated securities. Issuers of high-yield/high-risk securities may not be as
strong financially as those issuing bonds with higher credit ratings.
Investments in such companies are considered to be more speculative than higher
quality investments.
Issuers of high-yield/high-risk securities are more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, a Portfolio would
experience a reduction of its income and could expect a decline in the market
value of the defaulted securities.
The market for lower quality securities is generally less liquid than the market
for higher quality securities. Adverse publicity and investor perceptions as
well as new or proposed laws may also have a greater negative impact on the
market for lower quality securities. Unrated debt, while not necessarily of
lower quality than rated securities, may not have as broad a market as rated
securities. 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.
The market prices of high-yield/high-risk securities structured as zero coupon
or pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically. In addition, zero coupon, pay-in-kind and delayed interest bonds
often do not pay interest until maturity. However, the Portfolios must recognize
a computed amount of interest income and pay dividends to shareholders even
though it has received no cash. In some instances, the Portfolios may have to
sell securities to have sufficient cash to pay the dividends.
Please refer to Appendix B for a description of bond rating categories.
SHORT SALES
Each Portfolio may engage in "short sales against the box." This technique
involves selling either a security that a Portfolio owns, or a security
equivalent in kind and amount that a Portfolio has the right to obtain, for
delivery at a specified date in the future. A Portfolio will enter into a short
sale against the box to hedge against anticipated declines in the market price
of portfolio securities or to defer an unrealized gain. If the value of the
securities sold short increases prior to the scheduled delivery date, the
Portfolio lose the opportunity to participate in the gain.
SPECIAL SITUATIONS
Each Portfolio may invest in "special situation" from time to time. A special
situation arises when, in the opinion of a Portfolio's manager, the securities
of a particular issuer will be recognized and appreciate in value due to a
specific development with respect to that issuer. Developments creating a
special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
See Appendix A for risks associated with certain other investments.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
11
<PAGE>
MONEY MARKET PORTFOLIO IS DESIGNED FOR INVESTORS WHO PRIMARILY SEEK MAXIMUM
CURRENT INCOME TO THE EXTENT CONSISTENT WITH STABILITY OF CAPITAL.
MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to seek maximum current income to the
extent consistent with stability of capital. There can be no assurance that the
Portfolio will achieve its investment objective or be able to maintain a stable
net asset value of $1.00 per share.
INVESTMENT POLICIES
The Portfolio will invest only in eligible high quality, short-term money market
instruments that present minimal credit risks, as determined by Janus Capital,
the Portfolio's investment adviser, pursuant to procedures adopted by the
Trustees. The Portfolio may invest only in U.S. dollar-denominated instruments
that have a remaining maturity of 397 days or less (as calculated pursuant to
Rule 2a-7 under the 1940 Act) and will maintain a dollar-weighted average
portfolio maturity of 90 days or less.
Except to the limited extent permitted by Rule 2a-7 and except for U.S.
Government Securities (as defined below), the Portfolio will not invest more
than 5% of its total assets in the securities of any one issuer. A guarantor is
not considered an issuer for the purpose of this limit, provided that the value
of all securities held by the Portfolio that are issued or guaranteed by that
institution shall not exceed 10% of the Portfolio's total assets. The Portfolio
may not invest more than 25% of its total assets in any one industry, except
that this limit does not apply to U.S. Government Securities, bank obligations
or municipal securities. To ensure adequate liquidity, the Portfolio may not
invest more than 10% of its net assets in illiquid securities, including
repurchase agreements maturing in more than seven days (unless subject to a
demand feature) and certain time deposits that are subject to early withdrawal
penalties and mature in more than seven days. Janus Capital determines and
monitors the liquidity of portfolio securities under the supervision of the
Trustees.
RATINGS
High quality money market instruments include those that (i) are rated (or, if
unrated, are issued by an issuer with comparable outstanding short-term debt
that is rated) in one of the two highest rating categories for short-term debt
by any two nationally recognized statistical rating organizations ("NRSROs") or,
if only one NRSRO has issued a rating, by that NRSRO or (ii) are otherwise
unrated and determined by Janus Capital to be of comparable quality. The
Portfolio will invest at least 95% of its total assets in securities in the
highest rating category (as determined pursuant to Rule 2a-7). Descriptions of
the rating categories of Standard & Poor's, Moody's and certain other NRSROs are
contained in Appendix B. A further description of the Money Market Portfolio's
investment policies is included in the Money Market Portfolio's SAI.
Although the Portfolio only invests in high quality money market instruments, an
investment in the Portfolio is subject to risk even if all securities in its
portfolio are paid in full at maturity. All money market instruments, including
U.S. Government Securities, can change in value as a result of changes in
interest rates, the issuer's actual or perceived creditworthiness or the
issuer's ability to meet its obligations.
TYPES OF INVESTMENTS
The Portfolio pursues its objective by investing primarily in high quality debt
obligations and obligations of financial institutions. It may invest in U.S.
Government Securities (as defined below) and municipal securities, although the
Portfolio expects to invest in such securities to a lesser degree.
DEBT OBLIGATIONS
The Portfolio may invest in debt obligations of domestic issuers, including
commercial paper (short-term promissory notes issued by companies to finance
their, or their affiliates', current obligations), notes and bonds, and variable
amount master demand notes. The payment obligations on these instruments may be
backed by securities, swap agreements or other assets, by a guarantee of a third
party or solely by the unsecured promise of the issuer to make payments when
due. The Portfolio may invest in privately issued commercial paper or other
securities that are restricted as to disposition under the federal securities
laws. In general, sales of these securities may not be made absent registration
under the Securities Act of 1933 (the "1933 Act") or the availability of an
appropriate exemption therefrom. Pursuant to Section 4(2) of the 1933 Act or
Rule 144A adopted under the 1933 Act, however, some of these securities are
eligible for resale to institutional investors, and accordingly, Janus Capital
may determine that a liquid market exists for such a security pursuant to
guidelines adopted by the Trustees.
OBLIGATIONS OF FINANCIAL INSTITUTIONS
The Portfolio may invest in obligations of financial institutions. Examples of
obligations in which it may invest include negotiable certificates of deposit,
bankers' acceptances and time deposits of U.S. banks
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
12
<PAGE>
(including savings and loan associations) having total assets in excess of one
billion dollars and U.S. branches of foreign banks having total assets in excess
of ten billion dollars. The Portfolio may also invest in Eurodollar and Yankee
bank obligations as discussed below.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Fixed time deposits, which
are payable at the stated maturity date and bear a fixed rate of interest,
generally may be withdrawn on demand by the Portfolio but may be subject to
early withdrawal penalties that could reduce the Portfolio's yield. Unless there
is a readily available market for them, time deposits that are subject to early
withdrawal penalties and that mature in more than seven days will be treated as
illiquid securities.
EURODOLLAR OR YANKEE OBLIGATIONS
The Portfolio may invest in Eurodollar and Yankee bank obligations. Eurodollar
bank obligations are dollar-denominated certificates of deposit or time deposits
issued outside the U.S. capital markets by foreign branches of U.S. banks and by
foreign banks. Yankee bank obligations are dollar-denominated obligations issued
in the U.S. capital markets by foreign banks.
Eurodollar (and to a limited extent, Yankee) bank obligations are subject to
certain sovereign risks. One such risk is the possibility that a foreign
government might prevent dollar-denominated funds from flowing across its
borders. Other risks include: adverse political and economic developments in a
foreign country; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes; and
expropriation or nationalization of foreign issuers.
U.S. GOVERNMENT SECURITIES
The Portfolio may invest without limit in U.S. Government Securities. U.S.
Government Securities shall have the meaning set forth in the 1940 Act. The 1940
Act defines U.S. Government Securities to include securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities. U.S.
Government Securities may also include repurchase agreements collateralized by
and municipal securities escrowed with or refunded with U.S. Government
Securities. U.S. Government Securities in which the Portfolio may invest include
U.S. Treasury securities and obligations issued or guaranteed by U.S. government
agencies and instrumentalities that are backed by the full faith and credit of
the U.S. government, such as those guaranteed by the Small Business
Administration or issued by the Government National Mortgage Association. In
addition, U.S. Government Securities in which the Portfolio may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities of the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation and the Tennessee Valley Authority. There is no
guarantee that the U.S. government will support securities not backed by its
full faith and credit. Accordingly, although these securities have historically
involved little risk of loss of principal if held to maturity, they may involve
more risk than securities backed by the full faith and credit of the U.S.
government.
MUNICIPAL SECURITIES
The municipal securities in which the Portfolio may invest include municipal
notes and short-term municipal bonds. Municipal notes are generally used to
provide for the issuer's short-term capital needs and generally have maturities
of 397 days or less. The Portfolio may also invest in high quality participation
interests in municipal securities. A more detailed description of various types
of municipal securities is contained in Appendix B in the SAI.
Yields on municipal securities are dependent on a variety of factors, including
the general conditions of the money market and of the municipal bond and
municipal note markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Obligations of issuers of municipal
securities are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Bankruptcy
Reform Act of 1978, as amended. Therefore, the possibility exists that, as a
result of litigation or other conditions, the ability of any issuer to pay, when
due, the principal of and interest on its municipal securities may be materially
affected.
PARTICIPATION INTERESTS
The Portfolio may invest in participation interests in any type of security in
which the Portfolio may invest. A participation interest gives a Portfolio an
undivided interest in the underlying securities in the proportion that the
Portfolio's participation interest bears to the total principal amount of the
underlying securities. Participation interests usually carry a demand feature,
as described below, backed by a letter of credit or guarantee of the institution
that issued the interests permitting the holder to tender them back to the
institution.
DEMAND FEATURES
The Portfolio may invest in securities that are subject to puts and stand-by
commitments ("demand features"). Demand features give the Portfolio the right to
resell securities at specified periods prior to their maturity dates to the
seller or to some third party at an agreed-upon price or yield. Securities with
demand features may involve certain expenses and risks, including the inability
of the issuer of the instrument to pay for the securities at the time the
instrument is
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
13
<PAGE>
exercised, non-marketability of the instrument and differences between the
maturity of the underlying security and the maturity of the instrument.
Securities may cost more with demand features than without them. Demand features
can serve three purposes: to shorten the maturity of a variable or floating rate
security, to enhance the instrument's credit quality and to provide a source of
liquidity. Demand features are often issued by third party financial
institutions, generally domestic and foreign banks. Accordingly, the credit
quality and liquidity of the Portfolio's investments may be dependent in part on
the credit quality of the banks supporting its investments. This will result in
exposure to risks pertaining to the banking industry, including the foreign
banking industry. Brokerage firms and insurance companies also provide certain
liquidity and credit support.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Portfolio invests may have variable or floating
rates of interest. These 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. Securities with ultimate maturities
of greater than 397 days may be purchased only pursuant to Rule 2a-7. Under that
Rule, only those long-term instruments that have demand features which comply
with certain requirements and certain variable rate U.S. Government Securities
may be purchased. Similar to fixed rate debt instruments, variable and floating
rate instruments are subject to changes in value based on changes in market
interest rates or changes in the issuer's or guarantor's creditworthiness. The
rate of interest on securities purchased by the Portfolio may be tied to
short-term Treasury or other government securities or indices on securities that
are permissible investments of the Portfolio, as well as other money market
rates of interest. The Portfolio will not purchase securities whose values are
tied to interest rates or indicies that are not appropriate for the duration and
volatility standards of a money market fund.
MORTGAGE- AND ASSET-BACKED SECURITIES
The Portfolio may purchase fixed or adjust-
able rate mortgage-backed securities issued by the Government National Mortgage
Association, Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation, or other governmental or government-related entities. In
addition, the Portfolio may purchase other asset-backed securities, including
securities backed by automobile loans, equipment leases or credit card
receivables. These securities directly or indirectly represent a participation
in, or are secured by and payable from, fixed or adjustable rate mortgage or
other loans which may be secured by real estate or other assets. Unlike
traditional debt instruments, payments on these securities include both interest
and a partial payment of principal. Prepayments of the principal of underlying
loans may shorten the effective maturities of these securities and may result in
the Portfolio having to reinvest proceeds at a lower interest rate.
REPURCHASE AGREEMENTS
The Portfolio may seek additional income by entering into collateralized
repurchase agreements with respect to obligations that it could otherwise
purchase. Repurchase agreements are transactions in which the Portfolio
purchases securities and simultaneously commits to resell those securities to
the seller at an agreed-upon price on an agreed-upon future date. The resale
price reflects a market rate of interest that is not related to the coupon rate
or maturity of the purchased securities.
REVERSE REPURCHASE AGREEMENTS
The Portfolio may enter into reverse repurchase agreements. Reverse repurchase
agreements are transactions in which the Portfolio sells a security and
simultaneously commits to repurchase that security from the buyer at an agreed
upon price on an agreed upon future date. This technique will be used primarily
for temporary or emergency purposes, such as meeting redemption requests.
DELAYED DELIVERY SECURITIES
The Portfolio may purchase securities on a when-issued or delayed delivery
basis. Securities so purchased are subject to market price fluctuation from the
time of purchase but no interest on the securities accrues to the Portfolio
until delivery and payment for the securities take place. Accordingly, the value
of the securities on the delivery date may be more or less than the purchase
price. Forward commitments will be entered into only when the Portfolio has the
intention of taking possession of the securities, but it may sell the securities
before the settlement date if deemed advisable.
BORROWING AND LENDING
The Portfolio may borrow money for temporary or emergency purposes in amounts up
to 25% of its total assets. It may not mortgage or pledge securities except to
secure permitted borrowings. As a fundamental policy, the Portfolio will not
lend securities or other assets if, as a result, more than 25% of its total
assets would be lent to other parties; however, it does not currently intend to
engage in securities lending. The Portfolio intends to seek permission from the
SEC to borrow money from or lend money to other funds that permit such
transactions and are advised by Janus Capital. There is no assurance that such
permission will be granted.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
14
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
TRUSTEES
The Trustees oversee the business affairs of the Trust and are responsible for
major decisions relating to each Portfolio's investment objectives and policies.
The Trustees delegate the day-to-day management of the Portfolios to the
officers of the Trust and meet at least quarterly to review the Portfolios'
investment policies, performance, expenses and other business affairs.
INVESTMENT ADVISER
Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928, is the
investment adviser to each of the Portfolios and is responsible for the
day-to-day management of the investment portfolios and other business affairs of
the Portfolios.
Janus Capital has served as investment adviser to Janus Fund since its inception
in 1970 and currently serves as investment adviser to all of the Janus retail
funds, as well as adviser or subadviser to other mutual funds and individual,
corporate, charitable and retirement accounts.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus Capital, most of which it acquired in 1984.
KCSI is a publicly traded holding company whose primary subsidiaries are engaged
in transportation, information processing and financial services. Thomas H.
Bailey, 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.
Janus Capital furnishes continuous advice and recommendations concerning each
Portfolio's investments. Janus Capital also furnishes certain administrative,
compliance and accounting services for the Portfolios, and may be reimbursed by
the Portfolios for its costs in providing those services. In addition, Janus
Capital employees serve as officers of the Trust and Janus Capital provides
office space for the Portfolios and pays the salaries, fees and expenses of all
Portfolio officers and those Trustees who are affiliated with Janus Capital.
Service providers to qualified plans that purchase the Shares receive fees for
providing recordkeeping, subaccounting and other administrative services, as
described under "Participant Administration Fee and Distribution Fee" on pages
17-18.
INVESTMENT PERSONNEL
PORTFOLIO MANAGERS
James P. Craig, III is Chief Investment Officer of Janus Capital. He is also
Executive Vice President and portfolio manager of Growth Portfolio, which he has
managed since 1994. Mr. Craig previously managed Balanced Portfolio from
September 1993 through April 1996. He has managed Janus Fund since 1986 and has
co-managed Janus Venture Fund since February 1997. Mr. Craig previously managed
Janus Venture Fund from its inception to December 1993 and Janus Balanced Fund
from December 1993 through December 1995. He holds a Bachelor of Arts in
Business from the University of Alabama and a Master of Arts in Finance from the
Wharton School of the University of Pennsylvania.
- --------------------------------------------------------------------------------
James P. Goff is Executive Vice President and portfolio manager of Aggressive
Growth Portfolio. Mr. Goff joined Janus Capital in 1988 and has managed Janus
Enterprise Fund since its inception. Mr. Goff co-managed or managed Janus
Venture Fund from December 1993 to February 1, 1997. He holds a Bachelor of Arts
in Economics from Yale University and is a Chartered Financial Analyst.
Helen Young Hayes is Executive Vice President and portfolio manager of Worldwide
Growth Portfolio and International Growth Portfolio. Ms. Hayes joined Janus
Capital in 1987 and has managed or co-managed Janus Worldwide Fund and Janus
Overseas Fund since their inceptions. She holds a Bachelor of Arts in Economics
from Yale University and is a Chartered Financial Analyst.
- --------------------------------------------------------------------------------
Sharon S. Pichler is Executive Vice President and portfolio manager of Money
Market Portfolio, which she has managed since inception. She has also managed
Janus Money Market Fund, Janus Government Money Market Fund and Janus Tax-Exempt
Money Market Fund since their inception. She holds a Bachelor of Arts in
Economics from Michigan State University and a Master of Business Administration
from the University of Texas at San Antonio. Ms. Pichler is a Chartered
Financial Analyst.
- --------------------------------------------------------------------------------
Blaine P. Rollins is Executive Vice President and portfolio manager of Balanced
Portfolio, which he has managed since May 1996 and assistant portfolio manager
of Growth Portfolio. Mr. Rollins joined Janus Capital in 1990 and has managed
Janus Balanced Fund since January 1996 and Janus Equity Income Fund since May
1996. He has been an assistant portfolio manager of Janus Fund since January
1995. He gained experience as a fixed-income trader and equity research analyst
prior to assuming management responsibility for the Portfolio. He holds a
Bachelor of Science in Finance from the University of Colorado and is a
Chartered Financial Analyst.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
15
<PAGE>
Sandy R. Rufenacht is Executive Vice President and portfolio manager of
Short-Term Bond Portfolio, which he has managed since May 1996. He is also the
co-manager of Flexible Income Portfolio and High-Yield Portfolio, which he has
co-managed since January 13, 1997 and October 24, 1996, respectively. Mr.
Rufenacht joined Janus Capital in 1990 and has managed Janus Short-Term Bond
Fund since January 1996. He is also the co-manager of Janus Flexible Income Fund
and Janus High-Yield Fund. He holds a Bachelor of Arts in Business from the
University of Northern Colorado.
- --------------------------------------------------------------------------------
Ronald V. Speaker is Executive Vice President and co-manager of Flexible Income
Portfolio and High-Yield Portfolio, each of which he began managing at their
inception. He managed Short-Term Bond Portfolio from its inception through April
1996 and also co-manages Janus High-Yield Fund and the Janus Flexible Income
Fund. Mr. Speaker joined Janus Capital in 1986. He has managed Janus Flexible
Income Fund since December 1991 and previously managed both Janus Short-Term
Bond Fund and Janus Federal Tax-Exempt Fund from inception through December
1995. He holds a Bachelor of Arts in Finance from the University of Colorado and
is a Chartered Financial Analyst.
In January 1997, Mr. Speaker settled an SEC administrative action involving two
personal trades made by him in January of 1993. Without admitting or denying the
allegations, Mr. Speaker agreed to civil money penalty, disgorgement, and
interest payments totaling $37,199 and to a 90-day suspension ending on or about
April 26, 1997.
ASSISTANT PORTFOLIO MANAGERS
Laurence Chang is assistant portfolio manager of International Growth Portfolio
and Worldwide Growth Portfolio. He is also assistant portfolio manager of Janus
Overseas Fund and Janus Worldwide Fund. He received an undergraduate degree with
honors in religion and philosophy from Dartmouth College and a Master's Degree
in Political Science from Stanford University. He is a Chartered Financial
Analyst.
- --------------------------------------------------------------------------------
David Decker is an assistant portfolio manager of the Growth Portfolio. He is
also assistant portfolio manager of Janus Fund. He is Executive Vice President
and portfolio manager of Janus Special Situations Fund. Mr. Decker received a
Masters of Business Administration in Finance from the Fuqua School of Business
at Duke University and a Bachelor's Degree in Economics and Political Science
from Tufts University. He is a Chartered Financial Analyst.
PERSONAL INVESTING
Janus Capital does not permit portfolio managers to purchase and sell securities
for their own accounts, except under the limited exceptions contained in Janus
Capital's policy governing personal investing. Janus Capital's policy requires
investment and other personnel to conduct their personal investment activities
in a manner that Janus Capital believes is not detrimental to the Portfolios or
Janus Capital's other advisory clients. See the SAI for more detailed
information.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities on behalf of each Portfolio are executed by
broker-dealers selected by Janus Capital. Broker-dealers are selected on the
basis of their ability to obtain best price and execution for a Portfolio's
transactions and recognizing brokerage, research and other services provided to
the Portfolio and to Janus Capital. Janus Capital may consider sales of shares
of the Portfolios or other Janus funds by a broker-dealer or the recommendation
of a broker-dealer to its customers that they purchase a Portfolio's shares as a
factor in the selection of broker-dealers to execute Portfolio transactions.
Janus Capital may also consider payments made by brokers effecting transactions
for a Portfolio i) to the Portfolio or ii) to other persons on behalf of the
Portfolio for services provided to the Portfolio for which it would be obligated
to pay. The Trustees have authorized Janus Capital to place portfolio
transactions on an agency basis with a broker-dealer affiliated with Janus
Capital. When transactions for a Portfolio are effected with that broker-dealer,
the commissions payable by the Portfolio are credited against certain Portfolio
operating expenses serving to reduce those expenses. The SAI further explains
the selection of broker-dealers.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
16
<PAGE>
BREAKDOWN OF MANAGEMENT EXPENSES AND EXPENSE LIMITS
Each Portfolio pays Janus Capital a management fee which is calculated daily.
The advisory agreement with each Portfolio spells out the management fee and
other expenses that the Portfolios must pay. Each of the Portfolios is subject
to the following management fee schedule (expressed as an annual rate):
<TABLE>
<CAPTION>
Average Daily Net Annual Rate Expense Limit
Fee Schedule Assets of Portfolio Percentage (%) Percentage (%)**
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio First $ 30 Million 1.00* N/A
Aggressive Growth Portfolio Next $270 Million .75 N/A
International Growth Portfolio Next $200 Million .70 1.25***
Worldwide Growth Portfolio Over $500 Million .65 N/A
Balanced Portfolio N/A
--------------------------------------------------------------------------------------------------------
Flexible Income Portfolio First $300 Million .65 1.00
Over $300 Million .55
--------------------------------------------------------------------------------------------------------
High-Yield Portfolio First $300 Million .75 1.00
Over $300 Million .65
--------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio First $300 Million .65 .65
Over $300 Million .55
--------------------------------------------------------------------------------------------------------
Money Market Portfolio All asset levels .25 .50
--------------------------------------------------------------------------------------------------------
</TABLE>
*Janus Capital has agreed to reduce each Portfolio's advisory fee to
the extent that such fee exceeds the effective rate of the Janus
retail fund corresponding to such Portfolio. Janus Capital may
terminate this fee reduction or any of the expense limitations set
forth above at any time upon at least 90 days' notice to the
Trustees. The effective rate is the advisory fee calculated by the
corresponding retail fund as of the last day of each calendar
quarter (expressed as an annual rate). The effective rate of Janus
Fund, Janus Enterprise Fund, Janus Overseas Fund, Janus Worldwide
Fund and Janus Balanced Fund were .65%, .73%, .68%, .66% and .78%,
respectively, for the quarter ended March 31, 1997.
**The Distribution Fee and Participant Administration Fee described on
pages 17-18 are not included in the expense limit.
***Janus Capital has reduced the expense limit of International Growth
Portfolio to 1.25% of average net assets through at least April 30,
1998.
Differences in the actual management fees incurred by the Portfolios are due
primarily to variances in the asset sizes of the corresponding retail funds. As
asset size increases, the annual rate of the management fee declines in
accordance with the above schedule (except for the Money Market Portfolio). In
addition, the Shares of each Portfolio incur expenses not assumed by Janus
Capital, including the participant administration fee and distribution fee
described below, transfer agent and custodian fees and expenses, legal and
auditing fees, printing and mailing costs of sending reports and other
information to existing shareholders, and independent Trustees' fees and
expenses.
OTHER SERVICE PROVIDERS
The following parties provide the Portfolios with administrative and other
services.
CUSTODIAN FOR PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
State Street Bank and Trust Company
P.O. Box 0351
Boston, Massachusetts 02117-0351
CUSTODIAN FOR MONEY MARKET PORTFOLIO
United Missouri Bank, N.A.
P.O. Box 419226
Kansas City, Missouri 64141-6226
TRANSFER AGENT
Janus Service Corporation
P.O. Box 173375
Denver, Colorado 80217-3375
DISTRIBUTOR
Janus Distributors, Inc.
100 Fillmore Street
Denver, Colorado 80206-4928
Janus Service Corporation and Janus
Distributors, Inc. are wholly-owned
subsidiaries of Janus Capital.
PARTICIPANT ADMINISTRATION FEE AND DISTRIBUTION FEE
PARTICIPANT ADMINISTRATION FEE
Janus Service Corporation ("Janus Service"), the Trust's transfer agent,
receives a participant administration fee at an annual rate of up to .25% of the
average daily net assets of the Shares of each Portfolio for providing or
procuring recordkeeping, subaccounting and other administrative services to plan
participants who invest in the Shares. Janus Service expects to use this fee to
compensate qualified plan service providers for providing these services.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
17
<PAGE>
DISTRIBUTION FEE
Under a distribution and service 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 Shares, a fee at an annual rate of up to 0.25% of the
average daily net assets of the Shares of a 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 permits the
compensation of such service providers at an annual rate of up to .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, SAIs, 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.
OTHER INFORMATION
ORGANIZATION
The Trust is a "mutual fund" that was organized as a Delaware business trust on
May 20, 1993. A mutual fund is an investment vehicle that pools money from
numerous investors and invests the money to achieve a specified objective. The
Trust offers Shares in eleven separate series, nine of which are offered by this
Prospectus.
Each Portfolio currently offers two classes of shares, one of which, the
Retirement Shares are offered pursuant to this Prospectus. The Shares offered by
this prospectus are available only to participant directed qualified plans using
plan service providers that are compensated for providing distribution and/or
recordkeeping and other administrative services provided to plan participants.
Institutional Shares of each Portfolio are available only in connection with
investment in and payments under variable insurance contracts as well as certain
qualified retirement plans. Because the expenses of each class may differ, the
performance of each class is expected to differ. If you would like additional
information about the Institutional Shares, please call 1-800-525-0020.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
The Trust does not intend to hold annual shareholder meetings. However, special
meetings may be called for a specific class or Portfolio or for the Trust as a
whole for purposes such as electing or removing Trustees, terminating or
reorganizing the Trust, changing fundamental policies, or for any other purpose
requiring a shareholder vote under the 1940 Act. Separate votes are taken by
each class or Portfolio, only if a matter affects or requires the vote of only
that class or Portfolio or the interest of a class or Portfolio in the matter
differs from the interest of the other class or Portfolios of the Trust. As a
shareholder, you are entitled to one vote for each share that you own.
CONFLICTS OF INTEREST
The Shares offered by this prospectus are available only to certain qualified
plans. Institutional Shares of the Portfolios (offered through a separate
prospectus) are available to variable annuity and variable life separate
accounts of insurance companies that are unaffiliated with Janus Capital, as
well as certain qualified retirement plans. Although the Portfolios currently do
not anticipate any disadvantages to policy owners or plan participants will
develop arising out of the fact that each Portfolio offers its shares to such
entities, there is a possibility that a material conflict may arise. The
Trustees monitor events in order to identify any anticipated disadvantages or
material irreconcilable conflicts to determine what action, if any, should be
taken in response. If a material disadvantage or conflict occurs, the Trustees
may require one or more insurance company separate accounts or plans to withdraw
its investments in one or more Portfolios or substitute Shares of another
Portfolio. If this occurs, a Portfolio may be forced to sell securities at
disadvantageous prices. In addition, the Trustees may refuse to sell shares of
any Portfolio to any separate account or qualified plan or may suspend or
terminate the offering of a Portfolio's shares if such action is required by law
or regulatory authority or is in the best interests of that Portfolio's
shareholders.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve any Portfolio's investment objective
by investing all of that Portfolio's assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to that Portfolio. It is expected that any such
investment company would be managed by Janus Capital in substantially the same
manner as the existing Portfolio. The initial shareholder(s) of each Portfolio
voted to vest the authority to convert to a master/feeder structure in the sole
discretion of the Trustees. No further approval of the shareholders of the
Portfolios is required. You will receive at least 30 days' prior notice of any
such investment. Such investment would be made only if the Trustees determine it
to be in the best interests of a Portfolio and its shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although management of the Portfolios believes the Trustees will
not approve an arrangement that is likely to result in higher costs, no
assurance is given that costs will be materially reduced if this option is
implemented.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
18
<PAGE>
THE VALUATION OF SHARES
The net asset value ("NAV") of the Shares of a Portfolio is determined at the
close of the regular trading session of the New York Stock Exchange (the "NYSE")
(normally 4:00 p.m., New York time) each day that the NYSE is open. NAV per
Share is determined by dividing the total value of the securities and other
assets, less liabilities, by the total number of Shares outstanding.
For the Portfolios other than the Money Market Portfolio, securities are valued
at market value or, if a market quotation is not readily available, at their
fair value determined in good faith under procedures established by and under
the supervision of the Trustees. Short-term instruments maturing within 60 days
are valued at amortized cost, which approximates market value.
For the Money Market Portfolio, portfolio securities are valued at their
amortized cost. Amortized cost valuation involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity (or such other
date as permitted by Rule 2a-7) of any discount or premium. If fluctuating
interest rates cause the market value of the portfolio to deviate more than 1/2
of 1% from the value determined on the basis of amortized cost, the Trustees
will consider whether any action, such as adjusting the Share's NAV to reflect
current market conditions, should be initiated to prevent any material dilutive
effect on shareholders.
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
This section will help you understand various terms that are commonly used to
describe a Portfolio's performance. You may see references to these terms in our
newsletters or advertisements and in media articles. Newsletters and
advertisements may include comparisons of a Portfolio's performance to the
performance of other mutual funds, mutual fund averages or recognized stock
market indices. Growth Portfolio, Aggressive Growth Portfolio, International
Growth Portfolio, Worldwide Growth Portfolio and Balanced Portfolio generally
measure performance in terms of total return, while Flexible Income Portfolio,
High-Yield Portfolio, Short-Term Bond Portfolio, and Money Market Portfolio
generally use yield.
Cumulative total return represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (e.g., the life of a Portfolio). A cumulative total return does
not show interim fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the cumulative
total return for the stated period and determining what constant annual return
would have produced the same cumulative return. Average annual returns for more
than one year tend to smooth out variations in a Portfolio's return and are not
the same as actual annual results.
Yield shows the rate of income the Shares earn on investments as a percentage of
the Share price. It is calculated by dividing net investment income for a 30-day
period (7-day period for Money Market Portfolio) by the average number of Shares
entitled to receive dividends and dividing the result by the Share's NAV at the
end of such period. Yield does not include changes in NAV.
Yields are calculated according to standardized SEC formulas and may not equal
the income on an investor's account. Yield is usually quoted on an annualized
basis. An annualized yield represents the amount you would earn if you remained
in a Portfolio for a year and the Shares of that Portfolio continued to have the
same yield for the entire year.
Effective yield is similar to yield in that it is calculated over the same time
frame, but instead the net investment income is compounded and then annualized.
Due to the compounding effect, the effective yield will normally be higher than
the yield.
PORTFOLIO PERFORMANCE FIGURES ARE BASED UPON HISTORICAL RESULTS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. INVESTMENT RETURNS AND NET ASSET VALUE
WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
19
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
TO AVOID TAXATION OF THE PORTFOLIOS, THE INTERNAL REVENUE CODE REQUIRES
EACH PORTFOLIO TO DISTRIBUTE NET INCOME AND ANY NET GAINS REALIZED BY ITS
INVESTMENTS ANNUALLY. INCOME FROM DIVIDENDS AND INTEREST AND ANY NET
REALIZED SHORT-TERM CAPITAL GAINS ARE PAID TO SHAREHOLDERS AS ORDINARY
INCOME DIVIDENDS. NET REALIZED LONG-TERM GAINS, IF ANY, ARE PAID TO
SHAREHOLDERS AS CAPITAL GAINS DISTRIBUTIONS.
PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
Each class of each Portfolio, other than Money Market Portfolio, makes
semiannual distributions in June and December of substantially all of its
investment income and an annual distribution in June of its net realized capital
gains, if any. All dividends and capital gains distributions from Shares of a
Portfolio will automatically be reinvested into additional Shares of that
Portfolio.
HOW DISTRIBUTIONS AFFECT NAV
Distributions are paid to shareholders as of the record date of the distribution
of a Portfolio, regardless of how long the shares have been held. Dividends and
capital gains awaiting distribution are included in the daily NAV of a
Portfolio's Shares. The Share price drops by the amount of the distribution, net
of any subsequent market fluctuations. As an example, assume that on December
31, the Shares of Growth Portfolio declared a dividend in the amount of $0.25
per share. If the price of Growth Portfolio's Shares was $10.00 on December 30,
the Share price on December 31 would be $9.75, barring market fluctuations.
MONEY MARKET PORTFOLIO
For the Shares of Money Market Portfolio, dividends representing substantially
all of the net investment income and any net realized gains on sales of
securities are declared daily, Saturdays, Sundays and holidays included, and
distributed on the last business day of each month. If a month begins on a
Saturday, Sunday or holiday, dividends for those days are declared at the end of
the preceding month and distributed on the first business day of the month. All
distributions will be automatically reinvested in Shares of the Portfolio.
- --------------------------------------------------------------------------------
TAXES
TAXES ON DISTRIBUTIONS
Because the Shares may be purchased only through qualified plans, it is
anticipated that any income dividends or capital gains distributions made by the
Shares of a Portfolio will be exempt from current taxation if left to accumulate
within the qualified plan. Generally, withdrawals from qualified plans may be
subject to ordinary income tax and, if made before age 591/2, a 10% penalty tax.
The tax status of your investment in the Shares depends on the features of your
qualified plan. For further information, contact your plan sponsor.
TAXATION OF THE PORTFOLIOS
Dividends, interest and some capital gains received by the Portfolios on foreign
securities may give rise to withholding and other taxes imposed by foreign
countries. It is expected that foreign taxes paid by the Portfolios will be
treated as expenses of the Portfolios. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes.
The Portfolios do not expect to pay any federal income or excise taxes because
they intend to meet certain requirements of the Internal Revenue Code. In
addition, because a class of shares of each Portfolio are sold in connection
with variable annuity contracts and variable life insurance contracts, each
Portfolio intends to qualify under the Internal Revenue Code with respect to the
diversification requirements related to the tax-deferred status of insurance
company separate accounts.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
20
<PAGE>
SHAREHOLDER'S GUIDE
INVESTORS MAY NOT PURCHASE OR REDEEM SHARES OF THE PORTFOLIOS DIRECTLY. SHARES
MAY BE PURCHASED OR REDEEMED ONLY THROUGH QUALIFIED RETIREMENT PLANS. REFER TO
YOUR PLAN DOCUMENTS FOR INSTRUCTIONS ON HOW TO SELECT SPECIFIC PORTFOLIOS AS
INVESTMENT OPTIONS FOR A QUALIFIED PLAN.
PURCHASES
Purchases of Shares may be made only by qualified plans. Refer to your plan
documents for information on how to invest in the Shares each Portfolio.
All investments in the Portfolios are credited to a qualified plan immediately
upon acceptance of the investment by a Portfolio. Investments will be processed
at the NAV next determined after an order is received and accepted by a
Portfolio.
Each Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Janus Capital's opinion, they are of a
size that would disrupt the management of a Portfolio. Any Portfolio may
discontinue sales of its shares if management believes that a substantial
further increase may adversely affect that Portfolio's ability to achieve its
investment objective. In such event, however, it is anticipated that existing
plan participants invested in that Portfolio would be permitted to continue to
authorize investment in such Portfolio and to reinvest any dividends or capital
gains distributions. The Portfolios may discontinue sales to a qualified plan
and require plan participants with existing investments in the Shares to redeem
those investments if the plan loses (or in the opinion of Janus Capital, is at
risk of losing) its qualified plan status under the Internal Revenue Code.
REDEMPTIONS
Redemptions, like purchases, may be effected only through qualified plans.
Please refer to the appropriate plan documents for details.
Shares of any Portfolio may be redeemed on any business day. Redemptions are
processed at the NAV next calculated after receipt and acceptance of the
redemption order by the Portfolio. Redemption proceeds will normally be wired to
the qualified plan the business day following receipt of the redemption order,
but in no event later than seven days after receipt of such order.
SHAREHOLDER COMMUNICATIONS
Shareholders will receive annual and semiannual reports including the financial
statements of the Shares of the Portfolios that they have authorized for
investment. Each report will show the investments owned by each Portfolio and
the market values thereof, as well as other information about the Portfolios and
their operations. The Trust's fiscal year ends December 31.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
21
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the non-Money Market Portfolios may
invest. These Portfolios may invest in these instruments to the extent permitted
by their investment objective and policies. The Portfolios are not limited by
this discussion and may invest in any other types of instruments not precluded
by the policies discussed elsewhere in this Prospectus. Please refer to the SAI
for a more detailed discussion of certain instruments.
I. EQUITY AND DEBT SECURITIES
Bonds are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
Commercial paper is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. For example, the Portfolios may purchase commercial
paper issued under Section 4(2) of the Securities Act of 1933.
Common stock represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
Convertible securities are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
Depositary receipts are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
Fixed-income securities are securities that pay a specified rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a specified rate of interest or coupons for a specified
period of time and preferred stock, which pays fixed dividends. Coupon and
dividend rates may be fixed for the life of the issue or, in the case of
adjustable and floating rate securities, for a shorter period.
High-yield/High-risk securities are securities that are rated below investment
grade by the primary rating agencies (e.g., BB or lower by Standard & Poor's and
Ba or lower by Moody's). Other terms commonly used to describe such securities
include "lower rated bonds," "noninvestment grade bonds" and "junk bonds."
Mortgage- and asset-backed securities are shares in a pool of mortgages or other
debt. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, a portfolio manager may have
to reinvest the proceeds from the securities at a lower rate. Potential market
gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
Passive foreign investment companies (PFICs) are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, interest,
royalties, rents and annuities. Income tax regulations may require the
Portfolios to recognize income associated with the PFIC prior to the actual
receipt of any such income.
Pay-in-kind bonds are debt securities that 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.
Preferred stock is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
Repurchase agreements involve the purchase of a security by a Portfolio and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Portfolio at a specified date or upon demand. This
technique offers a method of earning income on idle cash. These securities
involve the risk that the seller will fail to repurchase the security, as
agreed. In that case, a Portfolio will bear the risk of market value
fluctuations until the security can be sold and may encounter delays and incur
costs in liquidating the security.
Reverse repurchase agreements involve the sale of a security by a Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually high
redemption requests, or for other temporary or emergency purposes.
Rule 144A securities are securities that are not registered for sale to the
general public under the Securities Act of 1933, but may be resold to certain
institutional investors.
Standby commitments are obligations purchased by a Portfolio from a dealer that
give the Portfolio the option to sell a security to the dealer at a specified
price.
Step coupon bonds are debt securities that trade at a discount from their face
value and pay coupon interest. The discount from the face 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.
Strip bonds are debt securities that are stripped of their interest (usually by
a financial intermediary) after the securities are issued. The market value of
these securities generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
Tender option bonds are generally long-term securities that are coupled with
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
22
<PAGE>
an option to tender the securities to a bank, broker-dealer or other financial
institution at periodic intervals and receive the face value of the bond. This
type of security is commonly used as a means of enhancing the security's
liquidity.
U.S. government securities include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
Variable and floating rate securities have variable or floating rates of
interest and, under certain limited circumstances, may have varying principal
amounts. These 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 floating rate tends to decrease the
security's price sensitivity to changes in interest rates.
Warrants are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
When-issued, delayed delivery and forward transactions generally involve the
purchase of a security with payment and delivery at some time in the future -
i.e., beyond normal settlement. The Portfolios do not earn interest on such
securities until settlement and bear the risk of market value fluctuations
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
Zero coupon bonds are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of securities generally fluctuates
more in response to changes in interest rates than interest-paying securities of
comparable securities.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
Forward contracts are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Portfolios may enter into forward currency contracts to hedge against
declines in the value of securities denominated in, or whose value is tied to, a
currency other than the U.S. dollar or to reduce the impact of currency
appreciation on purchases of such securities. They may also enter into forward
contracts to purchase or sell securities or other financial indices.
Futures contracts are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Portfolios may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The
Portfolios may also buy options on futures contracts. An option on a futures
contract gives the buyer the right, but not the obligation, to buy or sell a
futures contract at a specified price on or before a specified date. Futures
contracts and options on futures are standardized and traded on designated
exchanges.
Indexed/structured securities are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. A Portfolio bears the market risk of
an investment in the underlying instruments, as well as the credit risk of the
issuer.
Interest rate swaps involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
Inverse floaters are debt instruments whose interest rate bears an inverse
relationship to the interest rate on another instrument or index. For example,
upon reset the interest rate payable on a security may go down when the
underlying index has risen. Certain inverse floaters may have an interest rate
reset mechanism that multiplies the effects of change in the underlying index.
Such mechanism may increase the volatility of the security's market value.
Options are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Portfolios may purchase and write put and call options on securities,
securities indices and foreign currencies.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
23
<PAGE>
APPENDIX B
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
STANDARD & POOR'S RATINGS SERVICES
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay
principal and interest.
AA High quality; very strong capacity to pay
principal and interest.
A Strong capacity to pay principal and interest;
somewhat more susceptible to the adverse effects
of changing circumstances and economic conditions.
BBB Adequate capacity to pay principal and interest;
normally exhibit adequate protection parameters,
but adverse economic conditions or changing
circumstances more likely to lead to a weakened
capacity to pay principal and interest than for
higher rated bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the
issuer's capacity to meet required interest and
principal payments.
CCC, CC, C 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 different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
SECURITIES HOLDINGS BY RATING CATEGORY
During the fiscal year ended December 31, 1996, the percentage of securities
holdings for the Flexible Income Portfolio and High-Yield Portfolio by rating
category based upon a weighted monthly average was:
<TABLE>
<CAPTION>
Bonds - S&P Rating Flexible Income Portfolio High-Yield Portfolio
<S> <C> <C>
AAA 12% 0%
AA 0% 0%
A 14% 0%
BBB 13% 0%
BB 16% 13%
B 34% 83%
CCC 0% 0%
CC 0% 0%
C 0% 0%
Preferred Stock 1% 3%
Cash and Options 10% 1%
- --------------------------------------------------------------------------------------------------------------
TOTAL 100% 100%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
No other Portfolio held 5% or more of its assets in bonds rated
below investment grade for the fiscal year ended December 31,
1996.
JANUS ASPEN SERIES PROSPECTUS - MAY 1, 1997
RETIREMENT SHARES
24
<PAGE>
This page intentionally left blank.
<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-0020
[LOGO] JANUS Funds distributed by Janus Distributors, Inc.
Member NASD.
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
THE PORTFOLIO AT A GLANCE
Brief description of the Portfolio ............................................1
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
..............................................................................1
- --------------------------------------------------------------------------------
THE PORTFOLIO IN DETAIL
The Portfolio's Investment
Objective and Policies .....................................................2
General Portfolio Policies ....................................................3
Additional Risk Factors .......................................................4
- --------------------------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIO
Investment Adviser and
Portfolio Manager ..........................................................6
Portfolio Transactions ........................................................6
Management Expenses ...........................................................7
Other Service Providers .......................................................7
Participant Administration Fee
and Distribution Fee .......................................................7
Other Information .............................................................7
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
Distributions .................................................................9
Taxes .........................................................................9
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
An Explanation of
Performance Terms ..........................................................9
- --------------------------------------------------------------------------------
SHAREHOLDER'S GUIDE
Purchases ....................................................................10
Redemptions ..................................................................10
Shareholder Communications ...................................................10
- --------------------------------------------------------------------------------
APPENDIX A
Glossary of Investment Terms .................................................11
JANUS ASPEN SERIES
CAPITAL APPRECIATION PORTFOLIO
RETIREMENT SHARES
Prospectus
May 1, 1997
Capital Appreciation Portfolio (the "Portfolio") is a no-load, nondiversified
mutual fund that seeks long-term growth of capital. The Portfolio pursues its
objective by investing primarily in common stocks of issuers of any size, which
may include larger well-established issuers and/or smaller emerging growth
companies. The Portfolio is a series of Janus Aspen Series (the "Trust"), an
open-end management investment company. The Portfolio is recently organized and
has a limited operating history.
This Prospectus offers a separate class of shares of the Portfolio (the
"Shares") to certain participant directed qualified retirement plans. The Trust
sells and redeems its shares at net asset value without any sales charges,
commissions or redemption fees.
This Prospectus contains information about the Shares that a prospective plan
participant should consider before investing and should be read carefully and
retained for future reference. Additional information about the Portfolio is
contained in the Statement of Additional Information ("SAI") dated May 1, 1997,
which is filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this Prospectus. The SAI is available upon
request and without charge by writing or calling your plan sponsor.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC NOR HAS THE SEC PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR
OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH STATE OR OTHER JURISDICTION.
<PAGE>
PORTFOLIO AT A GLANCE
This section is designed to provide you with a brief overview of the Portfolio
and its investment emphasis. A more detailed discussion of the Portfolio's
investment objectives and policies begins on page 2.
INVESTMENT OBJECTIVE:
The investment objective of the Portfolio is long-term growth of capital.
PRIMARY HOLDINGS:
The Portfolio is a nondiversified portfolio that pursues its investment
objective by investing primarily in common stocks of companies of any size.
SHAREHOLDER'S INVESTMENT HORIZON:
The Portfolio is designed for long-term investors who seek growth of capital and
who can tolerate the greater risks associated with investments in foreign and
domestic common stocks. The Portfolio is not designed as a short-term trading
vehicle and should not be relied upon for short-term financial needs.
PORTFOLIO ADVISER:
Janus Capital Corporation ("Janus Capital") serves as the Portfolio's investment
adviser. Janus Capital has been in the investment advisory business for over 26
years and currently manages approximately $50 billion in assets.
PORTFOLIO MANAGER:
Scott W. Schoelzel
ASSISTANT PORTFOLIO MANAGER:
Mike Lu
PORTFOLIO INCEPTION:
May 1997
EXPENSE INFORMATION
The tables and example below are designed to assist participants in qualified
plans that invest in the Shares of the Portfolio in understanding the various
costs and expenses that you will bear directly or indirectly as an investor in
the Shares.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales charges on redemptions None
Redemption fees None
Exchange fee None
ANNUAL OPERATING EXPENSES (after fee waivers and reductions)(1)
(expressed as a percentage of average net assets)
- --------------------------------------------------------------------------------
Management Fee(1) 0.75%
12b-1(2) 0.25%
Other Expenses(1,3) 0.55%
- --------------------------------------------------------------------------------
Total Operating Expenses(1) 1.30%
- --------------------------------------------------------------------------------
(1) The fees and expenses in the table above are based on the estimated gross
expenses before estimated expense offset arrangements that the Shares of
the Portfolio expect to incur their initial fiscal year, net of fee
reductions or waivers from Janus Capital. Fee reductions reduce the
management fee to the level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the management fee and
then against other expenses. Without such waivers or reductions, the
Management Fee, Other Expenses and Total Operating Expenses are estimated
to be 1.00%, 0.55% and 1.80%, respectively. Janus Capital may modify or
terminate the waivers or reductions at any time upon at least 90 days'
notice to the Trustees.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
(3) Includes compensation to service providers who provide recordkeeping,
subaccounting and other administrative services to plan participants who
invest in the Shares. See "Participant Administration Fee" for more
details.
EXAMPLE
- --------------------------------------------------------------------------------
1 Year 3 Years
- --------------------------------------------------------------------------------
Assume you invest $1,000, the Shares of the Portfolio
returns 5% annually and the expense ratio remains
as listed above. The example shows the operating
expenses that you would indirectly bear as an investor
in the Shares of the Portfolio. $16 $49
- --------------------------------------------------------------------------------
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
1
<PAGE>
THE PORTFOLIO IN DETAIL
This section takes a closer look at the Portfolio's investment objectives,
policies and the securities in which it invests. Please carefully review the
"Additional Risk Factors" section of this Prospectus for a more detailed
discussion of the risks associated with certain investment techniques and refer
to Appendix A for a more detailed description of the Portfolio's investments
(and certain of the risks associated with those investments). You should
carefully consider your own investment goals, time horizon and risk tolerance
before investing in the Portfolio.
The Portfolio's investment objectives and policies are similar to those of Janus
Olympus Fund, a Janus retail fund. Although it is anticipated that the Portfolio
and its corresponding retail fund will hold similar securities, differences in
asset size and cash flow needs as well as the relative weightings of securities
selections may result in differences in investment performance. Expenses of the
Portfolio and its corresponding retail fund are expected to differ.
Policies that are noted as "fundamental" cannot be changed without a shareholder
vote. All other policies, including the Portfolio's investment objectives, are
not fundamental and may be changed by the Portfolio's Trustees without a
shareholder vote. You will be notified of any such changes that are material. If
there is a material change in the Portfolio's objectives or policies, you should
consider whether the Portfolio remains an appropriate investment for your
qualified retirement plan.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is long-term growth of capital. It is
a non-diversified portfolio that pursues its objective by investing primarily in
common stocks of issuers of any size, which may include larger well-established
issuers and/or smaller emerging growth companies.
TYPES OF INVESTMENTS
The Portfolio invests primarily in common stocks of foreign and domestic
companies. The Portfolio may invest to a lesser degree in other types of
securities including preferred stock, warrants, convertible securities and debt
securities when its portfolio manager perceives an opportunity for capital
growth from such securities or to receive a return on idle cash. The Portfolio
may purchase securities on a when-issued, delayed delivery or forward commitment
basis. The Portfolio may invest up to 25% of its assets in mortgage- and
asset-backed securities, up to 10% of its assets in zero coupon, pay-in-kind and
step coupon securities, and without limit in indexed/structured securities. The
Portfolio will not invest 35% or more of its assets in high-yield/high-risk
securities.
The Portfolio may invest without limit in foreign equity and debt securities.
The Portfolio may invest directly in foreign securities denominated in a foreign
currency and not publicly traded in the United States. Other ways of investing
in foreign securities include depositary receipts or shares, and passive foreign
investment companies. The Portfolio may use futures, options and other
derivatives for hedging purposes or for non-hedging purposes such as seeking to
enhance return. See "Additional Risk Factors" on page 4 for a discussion of the
risks associated with foreign investing and derivatives.
See Appendix A for a further description of the Portfolio's investments.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN THE PORTFOLIO.
HOW ARE COMMON STOCKS SELECTED?
The Portfolio may invest substantially all of its assets in common stocks to the
extent its portfolio manager believes that the relevant market environment
favors profitable investing in those securities. The portfolio manager generally
takes a "bottom up" approach to building the portfolio. In other words, the
manager seeks to identify individual companies with earnings growth potential
that may not be recognized by the market at large. Although themes may emerge in
the Portfolio, securities are generally selected without regard to any defined
industry sector or other similarly defined selection procedure. Realization of
income is not a significant investment consideration. Any income realized on the
Portfolio's investments will be incidental to its primary objective.
- --------------------------------------------------------------------------------
ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. The portfolio manager seeks companies that meet his selection
criteria, regardless of country of organization or place of principal business
activity. Foreign securities are generally selected on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
However, certain factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign
securities. See "Additional Risk Factors" on page 4.
- --------------------------------------------------------------------------------
WHAT IS THE MAIN RISK OF INVESTING IN A COMMON STOCK FUND?
The fundamental risk associated with any common stock fund is the risk that the
value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative. See "Additional Risk Factors" on page 4.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
2
<PAGE>
HOW DOES A DIVERSIFIED FUND DIFFER FROM A NONDIVERSIFIED FUND?
A "nondiversified" fund, such as the Portfolio, has the ability to take larger
positions in a smaller number of issuers than a "diversified" fund. Because the
appreciation or depreciation of a single stock may have a greater impact on the
net asset value per share ("NAV") of a nondiversified fund, its share price can
be expected to fluctuate more than a comparable diversified fund.
- --------------------------------------------------------------------------------
HOW DOES THE PORTFOLIO TRY TO REDUCE RISK?
The Portfolio may use futures, options and other derivative instruments to
protect the portfolio from movements in securities prices and interest rates.
The Portfolio may also use a variety of currency hedging techniques, including
forward currency contracts, to manage exchange rate risk. See "Additional Risk
Factors" on page 4. In addition, to the extent that the Portfolio holds a larger
cash position, it might not participate in market declines to the same extent as
if it had remained more fully invested in common stocks.
GENERAL PORTFOLIO POLICIES
The Portfolio will follow the general policies listed below in investing its
portfolio assets. The percentage limitations included in these policies and
elsewhere in this Prospectus apply at the time of purchase of the security. For
example, if the Portfolio exceeds a limit as a result of market fluctuations or
the sale of other securities, it will not be required to dispose of any
securities.
CASH POSITION
When the Portfolio's manager believes that market conditions are not favorable
for profitable investing or when the portfolio manager is otherwise unable to
locate favorable investment opportunities, the Portfolio's investments may be
hedged to a greater degree and/or its cash or similar investments may increase.
In other words, the Portfolio does not always stay fully invested in stocks and
bonds. Cash or similar investments are a residual - they represent the assets
that remain after a portfolio manager has committed available assets to
desirable investment opportunities. Larger hedged positions and/or larger cash
positions may serve as a means of preserving capital in unfavorable market
conditions.
Securities that the Portfolio may invest in as means of receiving a return on
idle cash include high-grade commercial paper, certificates of deposit,
repurchase agreements or other short-term debt obligations. The Portfolio may
also invest in money market funds (including funds managed by Janus Capital).
When the Portfolio's investments in cash or similar investments increase, the
Portfolio may not participate in stock or bond market advances or declines to
the same extent that it would if the Portfolio remained more fully invested in
stocks or bonds.
DIVERSIFICATION
The Investment Company Act of 1940 (the "1940 Act") classifies investment
companies as either diversified or nondiversified. The Portfolio is a
nondiversified fund under the 1940 Act and is subject to the following
requirements:
o As a fundamental policy, the Portfolio may not own more than 10% of the
outstanding voting shares of any issuer.
o As a fundamental policy, with respect to 50% of its total assets, the
Portfolio will not purchase a security of any issuer (other than cash items
and U.S. government securities, as defined in the 1940 Act) if such
purchase would cause the Portfolio's holdings of that issuer to amount to
more than 5% of the Portfolio's total assets.
o The Portfolio will invest no more than 25% of its total assets in a single
issuer (other than U.S. government securities).
o The Portfolio reserves the right to become a diversified portfolio by
limiting the investments in which more than 5% of its total assets are
invested.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS
In addition to the diversification requirements stated above, because a class of
shares of the Portfolio is sold in connection with variable annuity contracts
and variable life insurance contracts, the Portfolio intends to comply with the
diversification requirements currently imposed by the IRS on separate accounts
of insurance companies as a condition of maintaining the tax-deferred status of
variable contracts.
INDUSTRY CONCENTRATION
As a fundamental policy, the Portfolio will not invest 25% or more of its total
assets in any particular industry (excluding U.S. government securities).
PORTFOLIO TURNOVER
The Portfolio generally intends to purchase securities for long-term investment
rather than short-term gains. However, short-term transactions may result from
liquidity needs, securities having reached a price or yield objective,
anticipated changes in interest rates or the credit standing of an issuer, or by
reason of economic or other developments not foreseen at the time of the
investment decision. Changes are made in the Portfolio whenever its portfolio
manager believes such changes are desirable. The portfolio turnover rate is
generally not a factor in making buy and sell decisions. The Portfolio's
turnover rate is not expected to exceed 200%.
To a limited extent, the Portfolio may purchase securities in anticipation of
relatively short-term price gains. The Portfolio may also sell one security and
simultaneously purchase the same or a comparable security to take advantage of
short-term differentials in bond yields or securities prices. Increased
portfolio turnover may result in higher costs for brokerage commissions, dealer
mark-ups and other transaction costs and may also result in taxable capital
gains. Certain tax rules may restrict the Portfolio's ability to engage in
short-term trading if the security has been held for less than three months.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
3
<PAGE>
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in illiquid investments,
including restricted securities or private placements that are not deemed to be
liquid by Janus Capital. An illiquid investment is a security or other position
that cannot be disposed of quickly in the normal course of business. Some
securities cannot be sold to the U.S. public because of their terms or because
of SEC regulations. Janus Capital will follow guidelines established by the
Trustees of the Trust ("Trustees") in making liquidity determinations for Rule
144A securities and certain other securities, including privately placed
commercial paper and municipal lease obligations.
BORROWING AND LENDING
The Portfolio may borrow money and lend securities or other assets, as follows:
o The Portfolio may borrow money for temporary or emergency purposes in
amounts up to 25% of its total assets.
o The Portfolio may mortgage or pledge securities as security for borrowings
in amounts up to 15% of its net assets.
o As a fundamental policy, the Portfolio may lend securities or other assets
if, as a result, no more than 25% of its total assets would be lent to
other parties.
The Portfolio intends to seek 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.
ADDITIONAL RISK FACTORS
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
MAY INVOLVE GREATER RISKS THAN INVESTING IN COMPARABLE DOMESTIC SECURITIES.
Securities of some foreign companies and governments may be traded in the United
States, but most foreign securities are traded primarily in foreign markets. The
risks of foreign investing include:
o Currency Risk. The Portfolio may buy the local currency when it buys a
foreign currency denominated security and sell the local currency when it
sells the security. As long as the Portfolio holds a foreign security, its
value will be affected by the value of the local currency relative to the
U.S. dollar. When the Portfolio sells a foreign denominated security, its
value may be worth less in U.S. dollars even though the security increases
in value in its home country. U.S. dollar denominated securities of foreign
issuers may also be affected by currency risk.
o Political and Economic Risk. Foreign investments may be subject to
heightened political and economic risks, particularly in underdeveloped or
developing countries which may have relatively unstable governments and
economies based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations of a
company or that the government may impose taxes or limits on the removal of
the Portfolio's assets from that country. The Portfolio may invest in
emerging market countries. Emerging market countries involve greater risks
such as immature economic structures, national policies restricting
investments by foreigners, and different legal systems.
o Regulatory Risk. There may be less government supervision of foreign
markets. Foreign issuers may not be subject to the uniform accounting,
auditing and financial reporting standards and practices applicable to
domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers.
o Market Risk. Foreign securities markets, particularly those of
underdeveloped or developing countries, may be less liquid and more
volatile than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in settling
securities transactions. In some foreign markets, there may not be
protection against failure by other parties to complete transactions. There
may be limited legal recourse against an issuer in the event of a default
on a debt instrument.
o Transaction Costs. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody costs, are generally
higher than those involved in domestic transactions.
Foreign securities purchased indirectly (e.g., depositary receipts) are subject
to many of the above risks, including currency risk, because their values depend
on the performance of a foreign security denominated in its home currency.
INVESTMENTS IN SMALLER COMPANIES
SMALLER OR NEWER COMPANIES MAY SUFFER MORE SIGNIFICANT LOSSES AS WELL AS
REALIZE MORE SUBSTANTIAL GROWTH THAN LARGER OR MORE ESTABLISHED ISSUERS.
The Portfolio may invest in companies that have relatively small revenues, have
a small share of the market for their products or services, or have limited
geographic or product markets. Small companies may lack depth of management,
they may be unable to generate internally funds necessary for growth or
potential development or to generate such funds through external financing on
favorable terms, or they may be developing or marketing new products or services
for which markets are not yet established and may never become established. In
addition, such companies may be insignificant factors in their industries and
may become subject to intense competition from larger companies. Securities of
small companies held by the Portfolio may have limited trading markets that may
be subject to wide price fluctuations. Investments in such companies tend to be
more volatile and somewhat more speculative.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
The
Portfolio may enter into futures contracts on securities, financial indices and
foreign currencies and options on such contracts ("futures contracts") and may
invest in options on securities, financial indices and foreign currencies
("options"), forward contracts and interest rate swaps and swap-related products
(collectively, "derivative instruments"). The Portfolio intends to use most
derivative instruments primarily to hedge the value of its portfolio holdings
against potential adverse movements in securities prices, foreign currency
markets or interest rates. To a limited extent, the Portfolio may also use
derivative instruments for non-hedging purposes such as seeking to increase the
Portfolio's income or otherwise seeking to enhance return. Please refer to
Appendix A to this Prospectus
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
4
<PAGE>
and the SAI for a more detailed discussion of these instruments.
The use of derivative instruments exposes the Portfolio to
additional investment risks and transaction costs. Risks inherent in the use of
derivative instruments include:
o the risk that interest rates, securities prices and currency markets will
not move in the directions that the portfolio manager anticipates;
o imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies
being hedged;
o the fact that skills needed to use these strategies are different from
those needed to select portfolio securities;
o inability to close out certain hedged positions to avoid adverse tax
consequences;
o the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits, either
of which may make it difficult or impossible to close out a position when
desired;
o leverage risk, that is, the risk that adverse price movements in an
instrument can result in a loss substantially greater than the Portfolio's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and
o particularly in the case of privately negotiated instruments, the risk that
the counterparty will fail to perform its obligations, which could leave
the Portfolio worse off than if it had not entered into the position.
Although the portfolio manager believes the use of derivative instruments will
benefit the Portfolio, the Portfolio's performance could be worse than if it had
not used such instruments if the portfolio manager's judgment proves incorrect.
When the Portfolio invests in a derivative instrument, it may be required to
segregate cash and other liquid assets or portfolio securities with its
custodian to "cover" the Portfolio's position. Assets segregated or set aside
generally may not be disposed of so long as the Portfolio maintains the
positions requiring segregation or cover. Segregating assets could diminish the
Portfolio's return due to the opportunity losses of foregoing other potential
investments with the segregated assets.
HIGH-YIELD/HIGH-RISK SECURITIES
High-yield/high-risk securities (or "junk" bonds) are debt securities rated
below investment grade by the primary rating agencies (such as, Standard &
Poor's Ratings Services and Moody's Investors Service, Inc.)
The value of lower quality securities generally is more dependent on the ability
of the issuer to meet interest and principal payments (i.e., credit risk) than
is the case for higher quality securities. Conversely, the value of higher
quality securities may be more sensitive to interest rate movements than lower
quality securities. Issuers of high-yield/high-risk securities may not be as
strong financially as those issuing bonds with higher credit ratings.
Investments in such companies are considered to be more speculative than higher
quality investments.
Issuers of high-yield/high-risk securities may be more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, the Portfolio
would experience a reduction of its income and could expect a decline in the
market value of the defaulted securities.
The market for lower quality securities is generally less liquid than the market
for higher quality securities. Adverse publicity and investor perceptions as
well as new or proposed laws may also have a greater negative impact on the
market for lower quality securities. Unrated debt, while not necessarily of
lower quality than rated securities, may not have as broad a market as rated
securities. 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.
The market prices of high-yield/high-risk securities structured as zero coupon
or pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically. In addition, zero coupon, pay-in-kind and delayed interest bonds
often do not pay interest until maturity. However, the Portfolio must recognize
a computed amount of interest income and pay dividends to shareholders even
though it has received no cash. In some instances, the Portfolio may have to
sell securities to have sufficient cash to pay the dividends.
Please refer to the SAI for a description of bond rating categories.
SHORT SALES
The Portfolio may engage in "short sales against the box." This technique
involves selling either a security equivalent in kind and amount that the
Portfolio owns, or a security equivalent in kind and amount that the Portfolio
has the right to obtain, for delivery at a specified date in the future. The
Portfolio will enter into a short sale against the box to hedge against
anticipated declines in the market price of portfolio securities or to defer an
unrealized gain. If the value of the securities sold short increases prior to
the scheduled delivery date, the Portfolio loses the opportunity to participate
in the gain.
SPECIAL SITUATIONS
The Portfolio may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Portfolio's portfolio manager, the
securities of a particular issuer will be recognized and appreciate in value due
to a specific development with respect to that issuer. Developments creating a
special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
See Appendix A for risks associated with certain other investments.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
5
<PAGE>
MANAGEMENT OF THE PORTFOLIO
TRUSTEES
The Trustees oversee the business affairs of the Trust and are responsible for
major decisions relating to the Portfolio's investment objective and policies.
The Trustees delegate the day-to-day management of the Portfolio to the officers
of the Trust and meet at least quarterly to review the Portfolio's investment
policies, performance, expenses and other business affairs.
INVESTMENT ADVISER
Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928, is the
investment adviser to the Portfolio and is responsible for the day-to-day
management of its investment portfolio and other business affairs.
Janus Capital has served as investment adviser to Janus Fund since its inception
in 1970 and currently serves as investment adviser to all of the Janus retail
funds, as well as adviser or subadviser to other mutual funds and individual,
corporate, charitable and retirement accounts.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus Capital, most of which it acquired in 1984.
KCSI is a publicly traded holding company whose primary subsidiaries are engaged
in transportation, information processing and financial services. Thomas H.
Bailey, 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.
Janus Capital furnishes continuous advice and recommendations concerning the
Portfolio's investments. Janus Capital also furnishes certain administrative,
compliance and accounting services for the Portfolio, and may be reimbursed by
the Portfolio for its costs in providing those services. In addition, Janus
Capital employees serve as officers of the Trust and Janus Capital provides
office space for the Portfolio and pays the salaries, fees and expenses of all
Portfolio officers and those Trustees who are affiliated with Janus Capital.
Service providers to qualified plans that purchase the Shares receive fees for
providing recordkeeping, subaccounting and other administrative services as
described under "Participant Administration Fee and Distribution Fee" on page 7.
PORTFOLIO MANAGER
Scott W. Schoelzel is the Executive Vice President and portfolio manager of the
Portfolio which he has managed since inception. He is also portfolio manager of
Janus Olympus Fund which he has managed since its inception. Mr. Schoelzel is
Vice President of Janus Capital, where he has been employed since January 1994.
From 1991 to 1993, Mr. Schoelzel was a portfolio manager with Founders Asset
Management, Denver, Colorado. He holds a Bachelor of Arts in Business from
Colorado College.
ASSISTANT PORTFOLIO MANAGER
Mike Lu is an assistant portfolio manager of the Portfolio. He is also assistant
portfolio manager of Janus Olympus Fund. He received an undergraduate degree in
Economics and History from Yale University. He is a Chartered Financial Analyst.
PERSONAL INVESTING
Janus Capital does not permit portfolio managers to purchase and sell securities
for their own accounts, except under the limited exceptions contained in Janus
Capital's policy governing personal investing. Janus Capital's policy requires
investment and other personnel to conduct their personal investment activities
in a manner that Janus Capital believes is not detrimental to the Portfolio or
Janus Capital's other advisory clients. See the SAI for more detailed
information.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities on behalf of the Portfolio are executed by
broker-dealers selected by Janus Capital. Broker-dealers are selected on the
basis of their ability to obtain best price and execution for the Portfolio's
transactions and recognizing brokerage, research and other services provided to
the Portfolio and to Janus Capital. Janus Capital may consider sales of shares
of the Portfolios or other Janus funds by a broker-dealer or the recommendation
of a broker-dealer to its customers that they purchase a Portfolio's 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. Janus Capital may also consider sales of shares of the Portfolio as a
factor in the selection of broker-dealers. The Portfolio's Trustees have
authorized Janus Capital to place portfolio transactions on an agency basis with
a broker-dealer affiliated with Janus Capital. When transactions for the
Portfolio are effected with that broker-dealer, the commissions payable by the
Portfolio are credited against certain Portfolio operating expenses serving to
reduce those expenses. The SAI further explains the selection of broker-dealers.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
6
<PAGE>
BREAKDOWN OF MANAGEMENT EXPENSES
The Portfolio pays Janus Capital a management fee which is calculated daily. The
advisory agreement with the Portfolio spells out the management fee and other
expenses that the Portfolio must pay. The Portfolio is subject to the following
management fee schedule (expressed as an annual rate):
Average Daily Net Annual Rate
Fee Schedule Assets of Portfolio Percentage (%)
-----------------------------------------------------------------------
First $ 30 Million 1.00*
Next $270 Million .75
Next $200 Million .70
Over $500 Million .65
-----------------------------------------------------------------------
*Janus Capital has agreed to reduce the Portfolio's advisory fee to the
extent that such fee exceeds the effective rate of Janus Olympus Fund,
the Janus retail fund corresponding to the Portfolio. Janus Capital
may terminate this fee reduction at any time upon at least 90 days'
notice to the Trustees. The effective rate is the advisory fee
calculated by the corresponding retail fund as of the last day of each
calendar quarter (expressed as an annual rate). The effective rate of
Janus Olympus Fund was .75% for the quarter ended March 31, 1997. In
addition, Janus Capital has agreed to limit the expenses of the
Portfolio's Shares to an annual rate of 1.25% of average net assets
through at least April 30, 1998. The participant administration fee
and distribution fee described below are not included in this expense
limit.
Differences in the actual management fees incurred by the Portfolio is due
primarily to variances in the asset sizes of the corresponding retail fund. As
asset size increases, the annual rate of the management fee declines in
accordance with the above schedule. In addition, the Shares of the Portfolio
incur expenses not assumed by Janus Capital, including the participant
administration fee and distribution fee described below, transfer agent and
custodian fees and expenses, legal and auditing fees, printing and mailing costs
of sending reports and other information to existing shareholders, and
independent Trustees' fees and expenses.
OTHER SERVICE PROVIDERS
The following parties provide the Portfolio with administrative and other
services.
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 0351
Boston, Massachusetts 02117-0351
TRANSFER AGENT
Janus Service Corporation
P.O. Box 173375
Denver, Colorado 80217-3375
DISTRIBUTOR
Janus Distributors, Inc.
100 Fillmore Street
Denver, CO 80206-4928
Janus Service Corporation and Janus
Distributors, Inc. are wholly-owned
subsidiaries of Janus Capital.
PARTICIPANT ADMINISTRATION FEE AND DISTRIBUTION FEE
PARTICIPANT ADMINISTRATION FEE
Janus Service Corporation ("Janus Service"), the Trust's transfer agent,
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 this fee to
compensate qualified plan service providers for providing these services.
DISTRIBUTION FEE
Under a distribution and service 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 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 permits the
compensation of such service providers at an annual rate of up to .25% of the
average daily net assets of the Shares of the Portfolio for activities which are
primarily intended to result in sales of the Shares, including but not limited
to preparing, printing and distributing prospectuses, SAIs, 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.
OTHER INFORMATION
ORGANIZATION
The Trust is an open-end management investment company organized as a Delaware
business trust on May 20, 1993. The Portfolio has been established as a separate
series of the Trust.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
7
<PAGE>
The Portfolio currently offers two classes of shares. The Shares offered by this
Prospectus are available only to participant directed qualified plans using plan
service providers that are compensated for providing distribution and/or
recordkeeping and other administrative services provided to plan participants.
Institutional Shares of the Portfolio are available only to variable insurance
contracts owners and other qualified retirement plans. Because the expenses of
each class may differ, the performance in each class is expected to differ. If
you would like additional information about the Institutional Shares, please
call 1-800-525-0020.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
The Trust does not intend to hold annual shareholder meetings. However, special
meetings may be called for a specific class or Portfolio or for the Trust as a
whole for purposes such as electing or removing Trustees, terminating or
reorganizing the Trust, changing fundamental policies, or for any other purpose
requiring a shareholder vote under the 1940 Act. Separate votes are taken by a
class or Portfolio only if a matter affects or requires the vote of only that
class or Portfolio or the interests of the class or Portfolio in the matter
differs from the interest of the other class of Portfolios of the Trust. As a
shareholder, you are entitled to one vote for each share that you own.
CONFLICTS OF INTEREST
The Shares offered by this prospectus are available to certain participant
directed qualified plans. Institutional Shares of the Portfolio (offered by a
separate prospectus) are available only to variable annuity and variable life
separate accounts of insurance companies that are unaffiliated with Janus
Capital as well as certain qualified retirement plans. Although the Portfolio
does not currently anticipate any disadvantages to policy owners or plan
participants will develop arising out of the fact that the Portfolio offers its
shares to such entities, there is a possibility that disadvantages could occur
or a material conflict may arise. The Trustees monitor events in order to
identify any anticipated disadvantages or material irreconcilable conflicts that
may arise and to determine what action, if any, should be taken in response to
such conflicts. If a material disadvantage or conflict occurs, the Trustees may
require one or more insurance company separate accounts or plans to withdraw its
investments in the Portfolio or substitute shares of another Portfolio. If this
occurs, the Portfolio may be forced to sell securities at disadvantageous
prices. In addition, the Trustees may refuse to sell shares of the Portfolio to
any separate account or qualified plans or may suspend or terminate the offering
of shares of the Portfolio if such action is required by law or regulatory
authority or is in the best interests of the shareholders of the Portfolio.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve the Portfolio's investment objective
by investing all of the Portfolio's assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to the Portfolio. It is expected that any such
investment company would be managed by Janus Capital in substantially the same
manner as the Portfolio. The shareholders of the Trust of record on April 30,
1992, and the initial shareholder(s) of the Portfolio, have voted to vest
authority to use this investment structure in the sole discretion of the
Trustees. No further approval of the shareholders of the Portfolio is required.
You will receive at least 30 days' prior notice of any such investment. Such
investment would be made only if the Trustees determine it to be in the best
interests of the Portfolio and its shareholders. In making that determination,
the Trustees will consider, among other things, the benefits to shareholders
and/or the opportunity to reduce costs and achieve operational efficiencies.
Although management of the Portfolio believes that the Trustees will not approve
an arrangement that is likely to result in higher costs, no assurance is given
that costs will be materially reduced if this option is implemented.
THE VALUATION OF SHARES
The net asset value ("NAV") of the Shares of the Portfolio is determined at the
close of the regular trading session of the New York Stock Exchange (the "NYSE")
(normally 4:00 p.m., New York time) each day that the NYSE is open. NAV per
Share is determined by dividing the total value of the securities and other
assets, less liabilities, by the total number of Shares outstanding.
Securities are valued at market value or, if market information is not readily
available, at their fair value determined in good faith under procedures
established by and under the supervision of the Trustees. Short-term instruments
maturing within 60 days are valued at amortized cost, which approximates market
value.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
8
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
TO AVOID TAXATION OF THE PORTFOLIO, THE INTERNAL REVENUE CODE REQUIRES THE
PORTFOLIO TO DISTRIBUTE NET INCOME AND ANY NET GAINS REALIZED BY ITS
INVESTMENTS ANNUALLY. INCOME FROM DIVIDENDS AND INTEREST AND ANY NET
REALIZED SHORT-TERM CAPITAL GAINS ARE PAID TO SHAREHOLDERS AS ORDINARY
INCOME DIVIDENDS. NET REALIZED LONG-TERM GAINS, IF ANY, ARE PAID TO
SHAREHOLDERS AS CAPITAL GAINS DISTRIBUTIONS. EACH CLASS OF THE PORTFOLIO
MAKES SEMIANNUAL DISTRIBUTIONS IN JUNE AND DECEMBER OF SUBSTANTIALLY ALL OF
ITS INVESTMENT INCOME AND AN ANNUAL DISTRIBUTION IN JUNE OF ITS NET
REALIZED CAPITAL GAINS, IF ANY. ALL DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS FROM THE SHARES OF THE PORTFOLIO WILL BE AUTOMATICALLY
REINVESTED INTO ADDITIONAL SHARES OF THE PORTFOLIO.
HOW DISTRIBUTIONS AFFECT NAV
Distributions are paid to shareholders as of the record date of the distribution
of the Portfolio, regardless of how long the shares have been held. Dividends
and capital gains awaiting distribution are included in the daily NAV of the
Portfolio's Shares. The Share price drops by the amount of the distribution, net
of any subsequent market fluctuations. As an example, assume that on December
31, the Shares of the Portfolio declared a dividend in the amount of $0.25 per
share. If the price of the Portfolio's Shares was $10.00 on December 30, the
Share price on December 31 would be $9.75, barring market fluctuations.
- --------------------------------------------------------------------------------
TAXES
TAXES ON DISTRIBUTIONS
Because Shares of the Portfolio may be purchased only through qualified plans,
it is anticipated that any income dividends or capital gains distributions made
by the Shares of the Portfolio will be exempt from current taxation if left to
accumulate within the qualified plan. Generally, withdrawals from qualified
plans may be subject to ordinary income tax and, if made before age 591/2, a 10%
penalty tax. The tax status of your investment in the Shares depends on the
features of your qualified plan. For further information, contact your plan
sponsor.
TAXATION OF THE PORTFOLIO
Dividends, interest and some capital gains received by the Portfolio on foreign
securities may give rise to withholding and other taxes imposed by foreign
countries. It is expected that foreign taxes paid by the Portfolio will be
treated as expenses of the Portfolio. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes.
The Portfolio does not expect to pay any federal income or excise taxes because
it intends to meet certain requirements of the Internal Revenue Code. In
addition, because a class of shares of the Portfolio is sold in connection with
variable annuity contracts and variable life insurance contracts, the Portfolio
intends to qualify under the Internal Revenue Code with respect to the
diversification requirements related to the tax-deferred status of insurance
company separate accounts.
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
This section will help you understand various terms that are commonly used to
describe the Portfolio's performance. You may see references to these terms in
our newsletters, advertisements (or those published by participating insurance
companies) and in media articles. Newsletters and advertisements may include
comparisons of the Portfolio's performance to the performance of other mutual
funds, mutual fund averages or recognized stock market indices. The Portfolio
generally measures performance in terms of total return.
Cumulative total return represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (e.g., the life of the Portfolio). A cumulative total return does
not show interim fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the cumulative
total return for the stated period and determining what constant annual return
would have produced the same cumulative return. Average annual returns for more
than one year tend to smooth out variations in the Portfolio's return and are
not the same as actual annual results.
PORTFOLIO PERFORMANCE FIGURES ARE BASED UPON HISTORICAL RESULTS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. INVESTMENT RETURNS AND NET ASSET VALUE
WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
9
<PAGE>
SHAREHOLDER'S GUIDE
INVESTORS MAY NOT PURCHASE OR REDEEM SHARES OF THE PORTFOLIO DIRECTLY. SHARES
MAY BE PURCHASED OR REDEEMED ONLY THROUGH QUALIFIED RETIREMENT PLANS. REFER TO
YOUR PLAN DOCUMENTS FOR INSTRUCTIONS ON HOW TO SELECT THE PORTFOLIO AS AN
INVESTMENT OPTION FOR A QUALIFIED PLAN.
PURCHASES
Purchases of Shares may be made only by qualified plans. Refer to your plan
documents for information on how to invest in the Shares of the Portfolio.
All investments in the Portfolio are credited to a qualified plan immediately
upon acceptance of the investment by the Portfolio. Investments will be
processed at the NAV next calculated after an order is received and accepted by
the Portfolio.
The Portfolio reserves the right to reject any specific purchase order. Purchase
orders may be refused if, in Janus Capital's opinion, they are of the size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
may adversely affect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing plan
participants invested in the Portfolio would be permitted to continue to
authorize investment in the Portfolio and to reinvest any dividends or capital
gains distribution. The Portfolio may discontinue sales to a qualified plan and
require plan participants with existing investments in the Shares to redeem
those investments if the plan loses (or in the opinion of Janus Capital is at
risk of losing) its qualified plan status under the Internal Revenue Code.
REDEMPTIONS
Redemptions, like purchases, may be effected only through qualified plans.
Please refer to the appropriate plan documents for details.
Shares of the Portfolio may be redeemed on any business day. Redemptions are
processed at the NAV next calculated after receipt and acceptance of the
redemption order by the Portfolio. Redemption proceeds will normally be wired to
the qualified plan the business day following receipt of the redemption order,
but in no event later than seven days after receipt of such order.
SHAREHOLDER COMMUNICATIONS
Shareholders will receive annual and semiannual reports including the financial
statements of the Shares of the Portfolio. Each report will show the investments
owned by the Portfolio and market values thereof, as well as other information
about the Portfolio and its operations. The Trust's fiscal year ends December
31.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
10
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the Portfolio may invest. The
Portfolio may invest in these instruments to the extent permitted by its
investment objective and policies. The Portfolio is not limited by this
discussion and may invest in any other types of instruments not precluded by the
policies discussed elsewhere in this Prospectus. Please refer to the SAI for a
more detailed discussion of certain instruments.
I. EQUITY AND DEBT SECURITIES
Bonds are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
Commercial paper is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. For example, the Portfolio may purchase commercial
paper issued under Section 4(2) of the Securities Act of 1933.
Common stock represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
Convertible securities are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
Depositary receipts are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
Fixed-income securities are securities that pay a specified rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a specified rate of interest or coupons for a specified
period of time and preferred stock, which pays fixed dividends. Coupon and
dividend rates may be fixed for the life of the issue or, in the case of
adjustable and floating rate securities, for a shorter period.
High-yield/High-risk securities are securities that are rated below investment
grade by the primary rating agencies ( BB or lower by Standard &Poor's and Ba or
lower by Moody's). Other terms commonly used to describe such securities include
"lower rated bonds," "noninvestment grade bonds" and "junk bonds."
Mortgage- and asset-backed securities are shares in a pool of mortgages or other
debt. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, the portfolio manager may
have to reinvest the proceeds from the securities at a lower rate. Potential
market gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
Passive foreign investment companies (PFICs) are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, interest,
royalties, rents and annuities. Income tax regulations may require the Portfolio
to recognize income associated with the PFIC prior to the actual receipt of any
such income.
Pay-in-kind bonds are debt securities that 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.
Preferred stock is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
Repurchase agreements involve the purchase of a security by the Portfolio and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Portfolio at a specified date or upon demand. This
technique offers a method of earning income on idle cash. These securities
involve the risk that the seller will fail to repurchase the security, as
agreed. In that case, the Portfolio will bear the risk of market value
fluctuations until the security can be sold and may encounter delays and incur
costs in liquidating the security.
Reverse repurchase agreements involve the sale of a security by the Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually high
redemption requests, or for other temporary or emergency purposes.
Rule 144A securities are securities that are not registered for sale to the
general public under the Securities Act of 1933, but that may be resold to
certain institutional investors.
Standby commitments are obligations purchased by the Portfolio from a dealer
that give the Portfolio the option to sell a security to the dealer at a
specified price.
Step coupon bonds are debt securities that trade at a discount from their face
value and pay coupon interest. The discount from the face 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.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
11
<PAGE>
Strip bonds are debt securities that are stripped of their interest (usually by
a financial intermediary) after the securities are issued. The market value of
these securities generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
U.S. government securities include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
Warrants are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
When-issued, delayed delivery and forward transactions generally involve the
purchase of a security with payment and delivery at some time in the future -
i.e., beyond normal settlement. The Portfolio does not earn interest on such
securities until settlement and bears the risk of market value fluctuations
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
Zero coupon bonds are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
Forward contracts are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Portfolio may enter into forward currency contracts to hedge against
declines in the value of securities denominated in, or whose value is tied to, a
currency other than the U.S. dollar or to reduce the impact of currency
appreciation on purchases of such securities. The Portfolio may also enter into
forward contracts to purchase or sell securities or other financial indices.
Futures contracts are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Portfolio may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The Portfolio
may also buy options on futures contracts. An option on a futures contract gives
the buyer the right, but not the obligation, to buy or sell a futures contract
at a specified price on or before a specified date. Futures contracts and
options on futures are standardized and traded on designated exchanges.
Indexed/structured securities are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. The Portfolio bears the market risk of
an investment in the underlying instruments, as well as the credit risk of the
issuer.
Interest rate swaps involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
Options are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Portfolio may purchase and write put and call options on securities,
securities indices and foreign currencies.
JANUS ASPEN SERIES CAPITAL APPRECIATION MAY 1, 1997
PORTFOLIO PROSPECTUS - RETIREMENT SHARES
12
<PAGE>
This page intentionally left blank.
<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-0020
[LOGO] JANUS Funds distributed by Janus Distributors, Inc.
Member NASD
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
THE PORTFOLIO AT A GLANCE
Brief description of the Portfolio ............................................1
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
..............................................................................1
- --------------------------------------------------------------------------------
THE PORTFOLIO IN DETAIL
The Portfolio's Investment
Objective and Policies .....................................................2
General Portfolio Policies ................................................... 3
Additional Risk Factors .......................................................4
- --------------------------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIO
Investment Adviser and
Portfolio Manager ..........................................................6
Portfolio Transactions ........................................................6
Management Expenses .......................................................... 7
Other Service Providers ...................................................... 7
Participant Administration Fee
and Distribution Fee ...................................................... 7
Other Information ............................................................ 7
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
Distributions ................................................................ 9
Taxes .........................................................................9
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
An Explanation of
Performance Terms ..........................................................9
- --------------------------------------------------------------------------------
SHAREHOLDER'S GUIDE
Purchases ................................................................... 10
Redemptions ..................................................................10
Shareholder Communications ...................................................10
- --------------------------------------------------------------------------------
APPENDIX A
Glossary of Investment Terms ................................................ 11
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
RETIREMENT SHARES
Prospectus
May 1, 1997
Equity Income Portfolio (the "Portfolio") is a no-load, diversified mutual fund
that seeks current income and long-term growth of capital by investing primarily
in income-producing equity securities. The Portfolio is a series of Janus Aspen
Series (the "Trust"), an open-end management investment company. The Portfolio
is recently organized and has a limited operating history.
This prospectus offers a separate class of shares of the Portfolio (the
"Shares") to certain participant directed qualified retirement plans. The Trust
sells and redeems its shares at net asset value without any sales charges,
commissions or redemption fees.
This Prospectus contains information about the Shares that a prospective plan
participant should consider before investing and should be read carefully and
retained for future reference. Additional information about the Shares is
contained in the Statement of Additional Information ("SAI") dated May 1, 1997,
which is filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this Prospectus. The SAI is available upon
request and without charge by writing or calling your plan sponsor.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC NOR HAS THE SEC PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR
OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH STATE OR OTHER JURISDICTION.
<PAGE>
PORTFOLIO AT A GLANCE
This section is designed to provide you with a brief overview of the Portfolio
and its investment emphasis. A more detailed discussion of the Portfolio's
investment objectives and policies begins on page 2.
INVESTMENT OBJECTIVE:
The investment objective of the Portfolio is current income and long-term growth
of capital.
PRIMARY HOLDINGS:
The Portfolio is a diversified portfolio that pursues its objective by investing
primarily in income-producing equity securities.
SHAREHOLDER'S
INVESTMENT HORIZON:
The Portfolio is designed for long-term investors who seek income and growth of
capital with lower investment risk and volatility than the stock market, as
measured by the Standard and Poor's 500 Stock Index ("S&P 500"). The Portfolio
is not designed as a short-term trading vehicle and should not be relied upon
for short-term financial needs.
PORTFOLIO ADVISER:
Janus Capital Corporation ("Janus Capital") serves as the Portfolio's investment
adviser. Janus Capital has been in the investment advisory business for over 26
years and currently manages approximately $50 billion in assets.
PORTFOLIO MANAGER:
Blaine P. Rollins
PORTFOLIO INCEPTION:
May 1997
EXPENSE INFORMATION
The tables and example below are designed to assist participants in qualified
plans that invest in the Shares of the Portfolio in understanding the various
costs and expenses that you will bear directly or indirectly as an investor in
the Shares.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales charges on redemptions None
Redemption fees None
Exchange fee None
ANNUAL OPERATING EXPENSES (after fee waivers and reductions)(1)
(expressed as a percentage of average net assets)
- --------------------------------------------------------------------------------
Management Fee(1) .95%
12b-1 Fee(2) .25%
Other Expenses(1,3) .55%
- --------------------------------------------------------------------------------
Total Operating Expenses(1) 1.75%
- --------------------------------------------------------------------------------
(1) The fees and expenses in the table above are based on the estimated gross
expenses before estimated expense offset arrangements that the Shares of
the Portfolio expect to incur in their initial fiscal year, net of fee
reductions or waivers from Janus Capital. Fee reductions reduce the
management fee to the level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the management fee and
then against other expenses. Without such waivers or reductions, the
Management Fee, Other Expenses and Total Operating Expenses are estimated
to be 1.00%, .55% and 1.80%, respectively. Janus Capital may modify or
terminate the waivers or reductions at any time upon at least 90 days'
notice to the Trustees.
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
(3) Includes compensation to service providers who provide recordkeeping,
subaccounting, and other administrative services to plan participants who
invest in the Shares. See "Participant Administration Fee" for more
details.
EXAMPLE
- --------------------------------------------------------------------------------
1 Year 3 Years
- --------------------------------------------------------------------------------
Assume you invest $1,000, the Shares of the Portfolio
return 5% annually and its expense ratio remains as
listed above. The example shows the operating expenses
that you would indirectly bear as an investor in the
Shares of the Portfolio. $18 $55
- --------------------------------------------------------------------------------
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
1
<PAGE>
THE PORTFOLIO IN DETAIL
This section takes a closer look at the Portfolio's investment objectives,
policies and the securities in which it invests. Please carefully review the
"Additional Risk Factors" section of this Prospectus for a more detailed
discussion of the risks associated with certain investment techniques and refer
to Appendix A for a more detailed description of the Portfolio's investments
(and certain of the risks associated with those investments). You should
carefully consider your own investment goals, time horizon and risk tolerance
before investing in the Portfolio.
The Portfolio's investment objectives and policies are similar to those of Janus
Equity Income Fund, a Janus retail fund. Although it is anticipated that the
Portfolio and its corresponding retail fund will hold similar securities,
differences in asset size and cash flow needs as well as the relative weightings
of securities selections may result in differences in investment performance.
Expenses of the Portfolio and its corresponding retail fund are expected to
differ.
Policies that are noted as "fundamental" cannot be changed without a shareholder
vote. All other policies, including the Portfolio's investment objectives, are
not fundamental and may be changed by the Portfolio's Trustees without a
shareholder vote. You will be notified of any such changes that are material. If
there is a material change in the Portfolio's objectives or policies, you should
consider whether the Portfolio remains an appropriate investment for your
qualified retirement plan.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is current income and long-term growth
of capital. It is a diversified portfolio that pursues its objective by normally
investing at least 65% of invested assets in income-producing equity securities.
Equity securities include common stocks, preferred stocks, warrants and
securities convertible into common or preferred stocks. Growth potential is a
significant investment consideration and the Portfolio may hold securities
selected solely for their growth potential. The Portfolio seeks to provide a
lower level of volatility than the stock market at large, as measured by the S&P
500. The lower volatility sought by the Portfolio is expected to result
primarily from investments in dividend-paying common stocks and other equity
securities that are characterized by relatively greater price stability. The
greater price stability sought by the Portfolio may be characteristic of
companies that generate above average positive cash flows. A company may use
positive cash flows for a number of purposes including commencing or increasing
dividend payments, repurchasing its own stock or retiring outstanding debt.
TYPES OF INVESTMENTS
The Portfolio invests primarily in common stocks of foreign and domestic
companies. The Portfolio may invest to a lesser degree in other types of
securities including preferred stock, warrants, convertible securities and debt
securities when its portfolio manager perceives an opportunity for capital
growth from such securities or to receive a return on idle cash. The Portfolio
may purchase securities on a when-issued, delayed delivery or forward commitment
basis. The Portfolio may invest up to 25% of its assets in mortgage- and
asset-backed securities, up to 10% of its assets in zero coupon, pay-in-kind and
step coupon securities, and without limit in indexed/structured securities. The
Portfolio will not invest 35% or more of its assets in high-yield/high-risk
securities.
The Portfolio may invest without limit in foreign equity and debt securities.
The Portfolio may invest directly in foreign securities denominated in a foreign
currency and not publicly traded in the United States. Other ways of investing
in foreign securities include depositary receipts or shares, and passive foreign
investment companies. The Portfolio may use futures, options and other
derivatives for hedging purposes or for non-hedging purposes such as seeking to
enhance return. See "Additional Risk Factors" on page 4 for a discussion of the
risks associated with foreign investing and derivatives.
See Appendix A for a further description of the Portfolio's investments.
THE FOLLOWING QUESTIONS ARE DESIGNED TO HELP YOU BETTER UNDERSTAND AN INVESTMENT
IN THE PORTFOLIO.
HOW ARE EQUITY SECURITIES SELECTED?
The Portfolio invests substantially all of its assets in common stocks and other
equity securities to the extent its portfolio manager believes that the relevant
market environment favors profitable investing in those securities. The
Portfolio seeks to provide a lower level of volatility than the stock market at
large, as measured by the S&P 500. The lower volatility sought by the Portfolio
is expected to result primarily from investments in dividend-paying common
stocks and other equity securities that are characterized by relatively greater
price stability. The greater price stability sought by the Portfolio may be
characteristic of companies that generate above average positive cash flows. A
company may use positive cash flows for a number of purposes including
commencing or increasing dividend payments, repurchasing its own stock or
retiring outstanding debt. The portfolio manager also considers growth potential
in selecting the Portfolio's securities and may hold securities selected solely
for their growth potential. The portfolio manager generally takes a "bottom up"
approach to building the portfolio. Although themes may emerge in the Portfolio,
securities are generally selected without regard to any defined industry sector
or similarly defined selection procedure.
- --------------------------------------------------------------------------------
ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. The portfolio manager seeks companies that meet his selection
criteria regardless of country of organization or place of principal business
activity. Foreign securities are generally selected on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
However, certain
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
2
<PAGE>
factors such as expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships, and prospects for
economic growth among countries, regions or geographic areas may warrant greater
consideration in selecting foreign securities. See "Additional Risk Factors" on
page 4.
- --------------------------------------------------------------------------------
WHAT IS THE MAIN RISK OF INVESTING IN A COMMON STOCK FUND?
The fundamental risk associated with any common stock fund is the risk that the
value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative. See "Additional Risk Factors" on page 4.
- --------------------------------------------------------------------------------
HOW DOES THE PORTFOLIO TRY TO REDUCE RISK?
Diversification of the Portfolio's assets reduces the effect of any single
holding on its overall portfolio value. The Portfolio may use futures, options
and other derivative instruments to protect the portfolio from movements in
securities prices and interest rates. The Portfolio may also use a variety of
currency hedging techniques, including forward currency contracts, to manage
exchange rate risk. See "Additional Risk Factors," on page 4. In addition, to
the extent that the Portfolio holds a larger cash position, it might not
participate in market declines to the same extent as if it had remained more
fully invested in common stocks.
GENERAL PORTFOLIO POLICIES
The Portfolio will follow the general policies listed below in investing its
portfolio assets. The percentage limitations included in these policies and
elsewhere in this Prospectus apply at the time of purchase of the security. For
example, if the Portfolio exceeds a limit as a result of market fluctuations or
the sale of other securities, it will not be required to dispose of any
securities.
CASH POSITION
When the Portfolio's manager believes that market conditions are not favorable
for profitable investing or when the portfolio manager is otherwise unable to
locate favorable investment opportunities, the Portfolio's investments may be
hedged to a greater degree and/or its cash or similar investments may increase.
In other words, the Portfolio does not always stay fully invested in stocks and
bonds. Cash or similar investments are a residual - they represent the assets
that remain after a portfolio manager has committed available assets to
desirable investment opportunities. Larger hedged positions and/or larger cash
positions may serve as a means of preserving capital in unfavorable market
conditions.
Securities that the Portfolio may invest in as means of receiving a return on
idle cash include high-grade commercial paper, certificates of deposit,
repurchase agreements or other short-term debt obligations. The Portfolio may
also invest in money market funds (including funds managed by Janus Capital).
When the Portfolio's investments in cash or similar investments increase, the
Portfolio may not participate in stock or bond market advances or declines to
the same extent that it would if the Portfolio remained more fully invested in
stocks or bonds.
DIVERSIFICATION
The Investment Company Act of 1940 (the "1940 Act") classifies investment
companies as either diversified or nondiversified. The Portfolio qualifies as a
diversified fund under the 1940 Act and is subject to the following
requirements:
o As a fundamental policy, the Portfolio may not own more than 10% of the
outstanding voting shares of any issuer.
o As a fundamental policy, with respect to 75% of its total assets, the
Portfolio will not purchase a security of any issuer (other than cash items
and U.S. government securities, as defined in the 1940 Act) if such
purchase would cause the Portfolio's holdings of that issuer to amount to
more than 5% of the Portfolio's total assets.
o The Portfolio will invest no more than 25% of its total assets in a single
issuer (other than U.S. government securities).
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS
In addition to the diversification requirements stated above, because a class of
shares of the Portfolio is sold in connection with variable annuity contracts
and variable life insurance contracts, the Portfolio intends to comply with the
diversification requirements currently imposed by the IRS on separate accounts
of insurance companies as a condition of maintaining the tax-deferred status of
variable contracts.
INDUSTRY CONCENTRATION
As a fundamental policy, the Portfolio will not invest 25% or more of its total
assets in any particular industry (excluding U.S. government securities).
PORTFOLIO TURNOVER
The Portfolio generally intends to purchase securities for long-term investment
rather than short-term gains. However, short-term transactions may result from
liquidity needs, securities having reached a price or yield objective,
anticipated changes in interest rates or the credit standing of an issuer, or by
reason of economic or other developments not foreseen at the time of the
investment decision. Changes are made in the Portfolio whenever its portfolio
manager believes such changes are desirable. The portfolio turnover rate is
generally not a factor in making buy and sell decisions. The Portfolio's
turnover rate is not expected to exceed 200%.
To a limited extent, the Portfolio may purchase securities in anticipation of
relatively short-term price gains. The Portfolio may also sell one security and
simultaneously purchase the same or a comparable security
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
3
<PAGE>
to take advantage of short-term differentials in bond yields or securities
prices. Increased portfolio turnover may result in higher costs for brokerage
commissions, dealer mark-ups and other transaction costs and may also result in
taxable capital gains. Certain tax rules may restrict the Portfolio's ability to
engage in short-term trading if the security has been held for less than three
months.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in illiquid investments,
including restricted securities or private placements that are not deemed to be
liquid by Janus Capital. An illiquid investment is a security or other position
that cannot be disposed of quickly in the normal course of business. Some
securities cannot be sold to the U.S. public because of their terms or because
of SEC regulations. Janus Capital will follow guidelines established by the
Trustees of the Trust ("Trustees") in making liquidity determinations for Rule
144A securities and certain other securities, including privately placed
commercial paper and municipal lease obligations.
BORROWING AND LENDING
The Portfolio may borrow money and lend securities or other assets, as follows:
o The Portfolio may borrow money for temporary or emergency purposes in
amounts up to 25% of its total assets.
o The Portfolio may mortgage or pledge securities as security for borrowings
in amounts up to 15% of its net assets.
o As a fundamental policy, the Portfolio may lend securities or other assets
if, as a result, no more than 25% of its total assets would be lent to
other parties.
The Portfolio intends to seek 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.
ADDITIONAL RISK FACTORS
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
MAY INVOLVE GREATER RISKS THAN INVESTING IN COMPARABLE DOMESTIC SECURITIES.
Securities of some foreign companies and governments may be traded in the United
States, but most foreign securities are traded primarily in foreign markets. The
risks of foreign investing include:
o Currency Risk. The Portfolio may buy the local currency when it buys a
foreign currency denominated security and sell the local currency when it
sells the security. As long as the Portfolio holds a foreign security, its
value will be affected by the value of the local currency relative to the
U.S. dollar. When the Portfolio sells a foreign denominated security, its
value may be worth less in U.S. dollars even though the security increases
in value in its home country. U.S. dollar denominated securities of foreign
issuers may also be affected by currency risk.
o Political and Economic Risk. Foreign investments may be subject to
heightened political and economic risks, particularly in underdeveloped or
developing countries which may have relatively unstable governments and
economies based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations of a
company or that the government may impose taxes or limits on the removal of
the Portfolio's assets from that country. The Portfolio may invest in
emerging market countries. Emerging market countries involve greater risks
such as immature economic structures, national policies restricting
investments by foreigners, and different legal systems.
o Regulatory Risk. There may be less government supervision of foreign
markets. Foreign issuers may not be subject to the uniform accounting,
auditing and financial reporting standards and practices applicable to
domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers.
o Market Risk. Foreign securities markets, particularly those of
underdeveloped or developing countries, may be less liquid and more
volatile than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in settling
securities transactions. In some foreign markets, there may not be
protection against failure by other parties to complete transactions. There
may be limited legal recourse against an issuer in the event of a default
on a debt instrument.
o Transaction Costs. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody costs, are generally
higher than those involved in domestic transactions.
Foreign securities purchased indirectly (e.g., depositary receipts) are subject
to many of the above risks, including currency risk, because their values depend
on performance of a foreign security denominated in its home currency.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
The Portfolio may enter into futures contracts on securities, financial indices
and foreign currencies and options on such contracts ("futures contracts") and
may invest in options on securities, financial indices and foreign currencies
("options"), forward contracts and interest rate swaps and swap-related products
(collectively, "derivative instruments"). The Portfolio intends to use most
derivative instruments primarily to hedge the value of its portfolio holdings
against potential adverse movements in securities prices, foreign currency
markets or interest rates. To a limited extent, the Portfolio may also use
derivative instruments for non-hedging purposes such as seeking to increase the
Portfolio's income or otherwise seeking to enhance return. Please refer to
Appendix A to this Prospectus and the SAI for a more detailed discussion of
these instruments.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
4
<PAGE>
The use of derivative instruments exposes the Portfolio to additional investment
risks and transaction costs. Risks inherent in the use of derivative instruments
include:
o the risk that interest rates, securities prices and currency markets will
not move in the directions that the portfolio manager anticipates;
o imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies
being hedged;
o the fact that skills needed to use these strategies are different from
those needed to select portfolio securities;
o inability to close out certain hedged positions to avoid adverse tax
consequences;
o the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits, either
of which may make it difficult or impossible to close out a position when
desired;
o leverage risk, that is, the risk that adverse price movements in an
instrument can result in a loss substantially greater than the Portfolio's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and
o particularly in the case of privately negotiated instruments, the risk that
the counterparty will fail to perform its obligations, which could leave
the Portfolio worse off than if it had not entered into the position.
Although the portfolio manager believes the use of derivative instruments will
benefit the Portfolio, the Portfolio's performance could be worse than if it had
not used such instruments if the portfolio manager's judgement proves incorrect.
When the Portfolio invests in a derivative instrument, it may be required to
segregate cash and other liquid assets or portfolio securities with its
custodian to "cover" the Portfolio's position. Assets segregated or set aside
generally may not be disposed of so long as the Portfolio maintains the
positions requiring segregation or cover. Segregating assets could diminish the
Portfolio's return due to the opportunity losses of foregoing other potential
investments with the segregated assets.
HIGH-YIELD/HIGH-RISK SECURITIES
High-yield/high-risk securities (or "junk" bonds) are debt securities rated
below investment grade by the primary rating agencies (such as, Standard &
Poor's Ratings Services and Moody's Investors Service, Inc.)
The value of lower quality securities generally is more dependent on the ability
of the issuer to meet interest and principal payments (i.e., credit risk) than
is the case for higher quality securities. Conversely, the value of higher
quality securities may be more sensitive to interest rate movements than lower
quality securities. Issuers of high-yield/high-risk securities may not be as
strong financially as those issuing bonds with higher credit ratings.
Investments in such companies are considered to be more speculative than higher
quality investments.
Issuers of high-yield/high-risk securities may be more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, the Portfolio
would experience a reduction of its income and could expect a decline in the
market value of the defaulted securities.
The market for lower quality securities is generally less liquid than the market
for higher quality securities. Adverse publicity and investor perceptions as
well as new or proposed laws may also have a greater negative impact on the
market for lower quality securities. Unrated debt, while not necessarily of
lower quality than rated securities, may not have as broad a market as rated
securities. 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.
The market prices of high-yield/high-risk securities structured as zero coupon
or pay-in-kind securities are generally affected to a greater extent by interest
rate changes and tend to be more volatile than securities which pay interest
periodically. In addition, zero coupon, pay-in-kind and delayed interest bonds
often do not pay interest until maturity. However, the Portfolio must recognize
a computed amount of interest income and pay dividends to shareholders even
though it has received no cash. In some instances, the Portfolio may have to
sell securities to have sufficient cash to pay the dividends.
Please refer to the SAI for a description of bond rating categories.
SHORT SALES
The Portfolio may engage in "short sales against the box." This technique
involves selling either a security that the Portfolio owns, or a security
equivalent in kind and amount that the Portfolio has the right to obtain, for
delivery at a specified date in the future. The Portfolio will enter into a
short sale against the box to hedge against anticipated declines in the market
price of portfolio securities or to defer an unrealized gain. If the value of
the securities sold short increases prior to the scheduled delivery date, the
Portfolio loses the opportunity to participate in the gain.
SPECIAL SITUATIONS
The Portfolio may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Portfolio's manager, the securities
of a particular issuer will be recognized and appreciate in value due to a
specific development with respect to that issuer. Developments creating a
special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
See Appendix A for risks associated with certain other investments.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
5
<PAGE>
MANAGEMENT OF THE PORTFOLIO
TRUSTEES
The Trustees oversee the business affairs of the Trust and are responsible for
major decisions relating to the Portfolio's investment objective and policies.
The Trustees delegate the day-to-day management of the Portfolio to the officers
of the Trust and meet at least quarterly to review the Portfolio's investment
policies, performance, expenses and other business affairs.
INVESTMENT ADVISER
Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928, is the
investment adviser to the Portfolio and is responsible for the day-to-day
management of its investment portfolio and other business affairs.
Janus Capital has served as investment adviser to Janus Fund since its inception
in 1970 and currently serves as investment adviser to all of the Janus retail
funds, as well as adviser or subadviser to other mutual funds and individual,
corporate, charitable and retirement accounts.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 83% of the
outstanding voting stock of Janus Capital, most of which it acquired in 1984.
KCSI is a publicly traded holding company whose primary subsidiaries are engaged
in transportation, information processing and financial services. Thomas H.
Bailey, 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.
Janus Capital furnishes continuous advice and recommendations concerning the
Portfolio's investments. Janus Capital also furnishes certain administrative,
compliance and accounting services for the Portfolio, and may be reimbursed by
the Portfolio for its costs in providing those services. In addition, Janus
Capital employees serve as officers of the Trust and Janus Capital provides
office space for the Portfolio and pays the salaries, fees and expenses of all
Portfolio officers and those Trustees who are affiliated with Janus Capital.
Service Providers to qualified plans that purchase the Shares receive fees for
providing recordkeeping, subaccounting and other administrative services, as
described under "Participant Administration Fee and Distribution Fee" on page 7.
PORTFOLIO MANAGER
Blaine P. Rollins is Executive Vice President and portfolio manager of the
Portfolio which he managed since inception. He is also portfolio manager of
Balanced Portfolio, which he has managed since May 1996, Janus Balanced Fund and
Janus Equity Income Fund. He has been an assistant portfolio manager of Janus
Fund since January 1995. Mr. Rollins joined Janus Capital in 1990 and has gained
experience as a fixed-income trader and equity research analyst prior to
assuming management responsibility for the Portfolio. He holds a Bachelor of
Science in Finance from the University of Colorado and is a Chartered Financial
Analyst.
PERSONAL INVESTING
Janus Capital does not permit portfolio managers to purchase and sell securities
for their own accounts, except under the limited exceptions contained in Janus
Capital's policy governing personal investing. Janus Capital's policy requires
investment and other personnel to conduct their personal investment activities
in a manner that Janus Capital believes is not detrimental to the Portfolio or
Janus Capital's other advisory clients. See the SAI for more detailed
information.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities on behalf of the Portfolio are executed by
broker-dealers selected by Janus Capital. Broker-dealers are selected on the
basis of their ability to obtain best price and execution for the Portfolio's
transactions and recognizing brokerage, research and other services provided to
the Portfolio and to Janus Capital. Janus Capital may consider sales of shares
of the Portfolios or other Janus funds by a broker-dealer or the recommendation
of a broker-dealer to its customers that they purchase a Portfolio's 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. Janus Capital may also consider sales of shares of the Portfolio as a
factor in the selection of broker-dealers. The Portfolio's Trustees have
authorized Janus Capital to place portfolio transactions on an agency basis with
a broker-dealer affiliated with Janus Capital. When transactions for the
Portfolio are effected with that broker-dealer, the commissions payable by the
Portfolio are credited against certain Portfolio operating expenses serving to
reduce those expenses. The SAI further explains the selection of broker-dealers.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
6
<PAGE>
BREAKDOWN OF MANAGEMENT EXPENSES
The Portfolio pays Janus Capital a management fee which is calculated daily. The
advisory agreement with the Portfolio spells out the management fee and other
expenses that the Portfolio must pay. The Portfolio is subject to the following
management fee schedule (expressed as an annual rate):
Average Daily Net Annual Rate
Fee Schedule Assets of Portfolio Percentage (%)
-----------------------------------------------------------------------
First $ 30 Million 1.00*
Next $270 Million .75
Next $200 Million .70
Over $500 Million .65
-----------------------------------------------------------------------
*Janus Capital has agreed to reduce the Portfolio's advisory fee to the
extent that such fee exceeds the effective rate of Janus Equity Income
Fund, the Janus retail fund corresponding to the Portfolio. Janus
Capital may terminate this fee reduction at any time upon at least 90
days' notice to the trustees. The effective rate is the advisory fee
calculated by the corresponding retail fund as of the last day of each
calendar quarter (expressed as an annual rate). The effective rate of
Janus Equity Income Fund was .94% for the quarter ended March 31,
1997. In addition, Janus Capital has agreed to limit the expenses of
the Portfolio's Shares to an annual rate of 1.25% of average net
assets through at least April 30, 1998. The participant administration
fee and distribution fee described below are not included in this
expense limit.
Differences in the actual management fees incurred by the Portfolio is due
primarily to variances in the asset sizes of the corresponding retail fund. As
asset size increases, the annual rate of the management fee declines in
accordance with the above schedule. In addition, the Shares of the Portfolio
incur expenses not assumed by Janus Capital, including the participant
administration and distribution fee described below, transfer agent and
custodian fees and expenses, legal and auditing fees, printing and mailing costs
of sending reports and other information to existing shareholders, and
independent Trustees' fees and expenses.
OTHER SERVICE PROVIDERS
The following parties provide the Portfolio with administrative and other
services.
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 0351
Boston, Massachusetts 02117-0351
TRANSFER AGENT
Janus Service Corporation
P.O. Box 173375
Denver, Colorado 80217-3375
DISTRIBUTOR
Janus Distributors, Inc.
100 Fillmore Street
Denver, Colorado 80206-4928
Janus Service Corporation and Janus
Distributors, Inc. are wholly-owned
subsidiaries of Janus Capital.
PARTICIPANT ADMINISTRATION FEE AND DISTRIBUTION FEE
PARTICIPANT ADMINISTRATION FEE
Janus Service Corporation ("Janus Service"), the Trust's transfer agent,
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 this fee to
compensate qualified plan service providers for providing these services.
DISTRIBUTION FEE
Under a distribution and service 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 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 permits the
compensation of such service providers at an annual rate of up to .25% of the
average daily net assets of the Shares of the Portfolio for activities which are
primarily intended to result in sales of the Shares, including but not limited
to preparing, printing and distributing prospectuses, SAIs, shareholder reports,
sales literature and other promotional materials to prospective and existing
plan participants; responding to inquiries by qualified plan participants;
receiving and answering correspondence; and similar activities.
OTHER INFORMATION
ORGANIZATION
The Trust is an open-end management investment company organized as a Delaware
business trust on May 20, 1993. The Portfolio has been established as a separate
series of the Trust.
The Portfolio currently offers two classes of shares. The Shares offered by this
Prospectus are available only to participant directed qualified plans using plan
service providers that are compensated for providing distribution and/or
recordkeeping and other administrative services provided to plan participants.
Institutional Shares of the Portfolio are available only to variable insurance
contracts owners and other qualified retirement plans. Because the expenses of
each class may differ, the performance in each class is expected to differ. If
you would like additional information about the Institutional Shares, please
call 1-800-525-0020.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
7
<PAGE>
SHAREHOLDER MEETINGS AND VOTING RIGHTS
The Trust does not intend to hold annual shareholder meetings. However, special
meetings may be called for a specific class or Portfolio or for the Trust as a
whole for purposes such as electing or removing Trustees, terminating or
reorganizing the Trust, changing fundamental policies, or for any other purpose
requiring a shareholder vote under the 1940 Act. Separate votes are taken by
each class or Portfolio only if a matter affects or requires the vote of only
that class or Portfolio or the interest of the class or Portfolio in the matter
differs from the interest of the other class or Portfolios of the Trust. As a
shareholder, you are entitled to one vote for each share that you own.
CONFLICTS OF INTEREST
The Shares offered by this prospectus are available only to certain participant
directed qualified plans. Institutional Shares of the Portfolio (offered through
a separate prospectus) are available to variable annuity and variable life
separate accounts of insurance companies that are unaffiliated with Janus
Capital, as well as certain qualified retirement plans. Although the Portfolio
does not currently anticipate any disadvantages to policy owners or plan
participants will develop arising out of the fact that the Portfolio offers its
shares to such entities, there is a possibility that disadvantages could occur
or a material conflict may arise. The Trustees monitor events in order to
identify any anticipated disadvantages or material irreconcilable conflicts that
may arise and to determine what action, if any, should be taken in response to
such conflicts. If a material disadvantage or conflict occurs, the Trustees may
require one or more insurance company separate accounts or plans to withdraw its
investments in the Portfolio or substitute the Shares of another Portfolio. If
this occurs, the Portfolio may be forced to sell securities at disadvantageous
prices. In addition, the Trustees may refuse to sell shares of the Portfolio to
any separate account or qualified plan or may suspend or terminate the offering
of shares of the Portfolio if such action is required by law or regulatory
authority or is in the best interests of the shareholders of the Portfolio.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve the Portfolio's investment objective
by investing all of the Portfolio's assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to the Portfolio. It is expected that any such
investment company would be managed by Janus Capital in substantially the same
manner as the Portfolio. The shareholders of the Trust of record on April 30,
1992, and the initial shareholder(s) of the Portfolio, have voted to vest
authority to use this investment structure in the sole discretion of the
Trustees. No further approval of the shareholders of the Portfolio is required.
You will receive at least 30 days' prior notice of any such investment. Such
investment would be made only if the Trustees determine it to be in the best
interests of the Portfolio and its shareholders. In making that determination,
the Trustees will consider, among other things, the benefits to shareholders
and/or the opportunity to reduce costs and achieve operational efficiencies.
Although management of the Portfolio believes that the Trustees will not approve
an arrangement that is likely to result in higher costs, no assurance is given
that costs will be materially reduced if this option is implemented.
THE VALUATION OF SHARES
The net asset value ("NAV") of the Shares of the Portfolio is determined at the
close of the regular trading session of the New York Stock Exchange (the "NYSE")
(normally 4:00 p.m., New York time) each day that the NYSE is open. NAV per
Share is determined by dividing the total value of the securities and other
assets, less liabilities, by the total number of Shares outstanding.
Securities are valued at market value or, if market information is not readily
available, at their fair value determined in good faith under procedures
established by and under the supervision of the Trustees. Short-term instruments
maturing within 60 days are valued at amortized cost, which approximates market
value.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
8
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
TO AVOID TAXATION OF THE PORTFOLIO, THE INTERNAL REVENUE CODE REQUIRES THE
PORTFOLIO TO DISTRIBUTE NET INCOME AND ANY NET GAINS REALIZED BY ITS
INVESTMENTS ANNUALLY. INCOME FROM DIVIDENDS AND INTEREST AND ANY NET
REALIZED SHORT-TERM CAPITAL GAINS ARE PAID TO SHAREHOLDERS AS ORDINARY
INCOME DIVIDENDS. NET REALIZED LONG-TERM GAINS, IF ANY, ARE PAID TO
SHAREHOLDERS AS CAPITAL GAINS DISTRIBUTIONS. EACH CLASS OF THE PORTFOLIO
MAKES SEMIANNUAL DISTRIBUTIONS IN JUNE AND DECEMBER OF SUBSTANTIALLY ALL OF
ITS INVESTMENT INCOME AND AN ANNUAL DISTRIBUTION IN JUNE OF ITS NET
REALIZED CAPITAL GAINS, IF ANY. ALL DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS FROM SHARES OF THE PORTFOLIO WILL BE AUTOMATICALLY REINVESTED
INTO ADDITIONAL SHARES OF THE PORTFOLIO.
HOW DISTRIBUTIONS AFFECT NAV
Distributions are paid to shareholders as of the record date of the distribution
of the Portfolio, regardless of how long the shares have been held. Dividends
and capital gains awaiting distribution are included in the daily NAV of a
Portfolio's Shares. The Share price drops by the amount of the distribution, net
of any subsequent market fluctuations. As an example, assume that on December
31, the Shares of the Portfolio declared a dividend in the amount of $0.25 per
share. If the price of the Portfolio's Shares was $10.00 on December 30, the
Share price on December 31 would be $9.75, barring market fluctuations.
- --------------------------------------------------------------------------------
TAXES
TAXES ON DISTRIBUTIONS
Because the Shares of the Portfolio may be purchased only through qualified
plans, it is anticipated that any income dividends or capital gains
distributions made by the Shares of the Portfolio will be exempt from current
taxation if left to accumulate within the qualified plan. Generally, withdrawals
from such qualified plans may be subject to ordinary income tax and, if made
before age 591/2, a 10% penalty tax. The tax status of your investment in the
Shares depends on the features of your qualified plan. For further information,
contact your plan sponsor.
TAXATION OF THE PORTFOLIO
Dividends, interest and some capital gains received by the Portfolio on foreign
securities may give rise to withholding and other taxes imposed by foreign
countries. It is expected that foreign taxes paid by the Portfolio will be
treated as expenses of the Portfolio. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes.
The Portfolio does not expect to pay any federal income or excise taxes because
it intends to meet certain requirements of the Internal Revenue Code. In
addition, because a class of shares of the Portfolio is sold in connection with
variable annuity contracts and variable life insurance contracts, the Portfolio
intends to qualify under the Internal Revenue Code with respect to the
diversification requirements related to the tax-deferred status of insurance
company separate accounts.
- --------------------------------------------------------------------------------
PERFORMANCE TERMS
This section will help you understand various terms that are commonly used to
describe the Portfolio's performance. You may see references to these terms in
our newsletters, advertisements (or those published by participating insurance
companies) and in media articles. Newsletters and advertisements may include
comparisons of the Portfolio's performance to the performance of other mutual
funds, mutual fund averages or recognized stock market indices. The Portfolio
generally measures performance in terms of total return.
Cumulative total return represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (e.g., the life of the Portfolio). A cumulative total return does
not show interim fluctuations in the value of an investment.
Average annual total return represents the average annual percentage change of
an investment over a specified period. It is calculated by taking the cumulative
total return for the stated period and determining what constant annual return
would have produced the same cumulative return. Average annual returns for more
than one year tend to smooth out variations in the Portfolio's return and are
not the same as actual annual results.
PORTFOLIO PERFORMANCE FIGURES ARE BASED UPON HISTORICAL RESULTS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. INVESTMENT RETURNS AND NET ASSET VALUE
WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
9
<PAGE>
SHAREHOLDER'S GUIDE
INVESTORS MAY NOT PURCHASE OR REDEEM SHARES OF THE PORTFOLIO DIRECTLY. SHARES
MAY BE PURCHASED OR REDEEMED ONLY THROUGH QUALIFIED RETIREMENT PLANS. REFER TO
YOUR PLAN DOCUMENTS FOR INSTRUCTIONS ON HOW TO SELECT THE PORTFOLIO AS AN
INVESTMENT OPTION FOR A QUALIFIED PLAN.
PURCHASES
Purchases of Shares may be made only by qualified plans. Refer to your plan
documents for information on how to invest in the Shares of the Portfolio.
All investments in the Portfolio are credited to a qualified plan immediately
upon acceptance of the investment by the Portfolio. Investments will be
processed at the NAV next calculated after an order is received and accepted by
the Portfolio.
The Portfolio reserves the right to reject any specific purchase order. Purchase
orders may be refused if, in Janus Capital's opinion, they are of the size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
may adversely affect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing plan
participants invested in the Portfolio would be permitted to continue to
authorize investment in the Portfolio and to reinvest any dividends or capital
gains distribution. The Portfolio may discontinue sales to a qualified plan and
require plan participants with existing investments in the Shares to redeem
those investments if the plan loses (or in the opinion of Janus Capital is at
risk of losing) its qualified plan status under the Internal Revenue Code.
REDEMPTIONS
Redemptions, like purchases, may be effected only through qualified plans.
Please refer to the appropriate plan documents for details.
Shares of the Portfolio may be redeemed on any business day. Redemptions are
processed at the NAV next calculated after receipt and acceptance of the
redemption order by the Portfolio. Redemption proceeds will normally be wired to
the qualified plan the business day following receipt of the redemption order,
but in no event later than seven days after receipt of such order.
SHAREHOLDER COMMUNICATIONS
Shareholders will receive annual and semiannual reports including the financial
statements of the Shares of the Portfolio. Each report will show the investments
owned by the Portfolio and market values thereof, as well as other information
about the Portfolio and its operations. The Trust's fiscal year ends December
31.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
10
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the Portfolio may invest. The
Portfolio may invest in these instruments to the extent permitted by its
investment objective and policies. The Portfolio is not limited by this
discussion and may invest in any other types of instruments not precluded by the
policies discussed elsewhere in this Prospectus. Please refer to the SAI for a
more detailed discussion of certain instruments.
I. EQUITY AND DEBT SECURITIES
Bonds are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
Commercial paper is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. For example, the Portfolio may purchase commercial
paper issued under Section 4(2) of the Securities Act of 1933.
Common stock represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
Convertible securities are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
Depositary receipts are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
Fixed-income securities are securities that pay a specified rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a specified rate of interest or coupons for a specified
period of time and preferred stock, which pays fixed dividends. Coupon and
dividend rates may be fixed for the life of the issue or, in the case of
adjustable and floating rate securities, for a shorter period.
High-yield/High-risk securities are securities that are rated below investment
grade by the primary rating agencies ( BB or lower by Standard &Poor's and Ba or
lower by Moody's). Other terms commonly used to describe such securities include
"lower rated bonds," "noninvestment grade bonds" and "junk bonds."
Mortgage- and asset-backed securities are shares in a pool of mortgages or other
debt. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, the portfolio manager may
have to reinvest the proceeds from the securities at a lower rate. Potential
market gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
Passive foreign investment companies (PFICs) are any foreign corporations which
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, interest,
royalties, rents and annuities. Income tax regulations may require the Portfolio
to recognize income associated with the PFIC prior to the actual receipt of any
such income.
Pay-in-kind bonds are debt securities that 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.
Preferred stock is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
Repurchase agreements involve the purchase of a security by the Portfolio and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Portfolio at a specified date or upon demand. This
technique offers a method of earning income on idle cash. These securities
involve the risk that the seller will fail to repurchase the security, as
agreed. In that case, the Portfolio will bear the risk of market value
fluctuations until the security can be sold and may encounter delays and incur
costs in liquidating the security.
Reverse repurchase agreements involve the sale of a security by the Portfolio to
another party (generally a bank or dealer) in return for cash and an agreement
by the Portfolio to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually high
redemption requests, or for other temporary or emergency purposes.
Rule 144A securities are securities that are not registered for sale to the
general public under the Securities Act of 1933, but that may be resold to
certain institutional investors.
Standby commitments are obligations purchased by the Portfolio from a dealer
that give the Portfolio the option to sell a security to the dealer at a
specified price.
Step coupon bonds are debt securities that trade at a discount from their face
value and pay coupon interest. The discount from the face value depends on the
time
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
11
<PAGE>
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer.
Strip bonds are debt securities that are stripped of their interest (usually by
a financial intermediary) after the securities are issued. The market value of
these securities generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
U.S. government securities include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
Variable and floating rate securities have variable or floating rates of
interest and, under certain limited circumstances, may have varying principal
amounts. These 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 floating rate tends to decrease the
security's price sensitivity to changes in interest rates.
Warrants are securities, typically issued with preferred stock or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
When-issued, delayed delivery and forward transactions generally involve the
purchase of a security with payment and delivery at some time in the future -
i.e., beyond normal settlement. The Portfolio does not earn interest on such
securities until settlement and bears the risk of market value fluctuations
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
Zero coupon bonds are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than interest-paying
securities of comparable maturity.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
Forward contracts are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Portfolio may enter into forward currency contracts to hedge against
declines in the value of securities denominated in, or whose value is tied to, a
currency other than the U.S. dollar or to reduce the impact of currency
appreciation on purchases of such securities. The Portfolio may also enter into
forward contracts to purchase or sell securities or other financial indices.
Futures contracts are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Portfolio may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The Portfolio
may also buy options on futures contracts. An option on a futures contract gives
the buyer the right, but not the obligation, to buy or sell a futures contract
at a specified price on or before a specified date. Futures contracts and
options on futures are standardized and traded on designated exchanges.
Indexed/structured securities are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. The Portfolio bears the market risk of
an investment in the underlying instruments, as well as the credit risk of the
issuer.
Interest rate swaps involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
Options are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Portfolio may purchase and write put and call options on securities,
securities indices and foreign currencies.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO MAY 1, 1997
PROSPECTUS - RETIREMENT SHARES
12
<PAGE>
This page intentionally left blank.
<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-0020
[LOGO] JANUS Funds distributed by Janus Distributors, Inc.
Member NASD.
<PAGE>
JANUS ASPEN SERIES
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 1997
- --------------------------------------------------------------------------------
Growth Portfolio Balanced Portfolio
Aggressive Growth Portfolio Flexible Income Portfolio
International Growth Portfolio High-Yield Portfolio
Worldwide Growth Portfolio Short-Term Bond Portfolio
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus for the
Institutional Shares (the "Shares") of the portfolios listed above, each of
which is a separate series of Janus Aspen Series, a Delaware business trust (the
"Trust"). The Shares are sold under the name "Janus Aspen Series." Each of these
series of the Trust represents shares of beneficial interest in a separate
portfolio of securities and other assets with its own objective and policies
(individually, a "Portfolio" and collectively, the "Portfolios"). Each Portfolio
is managed separately by Janus Capital Corporation ("Janus Capital").
The Shares of the Portfolios may be purchased only by the separate accounts
of insurance companies for the purpose of funding variable life insurance
policies and variable annuity contracts (collectively, "variable insurance
contracts") and by certain qualified retirement plans. Each 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, 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 Portfolios' operations and activities
than the Prospectus.
[LOGO] JANUS
<PAGE>
JANUS ASPEN SERIES
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
Investment Policies, Restrictions and Techniques........................3
Investment Objectives..............................................3
Portfolio Policies.................................................3
Investment Restrictions Applicable to All Portfolios...............4
Investment Policies Applicable to Certain Portfolios...............5
Types of Securities and Investment Techniques......................5
Illiquid Investments ............................................5
Zero Coupon, Pay-In-Kind and Step Coupon Securities..............5
Pass-Through Securities..........................................6
Investment Company Securities....................................7
Depositary Receipts .............................................7
Municipal Obligations............................................7
Other Income-Producing Securities................................7
Repurchase and Reverse Repurchase Agreements.....................8
High-Yield/High-Risk Securities..................................8
Futures, Options and Other Derivative Instruments................9
Investment Adviser...................................................15
Custodian, Transfer Agent and Certain Affiliations...................17
Portfolio Transactions and Brokerage.................................17
Officers and Trustees................................................20
Shares of the Trust..................................................22
Net Asset Value Determination.....................................22
Purchases.........................................................22
Redemptions.......................................................23
Income Dividends, Capital Gains Distributions and Tax Status.........23
Principal Shareholders...............................................23
Miscellaneous Information............................................24
Shares of the Trust...............................................24
Voting Rights.....................................................24
Independent Accountants...........................................25
Registration Statement............................................25
Performance Information..............................................25
Financial Statements ................................................26
Appendix A ..........................................................27
Explanation of Ratings Categories ................................27
- --------------------------------------------------------------------------------
2
<PAGE>
INVESTMENT POLICIES, RESTRICTIONS AND TECHNIQUES
Each Portfolio's investment objective is discussed in the Prospectus and
summarized below. There is no assurance that the Portfolios will achieve their
respective objectives. The investment objectives of the Portfolios are not
fundamental and may be changed by the Trustees without shareholder approval.
INVESTMENT OBJECTIVES
Growth Portfolio is a diversified fund that seeks long-term growth of
capital in a manner consistent with the preservation of capital by investing in
common stocks of issuers of any size. Generally, this Portfolio emphasizes
issuers with larger market capitalizations.
Aggressive Growth Portfolio is a nondiversified fund that seeks long-term
growth of capital by investing primarily in common stocks. The Portfolio intends
to normally invest at least 50% of its equity assets in securities issued by
medium-sized companies (as defined in the Prospectus).
International Growth Portfolio is a diversified fund that seeks long-term
growth of capital by investing primarily in common stocks of foreign issuers of
any size. The Portfolio normally invests at least 65% of its total assets in
issuers from at least five different countries excluding the United States.
Worldwide Growth Portfolio is a diversified fund that seeks long-term
growth of capital in a manner consistent with the preservation of capital by
investing primarily in common stocks of foreign and domestic issuers of any
size. Worldwide Growth Portfolio normally invests in issuers from at least five
different countries including the United States.
Balanced Portfolio is a diversified fund that seeks long-term capital
growth, consistent with preservation of capital and balanced by current income.
The Portfolio normally invests 40-60% of its assets in securities selected
primarily for growth potential and 40-60% of its assets in securities selected
primarily for their income potential.
Flexible Income Portfolio is a diversified fund that seeks to maximize
total return consistent with preservation of capital. Total return is expected
to result from a combination of current income and capital appreciation,
although income will normally be the dominant component of total return. The
Portfolio invests in all types of income-producing securities, and may have
substantial holdings of debt securities rated below investment grade.
High-Yield Portfolio is a diversified fund that seeks high current income
as its primary objective and capital appreciation as its secondary objective
when consistent with the primary objective by investing in high-yield/high-risk
fixed income securities. The Portfolio emphasizes investments in high-yield
corporate debt securities ("junk bonds") and may invest all of its assets in
such securities.
Short-Term Bond Portfolio is a diversified fund that seeks as high a level
of current income as is consistent with the preservation of capital by investing
primarily in short- and intermediate-term fixed-income securities. It will
normally maintain an average weighted effective maturity not to exceed three
years.
PORTFOLIO POLICIES
The Prospectus discusses the types of securities in which the Portfolios
will invest, policies of the Portfolios and the investment techniques of the
Portfolios. The Prospectus includes a discussion of portfolio turnover policies.
Portfolio turnover is calculated by dividing total purchases or sales, whichever
is less, by the average monthly value of a Portfolio's securities. The following
table summarizes the portfolio turnover rates for the fiscal periods indicated.
The information below is for fiscal years ended December 31.
Portfolio Name 1996 1995
----------------------------------------------------------------------
Growth Portfolio 87% 185%
Aggressive Growth Portfolio 88% 155%
International Growth Portfolio 65% 211%
Worldwide Growth Portfolio 62% 113%
Balanced Portfolio 103% 149%
Flexible Income Portfolio 250% 236%
High-Yield Portfolio 301%(1) N/A
Short-Term Bond Portfolio 16% 417%
----------------------------------------------------------------------
(1)May 1, 1996 (inception) to December 31, 1996, annualized.
3
<PAGE>
INVESTMENT RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
As indicated in the Prospectus, the Portfolios are subject to certain
fundamental policies and restrictions that may not be changed without
shareholder approval. Shareholder approval means approval by the lesser of (i)
more than 50% of the outstanding voting securities of the Trust (or a particular
Portfolio or particular class of shares if a matter affects just that Portfolio
or that class of shares), or (ii) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Trust (or a particular Portfolio or class of shares) are
present or represented by proxy. As fundamental policies, each of the Portfolios
may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to fifty percent (50%) of the value of the total assets of
Aggressive Growth Portfolio and as to seventy-five percent (75%) of the value of
the total assets of the other Portfolios, purchase the securities of any one
issuer (except cash items and "government securities" as defined under the
Investment Company Act of 1940, as amended (the "1940 Act")), if immediately
after and as a result of such purchase, the value of the holdings of a Portfolio
in the securities of such issuer exceeds 5% of the value of such Portfolio's
total assets. With respect to the other 50% of the value of its total assets,
Aggressive Growth Portfolio may invest in the securities of as few as two
issuers.
(2) Invest 25% or more of the value of their respective 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 Portfolios may own debt or equity securities issued by companies engaged in
those businesses.
(4) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent the Portfolios from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of a Portfolio's total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt securities or
repurchase agreements).
(6) Act as an underwriter of securities issued by others, except to the
extent that a Portfolio may be deemed an underwriter in connection with the
disposition of its portfolio securities.
As a fundamental policy, each Portfolio may, notwithstanding any other
investment policy or limitation (whether or not fundamental), invest all of its
assets in the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
limitations as such Portfolio.
The Trustees have adopted additional investment restrictions for the
Portfolios. These restrictions are operating policies of the Portfolios and may
be changed by the Trustees without shareholder approval. The additional
investment restrictions adopted by the Trustees to date include the following:
(a) A Portfolio will not (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions will exceed 5% of the fair market value of a
Portfolio's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; and (ii) enter into
any futures contracts if the aggregate amount of such Portfolio's commitments
under outstanding futures contracts positions would exceed the market value of
its total assets.
(b) The Portfolios do not currently intend to sell securities short, unless
they own or have the right to obtain securities equivalent in kind and amount to
the securities sold short without the payment of any additional consideration
therefor, and provided that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.
(c) The Portfolios do not currently intend to purchase securities on
margin, except that the Portfolios may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute
purchasing securities on margin.
(d) A Portfolio may not mortgage or pledge any securities owned or held by
such Portfolio in amounts that exceed, in the aggregate, 15% of that Portfolio's
net asset value, provided that this limitation does not apply to reverse
repurchase agreements, deposits of assets to margin, guarantee positions in
futures, options, swaps or forward contracts, or the segregation of assets in
connection with such contracts.
(e) The Portfolios may borrow money for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of their respective total assets (including the amount borrowed) less
liabilities (other than borrowings). If borrowings exceed 25% of the value of a
Portfolio's total assets by reason of a decline in net assets, the Portfolio
will reduce its borrowings within three business days to the extent necessary to
comply with the 25% limitation. This
4
<PAGE>
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 Portfolios do not currently intend to purchase any security or
enter into a repurchase agreement, if as a result, more than 15% of their
respective net assets would be invested in repurchase agreements not entitling
the holder to payment of principal and interest within seven days and in
securities that are illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market. The Trustees, or the
Portfolios' investment adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933
("Rule 144A Securities"), or any successor to such rule, Section 4(2) commercial
paper and municipal lease obligations. Accordingly, such securities may not be
subject to the foregoing limitation.
(g) The Portfolios may not invest in companies for the purpose of
exercising control of management.
For the purposes of these investment restrictions, the identification of
the issuer of a municipal obligation depends on the terms and conditions of the
security. When assets and revenues of a political subdivision are separate from
those of the government that created the subdivision and the security is backed
only by the assets and revenues of the subdivision, the subdivision is deemed to
be the sole issuer. Similarly, in the case of an industrial development bond, if
the bond is backed only by assets and revenues of a nongovernmental user, then
the nongovernmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security that would be
treated as an issue of the guaranteeing entity.
For purposes of the Portfolios' restriction on investing in a particular
industry, the Portfolios 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 Portfolios may further classify issuers in accordance
with industry classifications as published by the Securities and Exchange
Commission ("SEC").
INVESTMENT POLICIES APPLICABLE TO CERTAIN PORTFOLIOS
Balanced Portfolio. As an operational policy, at least 25% of the assets of
Balanced Portfolio normally will be invested in fixed-income senior securities,
which include debt securities and preferred stock.
Flexible Income Portfolio. As a fundamental policy, this Portfolio may not
purchase a non-income-producing security if, after such purchase, less than 80%
of the Portfolio's total assets would be invested in income-producing
securities. Income-producing securities include securities that make periodic
interest payments as well as those that make interest payments on a deferred
basis or pay interest only at maturity (e.g., Treasury bills or zero coupon
bonds).
Short-Term Bond Portfolio. As an operational policy, this Portfolio will
not invest in any debt security that, at the time of purchase, causes its
portfolio of debt securities to have a dollar-weighted average, then remaining
effective term to maturity of three years or more. The portfolio manager may
consider the estimated prepayment dates or call dates of certain securities in
computing the portfolio's effective maturity.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
ILLIQUID INVESTMENTS
Each 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 Portfolios have authorized Janus Capital to make liquidity determinations
with respect to its securities, including Rule 144A Securities, commercial paper
and municipal lease obligations. Under the guidelines established by the
Trustees, Janus Capital will consider the following factors: 1) the frequency of
trades and quoted prices for the obligation; 2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; 3)
the willingness of dealers to undertake to make a market in the security; and 4)
the nature of the security and the nature of the marketplace trades, including
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer. 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
Each Portfolio may invest up to 10% (without limit for High-Yield
Portfolio) 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
5
<PAGE>
the face amount or par value depends on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind bonds normally give the issuer an
option to pay cash at a coupon payment date or give the holder of the security a
similar bond with the same coupon rate and a face value equal to the amount of
the coupon payment that would have been made.
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), a Portfolio must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds. Because a Portfolio will
not receive cash payments on a current basis in respect of accrued
original-issue discount on zero coupon bonds or step coupon bonds during the
period before interest payments begin, in some years that Portfolio may have to
distribute cash obtained from other sources in order to satisfy the distribution
requirements under the Code. A Portfolio might obtain such cash from selling
other portfolio holdings which might cause that Portfolio to incur capital gains
or losses on the sale. Additionally, these actions are likely to reduce the
assets to which Portfolio expenses could be allocated and to reduce the rate of
return for that Portfolio. In some circumstances, such sales might be necessary
in order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for a Portfolio to sell the
securities at the time.
Generally, the market prices of zero coupon, step coupon and pay-in-kind
securities are more volatile than the prices of securities that pay interest
periodically and in cash and are likely to respond to changes in interest rates
to a greater degree than other types of debt securities having similar
maturities and credit quality.
PASS-THROUGH SECURITIES
The Portfolios may invest in various types of pass-through securities, such
as mortgage-backed securities, asset-backed securities and participation
interests. A pass-through security is a share or certificate of interest in a
pool of debt obligations that have been repackaged by an intermediary, such as a
bank or broker-dealer. The purchaser of a pass-through security receives an
undivided interest in the underlying pool of securities. The issuers of the
underlying securities make interest and principal payments to the intermediary
which are passed through to purchasers, such as the Portfolios. The most common
type of pass-through securities are mortgage-backed securities. Government
National Mortgage Association ("GNMA") Certificates are mortgage-backed
securities that evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrowers over the term of the loan rather than returned in a lump sum at
maturity. A Portfolio will generally purchase "modified pass-through" GNMA
Certificates, which entitle the holder to receive a share of all interest and
principal payments paid and owned on the mortgage pool, net of fees paid to the
"issuer" and GNMA, regardless of whether or not the mortgagor actually makes the
payment. GNMA Certificates are backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. government.
The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. FHLMC guarantees timely payments of
interest on PCs and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semiannually and return principal once a year in guaranteed minimum payments.
This type of security is guaranteed by FHLMC as to timely payment of principal
and interest but it is not guaranteed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") issues guaranteed
mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each FNMA Certificate represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. This type of security is guaranteed by FNMA as to timely payment of
principal and interest but it is not guaranteed by the full faith and credit of
the U.S. government.
Except for GMCs, each of the mortgage-backed securities described above is
characterized by monthly payments to the holder, reflecting the monthly payments
made by the borrowers who received the underlying mortgage loans. The payments
to the security holders (such as the Portfolios), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as 20 or 30 years, the
borrowers can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. A portfolio manager will consider
estimated prepayment rates in calculating the average-weighted maturity of a
Portfolio. A borrower is more likely to prepay a mortgage that bears a
relatively high rate of interest. This means that in times of declining interest
rates, higher yielding mortgage-backed securities held by a Portfolio might be
converted to cash and that Portfolio will be forced to accept lower interest
rates when that cash is used to purchase additional securities in the
mortgage-backed securities sector or in other investment sectors. Additionally,
prepayments during such periods will limit a Portfolio's ability to participate
in as large a market gain as may be experienced with a comparable security not
subject to prepayment.
6
<PAGE>
Asset-backed securities represent interests in pools of consumer loans and
are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obligor nor guarantor of the security and
interest and principal payments ultimately depend upon payment of the underlying
loans by individuals. Tax-exempt asset-backed securities include units of
beneficial interests in pools of purchase contracts, financing leases, and sales
agreements that may be created when a municipality enters into an installment
purchase contract or lease with a vendor. Such securities may be secured by the
assets purchased or leased by the municipality; however, if the municipality
stops making payments, there generally will be no recourse against the vendor.
The market for tax-exempt asset-backed securities is still relatively new. These
obligations are likely to involve unscheduled prepayments of principal.
INVESTMENT COMPANY SECURITIES
From time to time, a Portfolio may invest in securities of other investment
companies, including money market funds managed by Janus Capital. The
Portfolios' investments in such money market funds are subject to the terms of
an exemptive order obtained by the Janus funds which currently provides that
each 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 Portfolios are subject to the provisions of Section 12(d)(1) of the
1940 Act.
DEPOSITARY RECEIPTS
The Portfolios may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underying securities issued by a foreign issuer.
ADRs, in registered form, are designed for use in U.S. securities markets.
Unsponsored ADRs may be created without the participation of the foreign issuer.
Holders of these ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depositary of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. The Portfolios may also invest in European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and in other
similar instruments representing securities of foreign companies. EDRs are
receipts issued by a European financial institution evidencing an arrangement
similar to that of ADRs. EDRs, in bearer form, are designed for use in European
securities markets. GDRs are securities convertible into equity securities of
foreign issuers.
MUNICIPAL OBLIGATIONS
The Portfolios may invest in municipal obligations issued by states,
territories and possessions of the United States and the District of Columbia.
The value of municipal obligations can be affected by changes in their actual or
perceived credit quality. The credit quality of municipal obligations can be
affected by, among other things, the financial condition of the issuer or
guarantor, the issuer's future borrowing plans and sources of revenue, the
economic feasibility of the revenue bond project or general borrowing purpose,
political or economic developments in the region where the security is issued,
and the liquidity of the security. Because municipal securities are generally
traded over-the-counter, the liquidity of a particular issue often depends on
the willingness of dealers to make a market in the security. The liquidity of
some municipal obligations may be enhanced by demand features, which would
enable a Portfolio to demand payment on short notice from the issuer or a
financial intermediary.
OTHER INCOME-PRODUCING SECURITIES
Other types of income producing securities that the Portfolios may purchase
include, but are not limited to, the following types of securities:
Variable and floating rate obligations. These types of securities are
relatively long-term instruments that often carry demand features permitting the
holder to demand payment of principal at any time or at specified intervals
prior to maturity.
Standby commitments. These instruments, which are similar to a put, give a
Portfolio the option to obligate a broker, dealer or bank to repurchase a
security held by that Portfolio at a specified price.
Tender option bonds. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker, dealer
or bank) to grant the holders of such securities the option to tender the
securities to the institution at periodic intervals.
Inverse floaters. Inverse floaters are debt instruments whose interest
bears an inverse relationship to the interest rate on another security. The
Portfolios will not invest more than 5% of their respective assets in inverse
floaters.
7
<PAGE>
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
In a repurchase agreement, a Portfolio purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
price on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon incremental amount that is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the agreed upon
resale price and marked-to-market daily) of the underlying security or
"collateral." A Portfolio may engage in a repurchase agreement with respect to
any security in which it is authorized to invest. A risk associated with
repurchase agreements is the failure of the seller to repurchase the securities
as agreed, which may cause a Portfolio to suffer a loss if the market value of
such securities declines before they can be liquidated on the open market. In
the event of bankruptcy or insolvency of the seller, a Portfolio may encounter
delays and incur costs in liquidating the underlying security. Repurchase
agreements that mature in more than seven days will be subject to the 15% limit
on illiquid investments. While it is not possible to eliminate all risks from
these transactions, it is the policy of the Portfolios to limit repurchase
agreements to those parties whose creditworthiness has been reviewed and found
satisfactory by Janus Capital.
A Portfolio may use reverse repurchase agreements to provide cash to
satisfy unusually heavy redemption requests or for other temporary or emergency
purposes without the necessity of selling portfolio securities, or to earn
additional income on portfolio securities, such as Treasury bills or notes. In a
reverse repurchase agreement, a Portfolio sells a portfolio security to another
party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, a Portfolio will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Portfolios will enter into reverse
repurchase agreements only with parties that Janus Capital deems creditworthy.
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 ammount of the reverse repurchase agreement minimizes this effect.
HIGH-YIELD/HIGH-RISK SECURITIES
Flexible Income Portfolio and High-Yield Portfolio may invest without limit
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")). No other Portfolio
intends to invest 35% or more of its net assets in such securities. Lower rated
securities involve a higher degree of credit risk, which is the risk that the
issuer will not make interest or principal payments when due. In the event of an
unanticipated default, a Portfolio would experience a reduction in its income,
and could expect a decline in the market value of the securities so affected.
Each Portfolio may also invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated securities, may not have as broad a market. Because of the size and
perceived demand of the issue, among other factors, certain municipalities may
not incur the costs of obtaining a rating. A Portfolio's manager will analyze
the creditworthiness of the issuer, as well as any financial institution or
other party responsible for payments on the security, in determining whether to
purchase unrated municipal bonds. Unrated debt securities will be included in
the 35% limit of each Portfolio unless its manager deems such securities to be
the equivalent of investment grade securities.
Subject to the above limits, each Portfolio may purchase defaulted
securities only when their portfolio managers believe, 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 respective 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 these Portfolios generally
will purchase securities for which their portfolio managers expect 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 Portfolios will limit holdings
of any such securities to amounts that the portfolio managers believe 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.
8
<PAGE>
Other. Defaulted securities require active monitoring and may, at times,
require participation in bankruptcy or receivership proceedings on behalf of the
Portfolios.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Futures Contracts. The Portfolios may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income securities.
U.S. futures contracts are traded on exchanges which have been designated
"contract markets" by the CFTC and must be executed through a futures commission
merchant ("FCM"), or brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain other liquid assets by the Portfolios' custodian or subcustodian for the
benefit of the FCM. Initial margin payments are similar to good faith deposits
or performance bonds. Unlike margin extended by a securities broker, initial
margin payments do not constitute purchasing securities on margin for purposes
of the Portfolio's investment limitations. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments for the benefit of the FCM to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. In the event of the bankruptcy of the FCM that holds
margin on behalf of a Portfolio, that Portfolio may be entitled to return of
margin owed to such Portfolio only in proportion to the amount received by the
FCM's other customers. Janus Capital will attempt to minimize the risk by
careful monitoring of the creditworthiness of the FCMs with which the Portfolios
do business and by depositing margin payments in a segregated account with the
Portfolios' custodian.
The Portfolios intend to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" adopted by
the CFTC and the National Futures Association, which regulate trading in the
futures markets. The Portfolios will use futures contracts and related options
primarily for bona fide hedging purposes within the meaning of CFTC regulations.
To the extent that the Portfolios hold positions in futures contracts and
related options that do not fall within the definition of bona fide hedging
transactions, the aggregate initial margin and premiums required to establish
such positions will not exceed 5% of the fair market value of a Portfolio's net
assets, after taking into account unrealized profits and unrealized losses on
any such contracts it has entered into.
Although a Portfolio will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to that Portfolio immediately upon closing out the futures position,
while settlement of securities transactions could take several days. However,
because a Portfolio's cash that may otherwise be invested would be held
uninvested or invested in other liquid assets so long as the futures position
remains open, such Portfolio's return could be diminished due to the opportunity
losses of foregoing other potential investments.
A Portfolio's primary purpose in entering into futures contracts is to
protect that Portfolio from fluctuations in the value of securities or interest
rates without actually buying or selling the underlying debt or equity security.
For example, if the Portfolio anticipates an increase in the price of stocks,
and it intends to purchase stocks at a later time, that Portfolio could enter
into a futures contract to purchase a stock index as a temporary substitute for
stock purchases. If an increase in the market occurs that influences the stock
index as anticipated, the value of the futures contracts will increase, thereby
serving as a hedge against that Portfolio not participating in a market advance.
This technique is sometimes known as an anticipatory hedge. To the extent a
Portfolio enters into futures contracts for this purpose, the segregated assets
maintained to cover such Portfolio's obligations with respect to the futures
contracts will consist of liquid assets from its portfolio in an amount equal to
the difference between the contract price and the aggregate value of the initial
and variation margin payments made by that Portfolio with respect to the futures
contracts. Conversely, if a Portfolio holds stocks and seeks to protect itself
from a decrease in stock prices, the Portfolio might sell stock index futures
contracts, thereby hoping to offset the potential decline in the value of its
portfolio securities by a corresponding increase in the value of the futures
contract position. A Portfolio could protect against a decline in stock prices
by selling portfolio securities and investing in money market instruments, but
the use of futures contracts enables it to maintain a defensive position without
having to sell portfolio securities.
If a Portfolio owns Treasury bonds and the portfolio manager expects
interest rates to increase, that Portfolio may take a short position in interest
rate futures contracts. Taking such a position would have much the same effect
as that Portfolio selling Treasury bonds in its portfolio. If interest rates
increase as anticipated, the value of the Treasury bonds would decline, but the
value of that Portfolio's interest rate futures contract will increase, thereby
keeping the net asset value of that Portfolio from declining as much as it may
have otherwise. If, on the other hand, a portfolio manager expects interest
rates to decline, that Portfolio may take a long position in interest rate
futures contracts in anticipation of later closing out the futures position and
9
<PAGE>
purchasing the bonds. Although a Portfolio can accomplish similar results by
buying securities with long maturities and selling securities with short
maturities, given the greater liquidity of the futures market than the cash
market, it may be possible to accomplish the same result more easily and more
quickly by using futures contracts as an investment tool to reduce risk.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced and prices in the futures market distorted. Third, from the
point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by a portfolio manager
still may not result in a successful use of futures.
Futures contracts entail risks. Although the Portfolios believe that use of
such contracts will benefit the Portfolios, a Portfolio's overall performance
could be worse than if such Portfolio had not entered into futures contracts if
the portfolio manager's investment judgement proves incorrect. For example, if a
Portfolio has hedged against the effects of a possible decrease in prices of
securities held in its portfolio and prices increase instead, that Portfolio
will lose part or all of the benefit of the increased value of these securities
because of offsetting losses in its futures positions. In addition, if a
Portfolio has insufficient cash, it may have to sell securities from its
portfolio to meet daily variation margin requirements. Those sales may be, but
will not necessarily be, at increased prices which reflect the rising market and
may occur at a time when the sales are disadvantageous to such Portfolio.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to a
Portfolio will not match exactly such Portfolio's current or potential
investments. A Portfolio may buy and sell futures contracts based on underlying
instruments with different characteristics from the securities in which it
typically invests - for example, by hedging investments in portfolio securities
with a futures contract based on a broad index of securities - which involves a
risk that the futures position will not correlate precisely with the performance
of such Portfolio's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a
Portfolio's investments. Futures prices are affected by factors such as current
and anticipated short-term interest rates, changes in volatility of the
underlying instruments and the time remaining until expiration of the contract.
Those factors may affect securities prices differently from futures prices.
Imperfect correlations between a Portfolio's investments and its futures
positions also may result from differing levels of demand in the futures markets
and the securities markets, from structural differences in how futures and
securities are traded, and from imposition of daily price fluctuation limits for
futures contracts. A Portfolio may buy or sell futures contracts with a greater
or lesser value than the securities it wishes to hedge or is considering
purchasing in order to attempt to compensate for differences in historical
volatility between the futures contract and the securities, although this may
not be successful in all cases. If price changes in a Portfolio's futures
positions are poorly correlated with its other investments, its futures
positions may fail to produce desired gains or result in losses that are not
offset by the gains in that Portfolio's other investments.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of three days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for a Portfolio to
enter into new positions or close out existing positions. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, a Portfolio may not be able to promptly liquidate unfavorable
futures positions and potentially could be required to continue to hold a
futures position until the delivery date, regardless of changes in its value. As
a result, such Portfolio's access to other assets held to cover its futures
positions also could be impaired.
Options On Futures Contracts. The Portfolios may buy and write put and call
options on futures contracts. An option on a future gives a Portfolio the right
(but not the obligation) to buy or sell a futures contract at a specified price
on or before a specified date. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when a Portfolio is not fully invested it may buy
a call option on a futures contract to hedge against a market advance.
10
<PAGE>
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in that Portfolio's
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
a Portfolio will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which that
Portfolio is considering buying. If a call or put option a Portfolio has written
is exercised, such Portfolio will incur a loss which will be reduced by the
amount of the premium it received. Depending on the degree of correlation
between the change in the value of its portfolio securities and changes in the
value of the futures positions, a Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
The amount of risk a Portfolio assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Contracts. A forward contract is an agreement between two parties
in which one party is obligated to deliver a stated amount of a stated asset at
a specified time in the future and the other party is obligated to pay a
specified amount for the assets at the time of delivery. The Portfolios 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 Portfolios' principal uses of
forward foreign currency exchange contracts ("forward currency contracts"). A
Portfolio may enter into forward currency contracts with stated contract values
of up to the value of that Portfolio's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency). A Portfolio will exchange
foreign currencies for U.S. dollars and for other foreign currencies in the
normal course of business and may buy and sell currencies through forward
currency contracts in order to fix a price for securities it has agreed to buy
or sell ("transaction hedge"). A Portfolio also may hedge some or all of its
investments denominated in a foreign currency 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. A Portfolio also may enter into a
forward currency contract with respect to a currency where the Portfolio is
considering the purchase or sale of investments denominated in that currency but
has not yet selected the specific investments ("anticipatory hedge"). In any of
these circumstances a Portfolio may, alternatively, enter into a forward
currency contract to purchase or sell one foreign currency for a second currency
that is expected to perform more favorably relative to the U.S. dollar if the
portfolio manager believes there is a reasonable degree of correlation between
movements in the two currencies ("cross-hedge").
These types of hedging minimize the effect of currency appreciation as well
as depreciation, but do not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the proceeds of or rates of return on a Portfolio's foreign
currency denominated portfolio securities. The matching of the increase in value
of a forward contract and the decline in the U.S. dollar equivalent value of the
foreign currency denominated asset that is the subject of the hedge generally
will not be precise. Shifting a Portfolio's currency exposure from one foreign
currency to another removes that Portfolio's opportunity to profit from
increases in the value of the original currency and involves a risk of increased
losses to such Portfolio if its portfolio manager's projection of future
exchange rates is inaccurate. Proxy hedges and cross-hedges may result in losses
if the currency used to hedge does not perform similarly to the currency in
which hedged securities are denominated. Unforeseen changes in currency prices
may result in poorer overall performance for a Portfolio than if it had not
entered into such contracts.
The Portfolios will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose value is tied to
the currency underlying the forward contract or the currency being hedged. To
the extent that a Portfolio is not able to cover its forward currency positions
with underlying portfolio securities, the Portfolios' custodian will segregate
cash or other liquid assets having a value equal to the aggregate amount of such
Portfolio's commitments under forward contracts entered into with respect to
position hedges, cross-hedges and anticipatory hedges. If the value of the
securities used to cover a position or the value of segregated assets declines,
a Portfolio will find alternative cover or segregate additional cash or other
11
<PAGE>
liquid assets on a daily basis so that the value of the covered and segregated
assets will be equal to the amount of such Portfolio's commitments with respect
to such contracts. As an alternative to segregating assets, a Portfolio may buy
call options permitting such Portfolio to buy the amount of foreign currency
being hedged by a forward sale contract or a Portfolio may buy put options
permitting it to sell the amount of foreign currency subject to a forward buy
contract.
While forward contracts are not currently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event,
the Portfolios' ability to utilize forward contracts may be restricted. In
addition, a Portfolio may not always be able to enter into forward contracts at
attractive prices and may be limited in its ability to use these contracts to
hedge Portfolio assets.
Options on Foreign Currencies. The Portfolios may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, a Portfolio may buy put
options on the foreign currency. If the value of the currency declines, such
Portfolio will have the right to sell such currency for a fixed amount in U.S.
dollars, thereby offsetting, in whole or in part, the adverse effect on its
portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Portfolio may buy call options on the foreign
currency. The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Portfolio from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not move in the
direction or to the extent desired, a Portfolio could sustain losses on
transactions in foreign currency options that would require such Portfolio to
forego a portion or all of the benefits of advantageous changes in those rates.
The Portfolios may also write options on foreign currencies. For example,
to hedge against a potential decline in the U.S. dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates, a
Portfolio could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the decline in value of portfolio securities will be offset
by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, a Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow that Portfolio to hedge the
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium. If exchange rates do not move
in the expected direction, the option may be exercised and a Portfolio would be
required to buy or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on foreign
currencies, a Portfolio also may lose all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
The Portfolios may write covered call options on foreign currencies. A call
option written on a foreign currency by a Portfolio is "covered" if that
Portfolio owns the foreign currency underlying the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currencies held
in its portfolio. A call option is also covered if a Portfolio has a call on the
same foreign currency in the same principal amount as the call written if the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written, if the difference is maintained by such Portfolio in cash or other
liquid assets in a segregated account with the Portfolios' custodian.
The Portfolios also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
a Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option. Call options on foreign currencies which are
entered into for cross-hedging purposes are not covered. However, in such
circumstances, a Portfolio will collateralize the option by segregating cash or
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 Portfolios may write covered put and
call options and buy put and call options on securities that are traded on
United States and foreign securities exchanges and over-the-counter. The
Portfolios may write and buy options on the same types of securities that the
Portfolios may purchase directly.
A put option written by a Portfolio is "covered" if that Portfolio (i)
segregates cash not available for investment or other liquid assets with a value
equal to the exercise price of the put with the Portfolios' custodian or (ii)
holds a put on the same security and in the same principal amount as the put
written and the exercise price of the put held is equal to or greater than the
exercise price of the put written. The premium paid by the buyer of an option
will reflect, among other things, the relationship of the exercise
12
<PAGE>
price to the market price and the volatility of the underlying security, the
remaining term of the option, supply and demand and interest rates.
A call option written by a Portfolio is "covered" if that Portfolio owns
the underlying security covered by the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Portfolios'
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if a Portfolio holds a
call on the same security and in the same principal amount as the call written
and the exercise price of the call held (i) is equal to or less than the
exercise price of the call written or (ii) is greater than the exercise price of
the call written if the difference is maintained by that Portfolio in cash and
other liquid assets in a segregated account with its custodian.
The Portfolios also may write call options that are not covered for
cross-hedging purposes. A Portfolio collateralizes its obligation under a
written call option for cross-hedging purposes by segregating cash or other
liquid assets in an amount not less than the market value of the underlying
security, marked-to-market daily. A Portfolio would write a call option for
cross-hedging purposes, instead of writing a covered call option, when the
premium to be received from the cross-hedge transaction would exceed that which
would be received from writing a covered call option and its portfolio manager
believes that writing the option would achieve the desired hedge.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or bought, in the case of
a put option, since with regard to certain options, the writer may be assigned
an exercise notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains the amount of
the premium. This amount, of course, may, in the case of a covered call option,
be offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to buy the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously bought. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
In the case of a written call option, effecting a closing transaction will
permit a Portfolio to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of a
written put option, such transaction will permit a Portfolio to write another
put option to the extent that the exercise price is secured by deposited liquid
assets. Effecting a closing transaction also will permit a Portfolio to use the
cash or proceeds from the concurrent sale of any securities subject to the
option for other investments. If a Portfolio desires to sell a particular
security from its portfolio on which it has written a call option, such
Portfolio will effect a closing transaction prior to or concurrent with the sale
of the security.
A Portfolio will realize a profit from a closing transaction if the price
of the purchase transaction is less than the premium received from writing the
option or the price received from a sale transaction is more than the premium
paid to buy the option. A Portfolio will realize a loss from a closing
transaction if the price of the purchase transaction is more than the premium
received from writing the option or the price received from a sale transaction
is less than the premium paid to buy the option. Because increases in the market
of a call option generally will reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Portfolio.
An option position may be closed out only where a secondary market for an
option of the same series exists. If a secondary market does not exist, the
Portfolio may not be able to effect closing transactions in particular options
and the Portfolio would have to exercise the options in order to realize any
profit. If a Portfolio is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. The absence
of a liquid secondary market may be due to the following: (i) insufficient
trading interest in certain options, (ii) restrictions imposed by a national
securities exchange ("Exchange") on which the option is traded on opening or
closing transactions or both, (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities, (iv) unusual or unforeseen circumstances that interrupt
normal operations on an Exchange, (v) the facilities of an Exchange or of the
Options Clearing Corporation ("OCC") may not at all times be adequate to handle
current trading volume, or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options on that Exchange that had
been issued by the OCC as a result of trades on that Exchange would continue to
be exercisable in accordance with their terms.
13
<PAGE>
A Portfolio may write options in connection with buy-and-write
transactions. In other words, a Portfolio may buy a security and then write a
call option against that security. The exercise price of such call will depend
upon the expected price movement of the underlying security. The exercise price
of a call option may be below ("in-the-money"), equal to ("at-the-money") or
above ("out-of-the-money") the current value of the underlying security at the
time the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, a Portfolio's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between that Portfolio's purchase price of the security and the
exercise price. If the options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset by the amount of
premium received.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and a Portfolio's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, a Portfolio may elect to close the
position or take delivery of the security at the exercise price and that
Portfolio's return will be the premium received from the put options minus the
amount by which the market price of the security is below the exercise price.
A Portfolio may buy put options to hedge against a decline in the value of
its portfolio. By using put options in this way, a Portfolio will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.
A Portfolio may buy call options to hedge against an increase in the price
of securities that it may buy in the future. The premium paid for the call
option plus any transaction costs will reduce the benefit, if any, realized by
such Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to that
Portfolio.
Eurodollar Instruments. A Portfolio may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. A Portfolio may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with a Portfolio receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of a Portfolio's obligations over its entitlement with respect to each
interest rate swap will be calculated on a daily basis and an amount of cash or
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 Portfolios'
custodian. If a Portfolio enters into an interest rate swap on other than a net
basis, it would maintain a segregated account in the full amount accrued on a
daily basis of its obligations with respect to the swap. A Portfolio will not
enter into any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
one of the three highest rating categories of at least one 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, a Portfolio will have contractual remedies pursuant
to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Janus Capital has determined that, as
a result, the swap market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent a
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 a Portfolio. These transactions may in some instances involve
the delivery of securities or other underlying assets by a Portfolio or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that a
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, a Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
A Portfolio may buy and sell (i.e., write) caps and floors without limitation,
subject to the segregation requirement described above.
14
<PAGE>
Additional Risks of Options on Foreign Currencies, Forward Contracts and
Foreign Instruments. Unlike transactions entered into by the Portfolios in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain Exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
Exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, an option writer and a buyer or
seller of futures or forward contracts could lose amounts substantially in
excess of any premium received or initial margin or collateral posted due to the
potential additional margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting a Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
INVESTMENT ADVISER
As stated in the Prospectus, each Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928.
Each Advisory Agreement provides that Janus Capital will furnish continuous
advice and recommendations concerning the Portfolios' investments, provide
office space for the Portfolios, 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
Portfolios or other Janus Funds or which perform recordkeeping or other services
with respect to shareholder accounts. The minimum aggregate size required for
eligibility for such payments, and the factors in selecting the broker-dealer
firms and institutions to which they will be made, are determined from time to
time by Janus Capital. Janus Capital is also authorized to perform the
management and administrative services necessary for the operation of the
Portfolios.
The Portfolios pay custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in connection with
the execution of portfolio transactions, legal and accounting expenses, interest
and taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Portfolio Trustees who are not affiliated
with Janus Capital and other costs of complying with applicable laws regulating
the sale of Portfolio shares. Pursuant to the Advisory Agreements, Janus Capital
furnishes certain other services, including net asset value determination,
portfolio accounting and recordkeeping, for which the Portfolios may reimburse
Janus Capital for its costs.
Growth Portfolio, Aggressive Growth Portfolio, International Growth
Portfolio, Worldwide Growth Portfolio, and Balanced Portfolio have each agreed
to compensate Janus Capital for its services by the monthly payment of a fee at
the annual rate of 1% of the first $30 million of the average daily net assets
of each Portfolio, .75% of the next $270 million of the average daily net assets
of each Portfolio, .70% of the next $200 million of the average daily net assets
of each Portfolio and .65% of the average daily net assets of each Portfolio in
excess of $500 million. The advisory fee is calculated and payable daily. Janus
Capital has
15
<PAGE>
voluntarily agreed to cap the advisory fee of Growth Portfolio, Aggressive
Growth Portfolio, International Growth Portfolio, Worldwide Growth Portfolio,
and Balanced Portfolio at the effective rate of Janus Fund, Janus Enterprise
Fund, Janus Overseas Fund, Janus Worldwide Fund, and Janus Balanced Fund (the
"retail funds"), respectively. The effective rate of each retail fund is the
advisory fee calculated by such fund on the last day of each calendar quarter.
If the assets of the corresponding retail fund exceed the assets of a Portfolio
as of the last day of any calendar quarter, then the advisory fee payable by
that Portfolio for the following calendar quarter will be a flat rate equal to
such effective rate. The effective rate (annualized) of Janus Fund, Janus
Enterprise Fund, Janus Overseas Fund, Janus Worldwide Fund and Janus Balanced
Fund were .65%, .73%, .68%, .66% and .78%, respectively, for the quarter ended
March 31, 1997.
In addition, Janus Capital has agreed to reimburse International Growth
Portfolio by the amount, if any, that such Portfolio's normal operating expenses
chargeable to its income account in any fiscal year, including the investment
advisory fee but excluding brokerage commissions, interest, taxes and
extraordinary expenses, exceed 1.25% average daily net assets of the Portfolio
for a fiscal year through April 30, 1998. Mortality risk, expense risk and other
charges imposed by participating insurance companies are excluded from the above
expense limitation.
High-Yield Portfolio has agreed to compensate Janus Capital for its
services by the monthly payment of a fee at the annual rate of .75% of the first
$300 million of average daily net assets of the Portfolio and .65% of the
average daily net assets in excess of $300 million. Flexible Income Portfolio
and Short-Term Bond Portfolio have each agreed to compensate Janus Capital for
its services by the monthly payment of a fee at the annual rate of .65% of the
first $300 million of the average daily net assets of the Portfolio, plus .55%
of the average daily net assets of the Portfolio in excess of $300 million. The
fee is calculated and payable daily. Janus Capital has agreed to waive the
advisory fee payable by each of these Portfolios in an amount equal to the
amount, if any, that such Portfolio's normal operating expenses chargeable to
its income account in any fiscal year, including the investment advisory fee but
excluding brokerage commissions, interest, taxes and extraordinary expenses,
exceed 1% of the average daily net assets for a fiscal year for Flexible Income
Portfolio and High-Yield Portfolio and .65% of the average daily net assets for
a fiscal year for Short-Term Bond Portfolio. Mortality risk, expense risk and
other charges imposed by participating insurance companies are excluded from the
above expense limitation.
Janus Capital may terminate any of the fee reductions, waivers or expense
limitation arrangements described above at any time upon at least 90 days'
notice to the Trustees.
The following table summarizes the advisory fees paid by the Portfolios and
any advisory fee waivers for the periods indicated. The information below is for
fiscal years ended December 31.
<TABLE>
<CAPTION>
1996 1995 1994
Portfolio Name Advisory Fees Waivers(3) Advisory Fees Waivers(3) Advisory Fees Waivers(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio $1,410,362 -- $505,442 -- $173,369 --
Aggressive Growth Portfolio 2,102,177 -- 809,493 -- 109,603 --
International Growth Portfolio 55,211 $51,880 15,182 $12,920 9,008(2) $ 9,008 (1,2)
Worldwide Growth Portfolio 2,015,059 -- 402,832 -- 157,194 --
Balanced Portfolio 344,791 -- 46,900 -- 19,489 --
Flexible Income Portfolio 116,279 -- 36,114 160 10,635 5,688
High-Yield Portfolio 2,304(4) 2,304(1,4) -- -- -- --
Short-Term Bond Portfolio 46,594 13,006 17,725 17,725(1) 11,530 11,530(1)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fee waiver by Janus Capital exceeded the advisory fee.
(2) May 2, 1994 (inception) to December 31, 1994.
(3) In addition to these fee waivers, Janus Capital has agreed to reduce the
advisory fee of the Growth, Aggressive Growth, International Growth,
Worldwide Growth and Balanced Portfolios to the extent that such fee
exceeds the effective rate of the Janus retail fund corresponding to such
Portfolio. See the prospectus for details.
(4) May 1, 1996 (inception) to December 31, 1996.
The current Advisory Agreement for International Growth Portfolio became
effective on February 10, 1994 and the current Advisory Agreement for High-Yield
Portfolio became effective on March 12, 1996. The current Advisory Agreements
for the other Portfolios became effective on June 16, 1993. Each Advisory
Agreement will continue in effect until June 16, 1997, and thereafter from year
to year so long as such continuance is approved annually by a majority of the
Portfolios' Trustees who are not parties to the Advisory Agreements or
interested persons of any such party, and by either a majority of the
outstanding voting shares or the Trustees of the Portfolios. Each Advisory
Agreement i) may be terminated without the payment of any penalty by any
Portfolio or Janus Capital on 60 days' written notice; ii) terminates
automatically in the event of its assignment; and iii) generally, may not be
amended without the approval by vote of a majority of the Trustees of the
affected Portfolio, including the Trustees who are not interested persons of
that Portfolio or Janus Capital and, to the extent required by the 1940 Act, the
vote of a majority of the outstanding voting securities of that Portfolio.
16
<PAGE>
Janus Capital also performs investment advisory services for other mutual
funds, and for individual, charitable, corporate and retirement accounts.
Investment decisions for each account managed by Janus Capital, including the
Portfolios, are made independently from those for any other account that is or
may in the future become managed by Janus Capital or its affiliates. If,
however, a number of accounts managed by Janus Capital are contemporaneously
engaged in the purchase or sale of the same security, the orders may be
aggregated and/or the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect the
price paid or received by an account or the size of the position obtained or
liquidated for an account. Pursuant to an exemptive order granted by the SEC,
the Portfolios 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 portfolio
managers to purchase and sell securities for their own accounts except under the
limited exceptions contained in Janus Capital's policy regarding personal
investing by directors, officers and employees of Janus Capital and the
Portfolios. The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolios and other
designated persons deemed to have access to current trading information to
pre-clear all transactions in securities not otherwise exempt under the policy.
Requests for trading authority will be denied when, among other reasons, the
proposed personal transaction would be contrary to the provisions of the policy
or would be deemed to adversely affect any transaction then known to be under
consideration for or to have been effected on behalf of any client account,
including the Portfolios.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Portfolios to various trading restrictions and reporting obligations.
All reportable transactions are reviewed for compliance with Janus Capital's
policy. Those persons also may be required under certain circumstances to
forfeit their profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, 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 Portfolios. State Street and the foreign subcustodians selected by
it and approved by the Trustees, have custody of the assets of the Portfolios
held outside the U.S. and cash incidental thereto. The custodians and
subcustodians hold the Portfolios' assets in safekeeping and collect and remit
the income thereon, subject to the instructions of each Portfolio.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the
Portfolios' transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the
Portfolios. Janus Service is not compensated for its services related to the
Shares, except for out-of-pocket costs.
The Portfolios pay DST Systems, Inc. ("DST"), a subsidiary of KCSI, license
fees for the use of DST's portfolio and fund accounting system a base fee paid
monthly between $250 to $1,250 per month based on the number of Janus funds
utilizing the system and an asset fee of $1 per million of net assets (not to
exceed $500 per month).
The Trustees have authorized the Portfolios to use another affiliate of DST
as introducing broker for certain Portfolio transactions as a means to reduce
Portfolio expenses through a credit against the charges of DST and its
affiliates with regard to commissions earned by such affiliate. DST charges
shown above are net of such credits. See "Portfolio Transactions and Brokerage."
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for the Portfolios and
negotiation of its commission rates are made by Janus Capital whose policy is to
obtain the "best execution" (prompt and reliable execution at the most favorable
security price) of all portfolio transactions. The Portfolios may trade foreign
securities in foreign countries because the best available market
17
<PAGE>
for these securities is often on foreign exchanges. In transactions on foreign
stock exchanges, brokers' commissions are frequently fixed and are often higher
than in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to a Portfolio or to a
third party service provider to the Portfolio to pay Portfolio expenses; and
research products or services provided. In recognition of the value of the
foregoing factors, Janus Capital may place portfolio transactions with a broker
or dealer with whom it has negotiated a commission that is in excess of the
commission another broker or dealer would have charged for effecting that
transaction if Janus Capital determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of Janus Capital. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services, and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts. Most brokers and dealers
used by Janus Capital provide research and other services described above.
For the year ended December 31, 1996, the total brokerage commissions paid
by the Portfolios to brokers and dealers in transactions identified for
execution primarily on the basis of research and other services provided to the
Portfolios are
summarized below:
Portfolio Name Commissions Transactions
- --------------------------------------------------------------------------------
Growth Portfolio $163,794 $164,640,506
Aggressive Growth Portfolio $161,691 $ 96,445,133
International Growth Portfolio $ 4,402 $ 2,034,303
Worldwide Growth Portfolio $133,402 $ 90,219,385
Balanced Portfolio $ 21,308 $ 18,036,884
- --------------------------------------------------------------------------------
NOTE: Portfolios that are not included in the table did not pay any commissions
related to research for the stated period.
Janus Capital may use research products and services in servicing other
accounts in addition to the Portfolios. If Janus Capital determines that any
research product or service has a mixed use, such that it also serves functions
that do not assist in the investment decision-making process, Janus Capital may
allocate the costs of such service or product accordingly. Only that portion of
the product or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus Capital.
Janus Capital does not enter into agreements with any brokers regarding the
placement of securities transactions because of the research services they
provide. It does, however, have an internal procedure for allocating
transactions in a manner consistent with its execution policy to brokers that it
has identified as providing superior executions and research, research-related
products or services which benefit its advisory clients, including the
Portfolios. Research products and services incidental to effecting securities
transactions furnished by brokers or dealers may be used in servicing any or all
of Janus Capital's clients and such research may not necessarily be used by
Janus Capital in connection with the accounts which paid commissions to the
broker-dealer providing such research products and services.
Janus Capital may consider sales of Portfolio shares or shares of other
Janus funds by a broker-dealer or the recommendation of a broker-dealer to its
customers that they purchase Portfolio shares as a factor in the selection of
broker-dealers to execute Portfolio transactions. Janus Capital may also
consider payments made by brokers effecting transactions for a Portfolio i) to
the Portfolio or ii) to other persons on behalf of the Portfolio for services
provided to the Portfolio for which it would be obligated to pay. In placing
Portfolio business with such broker-dealers, Janus Capital will seek the best
execution of each transaction.
When the Portfolios purchase or sell a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where in the opinion
of Janus Capital better prices and executions will be achieved through the use
of a broker.
18
<PAGE>
The Portfolios' Trustees have authorized Janus Capital to place
transactions with DST Securities, Inc. ("DSTS"), a wholly-owned broker-dealer
subsidiary of DST. Janus Capital may do so if it reasonably believes that the
quality of the transaction and the associated commission are fair and reasonable
and if, overall, the associated transaction costs, net of any credits described
above under "Custodian, Transfer Agent and Certain Affiliations," are lower than
those that would otherwise be incurred.
The following table lists the total amount of brokerage commissions paid by
each Portfolio for the fiscal periods ending on December 31st of each year:
<TABLE>
<CAPTION>
Portfolio Name 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio $ 415,247 $355,523 $85,851
Aggressive Growth Portfolio $ 616,051 $574,631 $86,296
International Growth Portfolio $ 49,472 $ 14,394 $ 987(1)
Worldwide Growth Portfolio $1,332,024 $345,216 $33,299
Balanced Portfolio $ 86,264 $ 18,745 $ 4,171
High-Yield Portfolio $ 186(2) N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) May 2, 1994 (inception) to December 31, 1994.
(2) May 1, 1996 (inception) to December 31, 1996.
NOTE: Portfolios that are not included in the table did not pay brokerage
commissions because securities transactions for such Portfolios involved
dealers acting as principals.
Included in such brokerage commissions are the following amounts paid to
DSTS, which served to reduce each Portfolio's out-of-pocket expenses as follows:
<TABLE>
<CAPTION>
Commission
Paid through DSTS
for the Period Ended Reduction % of Total % of Total
Fund Name December 31, 1996* of Expenses* Commissions+ Transactions+
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $4,645 $3,484 1.12% .97%
Aggressive Growth Portfolio $1,929 $1,447 .31% .51%
International Growth Portfolio $ 67 $ 51 .14% .41%
Worldwide Growth Portfolio $6,189 $4,642 .46% .97%
Balanced Portfolio $2,565 $1,924 2.97% 2.44%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid to DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions are due, in part, to variations among share prices and
number of shares traded, while average price per share commission rates were
substantially the same.
NOTE: Portfolios that did not execute trades with DSTS during the periods
indicated are not included in the table.
<TABLE>
<CAPTION>
Commission Commission Paid
Paid Through through DSTS
DSTS for the for the Period Reduction of
Period Ended Reduction of % of Total % of Total Ended Expenses for
Portfolio Name 12/31/95* Expenses* Commissions+ Transactions+ 12/31/94* that Period*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio $ 9,498 $ 7,123 2.67% 2.29% $2,466 $1,850
Aggressive Growth Portfolio $17,564 $13,173 3.06% 3.00% $2,775 $2,081
International Growth Portfolio $ 37 $ 28 0.26% 0.23% N/A N/A
Worldwide Growth Portfolio $ 4,499 $ 3,374 1.30% 1.71% $ 201 $ 151
Balanced Portfolio $ 450 $ 337 2.40% 2.12% $ 77 $ 57
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid to DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions are due, in part, to variations among share prices and
number of shares traded, while average price per share commission rates were
substantially the same.
NOTE: Portfolios that did not execute trades with DSTS during the periods
indicated are not included in the table.
As of December 31, 1996, certain Portfolios owned securities of their
regular broker-dealers (or parents), as shown below:
<TABLE>
<CAPTION>
Portfolio Name Name of Broker-Dealer Value of Securities Owned
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Portfolio Charles Schwab & Co., Inc. $4,040,000
Balanced Portfolio Charles Schwab & Co., Inc. $ 380,800
Short-Term Bond Portfolio Merrill Lynch, Pierce, Fenner & Smith $ 247,813
</TABLE>
19
<PAGE>
OfFICERS AND TRUSTEES
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years.
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, Trustee and Portfolio Manager of Janus Investment
Fund+. Chief Investment Officer, Vice President and Director of Janus
Capital.
James P. Goff* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Vice President of Janus Capital. Formerly, securities analyst at Janus
Capital (1988 to 1992).
Warren B. Lammert* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Vice President of Janus Capital. Formerly, securities analyst at Janus
Capital (1990 to 1992).
Ronald V. Speaker* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund+.
Vice President of Janus Capital. Formerly, securities analyst and research
associate at Janus Capital (1986 to 1992).
Helen Young Hayes* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Vice President of Janus Capital. Formerly (1987 to 1993), securities
analyst at Janus Capital.
Blaine P. Rollins* - Executive Vice President
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).
Sandy R. Rufenacht* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Formerly, senior accountant, fixed-income trader and fixed-income research
analyst at Janus Capital (1990-1995).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4928
Vice President and General Counsel of Janus Investment Fund+. Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Director, Vice President and Secretary of Janus Capital International Ltd.
- --------------------------------------------------------------------------------
* 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.
20
<PAGE>
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 and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado. Formerly (1992-1996),
Treasurer of Janus Investment Fund and Janus Aspen Series.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street, Suite 300
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. 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 Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments).
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund+. President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund+. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
James T. Rothe
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 each
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolios by their officers and review the investment
decisions of the officers although they do not actively participate on a regular
basis in making such decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Trust Instrument, Delaware law or
the 1940 Act.
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
+ Includes comparable office with various Janus funds that were reorganized into
Janus Investment Fund on August 7, 1992.
21
<PAGE>
The following table shows the aggregate compensation paid to each Trustee
by the Portfolios and all funds advised and sponsored by Janus Capital
(collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive pension or retirement benefits from the Portfolios or the Janus
Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
from the Portfolios for from the Janus Funds
fiscal year ended for calendar year ended
Name of Person, Position December 31, 1996 December 31, 1996**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, III* $0 $0
John W. Shepardson, Trustee+ $1,536 $73,000
William D. Stewart, Trustee $1,613 $70,000
Gary O. Loo, Trustee $1,380 $70,000
Dennis B. Mullen, Trustee $1,535 $67,000
Martin H. Waldinger, Trustee $1,458 $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.
** 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 the Shares of
each Portfolio 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 the Shares of each Portfolio is not determined on
days the NYSE is closed (generally, New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
The per Share NAV of the Shares of each Portfolio is determined by dividing the
total value of a Portfolio's securities and other assets, less liabilities,
attributable to the Shares of a Portfolio, by the total number of Shares
outstanding. In determining NAV, securities listed on an Exchange, the NASDAQ
National Market and foreign markets are valued at the closing prices on such
markets, or if such price is lacking for the trading period immediately
preceding the time of determination, such securities are valued at their current
bid price. Municipal securities held by the Portfolios are traded primarily in
the over-the-counter market. Valuations of such securities are furnished by one
or more pricing services employed by the Portfolios and are based upon last
trade or closing sales prices or a computerized matrix system or appraisals
obtained by a pricing service, in each case in reliance upon information
concerning market transactions and quotations from recognized municipal
securities dealers. Other securities that are traded on the over-the-counter
market are valued at their closing bid prices. Foreign securities and currencies
are converted to U.S. dollars using the exchange rate in effect at the close of
the NYSE. Each Portfolio will determine the market value of individual
securities held by it, by using prices provided by one or more professional
pricing services which may provide market prices to other funds, or, as needed,
by obtaining market quotations from independent broker-dealers. Short-term
securities maturing within 60 days are valued on the amortized cost basis.
Securities for which quotations are not readily available, and other assets, are
valued at fair values determined in good faith under procedures established by
and under the supervision of the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which a Portfolio's NAV is not calculated. A Portfolio calculates its NAV
per Share, and therefore effects sales, redemptions and repurchases of its
Shares, as of the close of the NYSE once on each day on which the NYSE is open.
Such calculation may not take place contemporaneously with the determination of
the prices of the foreign portfolio securities used in such calculation.
PURCHASES
Shares of the Portfolios can be purchased only by i) the separate accounts
of participating insurance companies for the purpose of funding variable
insurance contracts and ii) certain qualified retirement plans. Shares of the
Portfolios are purchased at the NAV per Share as determined at the close of the
regular trading session of the NYSE next occurring after a purchase order is
received and accepted by a Portfolio or its authorized agent. The prospectus for
your insurance company's separate account or your plan documents contain
detailed information about investing in the different Portfolios.
22
<PAGE>
REDEMPTIONS
Redemptions, like purchases, may only be effected through the separate
accounts of participating insurance companies or qualified retirement plans.
Shares normally will be redeemed for cash, although each Portfolio retains the
right to redeem its shares in kind under unusual circumstances, in order to
protect the interests of remaining shareholders, by delivery of securities
selected from its assets at its discretion. However, the Portfolios are governed
by Rule 18f-1 under the 1940 Act, which requires each Portfolio to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the NAV of that Portfolio
during any 90-day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation, a Portfolio will have the option of
redeeming the excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets to
cash. The method of valuing securities used to make redemptions in kind will be
the same as the method of valuing portfolio securities described under "Shares
of the Trust - Net Asset Value Determination" and such valuation will be made as
of the same time the redemption price is determined.
The right to require the Portfolios to redeem their 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 Portfolios to make semiannual
distributions in June and December of substantially all of their respective
investment income and an annual distribution in June of their respective net
realized capital gains, if any. The Portfolios intend to qualify as regulated
investment companies by satisfying certain requirements prescribed by Subchapter
M of the Code. In addition, each Portfolio intends to comply with the
diversification requirements of Code Section 817(h) related to the tax-deferred
status of insurance company separate accounts.
All income dividends and capital gains distributions, if any, on a
Portfolio's Shares are reinvested automatically in additional Shares of that
Portfolio at the NAV determined on the first business day following the record
date.
The Portfolios may purchase securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS. In order to
avoid taxes and interest that must be paid by the Portfolios if these
instruments are profitable, the Portfolios may make various elections permitted
by the tax laws. However, these elections could require that the Portfolios
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 Portfolios may be subject to
foreign taxes which could reduce the yield on such securities. The amount of
such foreign taxes is expected to be insignificant. Accordingly, the Portfolios
do not intend to make the election permitted under section 853 of the Code to
pass through such taxes to shareholders as a foreign tax credit. As a result,
any foreign taxes paid or accrued will represent an expense to each Portfolio
which will reduce its investment company taxable income as this would increase
the taxable income reported to shareholders and require shareholders to take the
credit on their tax returns, complicating the preparation of such returns.
Because Shares of the Portfolios can only be purchased through variable
insurance contracts or qualified plans, it is anticipated that any income
dividends or capital gains distributions will be exempt from current taxation if
left to accumulate within such contracts or plans. See the prospectus for the
separate account of the related insurance company or the plan documents for
additional information.
PRINCIPAL SHAREHOLDERS
The officers and Trustees of the Portfolios cannot directly own Shares of
the Portfolios without purchasing an insurance contract through one of the
participating insurance companies. As a result, such officers and Trustees as a
group own less than 1% of the outstanding Shares of each Portfolio. As of April
4, 1997, all of the outstanding Shares of the Portfolios were owned by certain
insurance company separate accounts and by Janus Capital, which provided seed
capital for the Portfolios. The percentage ownership of each separate account
owning more than 5% of the Shares of any Portfolio is as follows:
23
<PAGE>
<TABLE>
<CAPTION>
Record Owners as of April 4, 1997
--------------------------------------------------------------------------------------------
Life of Lincoln Western
Portfolio Name Aetna Kemper Virginia Benefit New York Life Prudential Reserve
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Portfolio 27.02% 5.10% 44.17% 5.34% N/A * 5.07%
Aggressive Growth Portfolio 60.67% * 23.16% * N/A N/A *
International Growth Portfolio N/A N/A 46.84% N/A N/A 36.07% 16.18%
Worldwide Growth Portfolio 50.15% 5.60% 27.50% * * N/A *
Balanced Portfolio 45.42% 6.57% 20.51% 7.91% 7.92% N/A 5.60%
Flexible Income Portfolio 48.86% N/A 23.33% 15.18% N/A N/A 8.16%
High-Yield Portfolio N/A N/A N/A N/A N/A N/A 87.26%
Short-Term Bond Portfolio 82.13% 6.67% N/A N/A N/A N/A 7.75%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Owned less than 5%.
The Shares held by the separate accounts of each insurance company,
including Shares for which no voting instructions have been received, will be
voted by each insurance company in proportion to instructions received from
contract owners.
MISCELLANEOUS INFORMATION
The Trust is an open-end management investment company registered under the
1940 Act and organized as a Delaware business trust, which was created on May
20, 1993. The Trust Instrument permits the Trustees to issue an unlimited number
of shares of beneficial interest from an unlimited number of series of shares.
As of the date of this SAI, the Trust is offering eleven series of shares, known
as "Portfolios," each of which offers two classes of shares. 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 each Portfolio are fully paid and nonassessable when issued.
Shares of a Portfolio participate equally in dividends and other distributions
by the Shares of such Portfolio, and in residual assets of that Portfolio in the
event of liquidation. Shares of each Portfolio have no preemptive, conversion or
subscription rights.
The Portfolios each offer two classes of shares. The Shares discussed in
this SAI are offered only in connection with investment in and payments under
variable insurance contracts and to other qualified retirement plans. A second
class of shares, Retirement Shares, is offered only to certain participant
directed qualified plans.
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 each
Portfolio's policies and objectives; the Trustees oversee the operation of each
Portfolio by its officers and review the investment decisions of the officers.
The present Trustees were elected by the initial trustee of the Trust on
May 25, 1993, and were approved by the initial shareholder 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 their
Portfolio, to amend the Trust Instrument, to bring certain derivative actions
and on any other matters on which a shareholder vote is required by the 1940
Act, the Trust Instrument, the Trust's Bylaws or the Trustees.
Each share of each 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 series of the Trust voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so and, in such event, the
holders of the remaining shares will not be able to elect any Trustees. Each
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 the matter differs from the interests of other portfolios
or classes of the Trust.
24
<PAGE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Portfolios, audit the Portfolios' annual
financial statements and prepare their tax returns.
REGISTRATION STATEMENT
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this SAI relates. If further information is desired with
respect to the Portfolios or such securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
PERFORMANCE INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for the Shares of a Portfolio
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Shares of such Portfolio over periods of 1, 5,
and 10 years (up to the life of the Portfolio). These are the annual total rates
of return that would equate the initial amount invested to the ending redeemable
value. These rates of return are calculated pursuant to the following formula:
P(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the
average annual total return, n = the number of years and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures reflect the deduction of a proportional share
of expenses of the Shares of a Portfolio on an annual basis, and assume that all
dividends and distributions are reinvested when paid. The average annual total
return of the Shares of each Portfolio, computed as of December 31, 1996, is
shown in the table below.
<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------------------------------------
Date Number of
Available Months in Five Ten Life of
Portfolio Name for Sale Lifetime One Year Years Years Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio -
Institutional Shares 9/13/93 39.5 18.45% N/A N/A 16.22%
Aggressive Growth Portfolio -
Institutional Shares 9/13/93 39.5 7.95% N/A N/A 21.33%
International Growth Portfolio -
Institutional Shares 5/2/94 32 34.71% N/A N/A 19.62%
Worldwide Growth Portfolio -
Institutional Shares 9/13/93 39.5 29.04% N/A N/A 23.20%
Balanced Portfolio -
Institutional Shares 9/13/93 39.5 16.18% N/A N/A 14.63%
Flexible Income Portfolio -
Institutional Shares 9/13/93 39.5 9.19% N/A N/A 9.54%
High-Yield Portfolio -
Institutional Shares 5/1/96 8 N/A N/A N/A 12.40%
Short-Term Bond Portfolio -
Institutional Shares 9/13/93 39.5 3.98% N/A N/A 4.42%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Yield quotations of a 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
25
<PAGE>
The yield for the 30-day period ending December 31, 1996, for the Shares of
the following Portfolios is shown below:
Flexible Income Portfolio - Institutional Shares - 7.39%
Short-Term Bond Portfolio - Institutional Shares - 5.37%
High-Yield Portfolio - Institutional Shares - 8.93%
From time to time in advertisements or sales material, the Portfolios may
discuss their performance ratings or other information as published by
recognized mutual fund statistical rating services, including, but not limited
to, Lipper Analytical Services, Inc., Ibbotson Associates, Micropal or
Morningstar or by publications of general interest such as Forbes or Money. The
Portfolios may also compare their performance to that of other selected mutual
funds, mutual fund averages or recognized stock market indicators, including,
but not limited to, the Standard & Poor's 500 Composite Stock Price Index, the
Standard & Poor's 400 Midcap Index, the Dow Jones Industrial Average, the Lehman
Brothers Government/Corporate Bond Index, the Lehman Brothers
Government/Corporate 1-3 Year Bond Index, the Lehman Brothers Long
Government/Corporate Bond Index, the Lehman Brothers Intermediate Government
Bond Index, the Lehman Brothers Municipal Bond Index, the Russell 2000 Index and
the NASDAQ composite. In addition, the Portfolios may compare their total return
or yield to the yield on U.S. Treasury obligations and to the percentage change
in the Consumer Price Index. Worldwide Growth Portfolio and International Growth
Portfolio may also compare their performance to the record of global market
indicators, such as the Morgan Stanley International World Index or Morgan
Stanley Capital International Europe, Australasia, Far East Index (EAFE Index).
Such performance ratings or comparisons may be made with funds that may have
different investment restrictions, objectives, policies or techniques than the
Portfolios and such other funds or market indicators may be comprised of
securities that differ significantly from the Portfolios' investments.
FINANCIAL STATEMENTS
The following audited financial statements for the period ended December
31, 1996 are hereby incorporated into this Statement of Additional Information
by reference to the Portfolios' Annual Report dated December 31, 1996. A copy of
such report accompanies this SAI.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT:
Schedules of Investments as of December 31, 1996
Statements of Operations for the period ended December 31, 1996
Statements of Assets and Liabilities as of December 31, 1996
Statements of Changes in Net Assets for the periods ended December 31, 1996
and 1995
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Report of Independent Accountants
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this Statement of Additional Information
and are not part of the Registration Statement.
26
<PAGE>
APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
STANDARD & POOR'S RATINGS SERVICES
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal
and interest.
AA High quality; very strong capacity to pay principal and
interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances
and economic conditions.
BBB Adequate capacity to pay principal and interest; normally
exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances more likely to lead to
a weakened capacity to pay principal and interest than for
higher rated bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's
capacity to meet required interest and principal payments.
CCC, CC, C 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.
27
<PAGE>
This page intentionally left blank.
<PAGE>
JANUS ASPEN SERIES
CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus for the
Institutional Shares ("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, 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 ..............................15
Officers and Trustees .............................................16
Shares of the Trust ...............................................18
Net Asset Value Determination ..................................18
Purchases ......................................................19
Redemptions ....................................................19
Income Dividends, Capital Gains Distributions and Tax Status ......19
Miscellaneous Information .........................................20
Shares of the Trust ............................................20
Voting Rights ..................................................20
Independent Accountants ........................................21
Registration Statement .........................................21
Performance Information ...........................................21
Appendix A ........................................................22
Explanation of Rating Categories ...............................22
- --------------------------------------------------------------------------------
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
rates.
Portfolio turnover is calculated by dividing total long-term purchases or
sales, whichever is less, by the average monthly value of a portfolio's
long-term portfolio securities. The Portfolio anticipates that its portfolio
turnover rate should not exceed 200%.
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").
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.
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
4
<PAGE>
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, 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.
5
<PAGE>
INVESTMENT COMPANY SECURITIES
From time to time, the Portfolio may invest in securities of other
investment companies, including money market funds managed by Janus Capital. The
Portfolio's investments in such money market funds are subject to the terms of
an exemptive order obtained by 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 Portfolio is subject to the provisions of Section 12(d)(1) of the
1940 Act.
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"). Certain variable rate securities (including
certain mortgage-backed securities) pay interest at a rate that varied 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.
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. 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 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,
6
<PAGE>
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 does not intend to invest 35% or more of it's 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") and unrated securities of
equivalent quality). 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. 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 these Portfolios generally
will purchase securities for which their portfolio managers expect 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 managers believe 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. Default 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.
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
7
<PAGE>
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.
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.
8
<PAGE>
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 Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the 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.
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
9
<PAGE>
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.
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.
10
<PAGE>
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.
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.
11
<PAGE>
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
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.
12
<PAGE>
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 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
13
<PAGE>
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 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 the agreed to compensate Janus Capital for its services
by the monthly payment of a fee at the annual rate of 1% of the first $30
million of the average daily net assets of the Portfolio, .75% of the next $270
million of the average daily net assets of the Portfolio, .70% of the next $200
million of the average daily net assets of the Portfolio and .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 .75% for the
quarter ended March 31, 1997.
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, 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.
Janus Capital may terminate the fee reduction or expense limitation
described above at any time upon at least 90 days' notice to the Trustees.
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.
14
<PAGE>
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 portfolio
managers to purchase and sell securities for their own accounts except under the
limited circumstances contained in Janus Capital's policy regarding personal
investing by directors, officers and employees of Janus Capital and the
Portfolio. The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolio 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 Portfolio 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 selected by it
and approved by the Trustees, 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 DST's portfolio and fund accounting system a base fee paid
monthly between $250 to $1,250 per month based on the number of Janus funds
utilizing the system and an asset charge of $1 per million dollars of net assets
(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 a credit against the charges of DST and its
affiliates with regard to commissions earned by such affiliate. See "Portfolio
Transactions and Brokerage."
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
15
<PAGE>
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, analysis 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
analysis, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts. Most brokers and dealers
used by Janus Capital provide research and other services described above.
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.
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.
16
<PAGE>
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).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4928
Vice President and General Counsel of Janus Investment Fund+. Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Director, Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
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 and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado. 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. 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 Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus 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
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund+. President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund+. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
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 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+ N/A $73,000
William D. Stewart, Trustee N/A $70,000
Gary O. Loo, Trustee N/A $70,000
Dennis B. Mullen, Trustee N/A $67,000
Martin H. Waldinger, Trustee N/A $73,000
James T. Rothe, Trustee++ N/A $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, 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 Market
and foreign
18
<PAGE>
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 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 Portfolio's Shares 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.
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. 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 investment in and payments under
variable contracts and life 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. 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.
20
<PAGE>
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.
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
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 or by
publications of general interest such as Forbes or 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 Standard & Poor's 400
Midcap Index, the Dow Jones Industrial Average, the Lehman Brothers
Government/Corporate Bond Index, the Lehman Brothers Government/ Corporate 1-3
Year Bond Index, the Lehman Brothers Long Government/Corporate Bond Index, the
Lehman Brothers Intermediate Government Bond Index, the Lehman Brothers
Municipal Bond Index, the Russell 2000 Index and the NASDAQ composite. In
addition, the 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.
21
<PAGE>
APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
STANDARD & POOR'S RATINGS SERVICES
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal and
interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions
or changing circumstances more likely to lead to a weakened
capacity to pay principal and interest than for higher rated
bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's capacity
CCC, CC, C to meet required interest and principal payments. BB - lowest
degree of speculation; C - the highest degree of speculation.
Quality and protective characteristics outweighed by large
uncertainties or major risk exposure to adverse conditions.
D In default.
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present
but certain protective elements may be lacking or may be
unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of interest
and principal payments not well safeguarded during good and bad
times.
B Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect
to principal or interest payments.
Ca Speculative in a high degree; could be in default or have other
marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
22
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 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, 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 ..............................15
Officers and Trustees .............................................17
Shares of the Trust ...............................................19
Net Asset Value Determination ..................................19
Purchases ......................................................19
Redemptions ....................................................19
Income Dividends, Capital Gains Distributions and Tax Status ......19
Miscellaneous Information .........................................20
Shares of the Trust ............................................20
Voting Rights ..................................................20
Independent Accountants ........................................21
Registration Statement .........................................21
Performance Information ...........................................21
Appendix A ........................................................22
Explanation of Rating Categories ...............................22
- --------------------------------------------------------------------------------
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
rates.
Portfolio turnover is calculated by dividing total long-term purchases or
sales, whichever is less, by the average monthly value of a portfolio's
long-term portfolio securities. The Portfolio anticipates that its portfolio
turnover rate should not exceed 200%.
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").
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.
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
4
<PAGE>
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, 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.
5
<PAGE>
INVESTMENT COMPANY SECURITIES
From time to time, the Portfolio may invest in securities of other
investment companies, including money market funds managed by Janus Capital. The
Portfolio's investments in such money market funds are subject to the terms of
an exemptive order obtained by 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 Portfolio is subject to the provisions of Section 12(d)(1) of the
1940 Act.
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"). 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.
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. 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 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
6
<PAGE>
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 does not intend to invest 35% or more of it's 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. Unrated debt
securities will be included in the 35% limit unless the portfolio managers deem
such securities to be the equivalent of investment grade securities.
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 these Portfolios generally
will purchase securities for which their portfolio managers expect 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 managers believe 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 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
7
<PAGE>
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.
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.
8
<PAGE>
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 Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the 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.
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
9
<PAGE>
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.
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.
10
<PAGE>
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.
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.
11
<PAGE>
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
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.
12
<PAGE>
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 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
13
<PAGE>
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 1% of the first $30 million
of the average daily net assets of the Portfolio, .75% of the next $270 million
of the average daily net assets of the Portfolio, .70% of the next $200 million
of the average daily net assets of the Portfolio and .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 .94% for
the quarter ended March 31, 1997.
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
imcome account, 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.
Janus Capital may terminate the fee reduction or expense limitation
described above at any time upon at least 90 days' notice to the Trustees.
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.
14
<PAGE>
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 portfolio
managers to purchase and sell securities for their own accounts except under the
limited circumstances contained in Janus Capital's policy regarding personal
investing by directors, officers and employees of Janus Capital and the
Portfolio. The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolio 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 Portfolio 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 selected by it
and approved by the Trustees, 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 DST's portfolio and fund accounting system a base fee paid
monthly between $250 to $1,250 per month based on the number of Janus funds
utilizing the system and an asset charge of $1 per million dollars of net assets
(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 a credit against the charges of DST and its
affiliates with regard to commissions earned by such affiliate. See "Portfolio
Transactions and Brokerage."
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
15
<PAGE>
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. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts. Most brokers and dealers
used by Janus Capital provide research and other services described above.
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>
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).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4928
Vice President and General Counsel of Janus Investment Fund+. Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Director, Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
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 and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado. 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. 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 Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
- --------------------------------------------------------------------------------
* 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>
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
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund+. President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund+. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
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 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+ N/A $73,000
William D. Stewart, Trustee N/A $70,000
Gary O. Loo, Trustee N/A $70,000
Dennis B. Mullen, Trustee N/A $67,000
Martin H. Waldinger, Trustee N/A $73,000
James T. Rothe, Trustee++ N/A $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, 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 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 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.
19
<PAGE>
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
It is a policy of the Portfolio's Shares 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, 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.
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. 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 contracts and life 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. Therefore, no annual or regular
meetings of shareholders normally will be held, unless otherwise required by the
Trust Instrument
20
<PAGE>
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.
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
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 or by
publications of general interest such as Forbes or 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 Standard & Poor's 400
Midcap Index, the Dow Jones Industrial Average, the Lehman Brothers
Government/Corporate Bond Index, the Lehman Brothers Government/ Corporate 1-3
Year Bond Index, the Lehman Brothers Long Government/Corporate Bond Index, the
Lehman Brothers Intermediate Government Bond Index, the Lehman Brothers
Municipal Bond Index, the Russell 2000 Index and the NASDAQ composite. In
addition, the 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.
21
<PAGE>
APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
STANDARD & POOR'S RATINGS SERVICES
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal and
interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions
or changing circumstances more likely to lead to a weakened
capacity to pay principal and interest than for higher rated
bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's capacity
CCC, CC, C to meet required interest and principal payments. BB - lowest
degree of speculation; C - the highest degree of speculation.
Quality and protective characteristics outweighed by large
uncertainties or major risk exposure to adverse conditions.
D In default.
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present
but certain protective elements may be lacking or may be
unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of interest
and principal payments not well safeguarded during good and bad
times.
B Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect
to principal or interest payments.
Ca Speculative in a high degree; could be in default or have other
marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
22
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
JANUS ASPEN SERIES
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 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 the Money Market 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 other participant directed qualified
retirement plans.
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus dated May 1, 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>
MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
Investment Policies and Restrictions............................... 3
Types of Securities and Investment Techniques...................... 4
Performance Data....................................................7
Determination of Net Asset Value....................................7
Investment Adviser..................................................8
Custodian, Transfer Agent and Certain Affiliations..................9
Portfolio Transactions and Brokerage................................9
Officers and Trustees..............................................10
Purchase of Shares.................................................12
Redemption of Shares...............................................12
Dividends and Tax Status...........................................12
Principal Shareholders.............................................13
Miscellaneous Information..........................................13
The Trust.......................................................13
Shares of the Trust.............................................13
Voting Rights...................................................13
Independent Accountants.........................................14
Registration Statement..........................................14
Financial Statements...............................................14
Appendix A - Description of Securities Ratings.....................15
Appendix B - Description of Municipal Securities...................17
- --------------------------------------------------------------------------------
2
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
As discussed in the Prospectus, the Portfolio's investment objective is to
seek maximum current income to the extent consistent with stability of capital.
There can be no assurance that the Portfolio will achieve its investment
objective or maintain a stable net asset value of $1.00 per share. The
investment objective of the Portfolio is not fundamental and may be changed by
the Trustees of the Trust (the "Trustees") without shareholder approval.
INVESTMENT RESTRICTIONS
As indicated in the Prospectus, the Portfolio has adopted certain
fundamental investment restrictions that cannot be changed without shareholder
approval. Shareholder approval means approval by the lesser of (i) more than 50%
of the outstanding voting securities of the Trust (or 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 used in the restrictions set forth below and as used elsewhere in this
SAI, the term "U.S. Government Securities" shall have the meaning set forth in
the Investment Company Act of 1940, as amended (the "1940 Act"). The 1940 Act
defines U.S. government securities as securities issued or guaranteed by the
United States government, its agencies or instrumentalities and has been
interpreted to include repurchase agreements covered and municipal securities
refunded with escrowed U.S. government securities.
The Portfolio has adopted the following fundamental policies:
(1) With respect to 75% of its assets, the Portfolio may not purchase a
security other than a U.S. Government Security, if, as a result, more than 5% of
its total assets would be invested in the securities of a single issuer or the
Portfolio would own more than 10% of the outstanding voting securities of any
single issuer. (As noted in the Prospectus, the Portfolio is currently subject
to the greater diversification standards of Rule 2a-7, which are not
fundamental.)
(2) The Portfolio may not purchase securities if 25% or more of the value
of its total assets would be invested in the securities of issuers conducting
their principal business activities in the same industry; provided that: (i)
there is no limit on investments in U.S. Government Securities or in obligations
of domestic commercial banks (including U.S. branches of foreign banks subject
to regulations under U.S. laws applicable to domestic banks and, to the extent
that its parent is unconditionally liable for the obligation, foreign branches
of U.S. banks); (ii) this limitation shall not apply to the Portfolio's
investments in municipal securities; (iii) there is no limit on investment in
issuers domiciled in a single country; (iv) financial service companies are
classified according to the end users of their services (for example, automobile
finance, bank finance and diversified finance are each considered to be a
separate industry); and (v) utility companies are classified according to their
services (for example, gas, gas transmission, electric, and telephone are each
considered to be a separate industry).
(3) The Portfolio may not act as an underwriter of securities issued by
others, except to the extent that it may be deemed an underwriter in connection
with the disposition of its portfolio securities.
(4) The Portfolio may not 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).
(5) The Portfolio may not purchase or sell real estate or any interest
therein, except that the Portfolio may invest in debt obligations secured by
real estate or interests therein or securities issued by companies that invest
in real estate or interests therein.
(6) The Portfolio may borrow money for temporary or emergency purposes (not
for leveraging) in an amount not exceeding 25% of the value of its total assets
(including the amount borrowed) less liabilities (other than borrowings). If
borrowings exceed 25% of the value of the Portfolio's total assets by reason of
a decline in net assets, it will reduce its borrowings within three business
days to the extent necessary to comply with the 25% limitation. Reverse
repurchase agreements or the segregation of assets in connection with such
agreements shall not be considered borrowing for the purposes of this limit.
(7) The Portfolio may, notwithstanding any other investment policy or
restriction (whether or not fundamental), invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and restrictions as the
Portfolio.
The Portfolio has adopted the following nonfundamental investment
restrictions that may be changed by the Trustees without shareholder approval:
3
<PAGE>
(1) The Portfolio may not invest in securities or enter into repurchase
agreements with respect to any securities if, as a result, more than 10% of its
net assets would be invested in repurchase agreements not entitling the holder
to payment of principal within seven days and in other securities that are not
readily marketable ("illiquid securities"). The Trustees, or the Portfolio's
investment adviser acting pursuant to authority delegated by the Trustees, may
determine that a readily available market exists for certain securities such as
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to such rule, Section 4(2) commercial paper and municipal
lease obligations. Accordingly, such securities may not be subject to the
foregoing limitation.
(2) The Portfolio may not purchase securities on margin, or make short
sales of securities, except for short sales against the box and the use of
short-term credit necessary for the clearance of purchases and sales of
portfolio securities.
(3) The Portfolio may not pledge, mortgage, hypothecate or encumber any of
its assets except to secure permitted borrowings or in connection with permitted
short sales.
(4) 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 such 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.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
The Portfolio may invest only in "eligible securities" as defined in Rule
2a-7 adopted under the 1940 Act. Generally, an eligible security is a security
that (i) is denominated in U.S. dollars and has a remaining maturity of 397 days
or less (as calculated pursuant to Rule 2a-7); (ii) is rated, or is issued by an
issuer with short-term debt outstanding that is rated, in one of the two highest
rating categories by any two nationally recognized statistical rating
organizations ("NRSROs") or, if only one NRSRO has issued a rating, by that
NRSRO (the "Requisite NRSROs") or is unrated and of comparable quality to a
rated security, as determined by Janus Capital; and (iii) has been determined by
Janus Capital to present minimal credit risks pursuant to procedures approved by
the Trustees. In addition, the Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less. A description of the ratings of some
NRSROs appears in Appendix A.
Under Rule 2a-7, the Portfolio may not invest more than five percent of its
total assets in the securities of any one issuer other than U.S. Government
Securities, provided that in certain cases it may invest more than 5% of its
assets in a single issuer for a period of up to three business days.
Pursuant to Rule 2a-7, the Portfolio will invest at least 95% of its total
assets in "first-tier" securities. First-tier securities are eligible securities
that are rated, or are issued by an issuer with short-term debt outstanding that
is rated, in the highest rating category by the Requisite NRSROs or are unrated
and of comparable quality to a rated security. In addition, the Portfolio may
invest in "second-tier" securities which are eligible securities that are not
first-tier securities. However, the Portfolio may not invest in a second-tier
security if immediately after the acquisition thereof it would have invested
more than (i) the greater of one percent of its total assets or one million
dollars in second-tier securities issued by that issuer, or (ii) five percent of
its total assets in second-tier securities.
The following discussion of types of securities in which the Portfolio may
invest supplements and should be read in conjunction with the Prospectus.
PARTICIPATION INTERESTS
The Portfolio may purchase participation interests in loans or securities
in which it may invest directly. Participation interests are generally sponsored
or issued by banks or other financial institutions. A participation interest
gives the Portfolio an undivided interest in the underlying loans or securities
in the proportion that the Portfolio's interest bears to the total principal
amount of the underlying loans or securities. Participation interests, which may
have fixed, floating or variable rates, may carry a demand feature backed by a
letter of credit or guarantee of a bank or institution permitting the holder to
tender them back to the bank or other institution. For certain participation
interests, the Portfolio will have the right to demand payment, on not more than
seven days' notice, for all or a part of the Portfolio's participation interest.
The Portfolio intends to exercise any demand rights it may have upon default
under the terms of the loan or security, to provide liquidity or to maintain or
improve the quality of the Portfolio's investment portfolio. The Portfolio will
only purchase participation interests that Janus Capital determines present
minimal credit risks.
VARIABLE AND FLOATING RATE NOTES
The Portfolio also may purchase variable and floating rate demand notes of
corporations, which are unsecured obligations redeemable upon not more than 30
days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements with the issuer of the instrument. The issuer of
4
<PAGE>
these obligations often has the right, after a given period, to prepay the
outstanding principal amount of the obligations upon a specified number of days'
notice. These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid investment.
MORTGAGE- AND ASSET-BACKED SECURITIES
The Portfolio may invest in mortgage-backed securities, which represent an
interest in a pool of mortgages made by lenders such as commercial banks,
savings and loan institutions, mortgage bankers, mortgage brokers and savings
banks. Mortgage-backed securities may be issued by governmental or
government-related entities or by non-governmental entities such as banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. In
contrast, mortgage-backed securities provide periodic payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the periodic payments and optional prepayments made by the
individual borrowers on their mortgage loans, net of any fees paid to the issuer
or guarantor of such securities. Additional payments to holders of
mortgage-backed securities are caused by prepayments resulting from the sale of
the underlying residential property, refinancing or foreclosure, net of fees or
costs which may be incurred.
As prepayment rates of individual pools of mortgage loans vary widely, it
is not possible to predict accurately the average life of a particular security.
Although mortgage-backed securities are issued with stated maturities of up to
forty years, unscheduled or early payments of principal and interest on the
underlying mortgages may shorten considerably the effective maturities.
Mortgage-backed securities may have varying assumptions for average life. The
volume of prepayments of principal on a pool of mortgages underlying a
particular security will influence the yield of that security, and the principal
returned to the Portfolio may be reinvested in instruments whose yield may be
higher or lower than that which might have been obtained had the prepayments not
occurred. When interest rates are declining, prepayments usually increase, with
the result that reinvestment of principal prepayments will be at a lower rate
than the rate applicable to the original mortgage-backed security.
The Portfolio may invest in mortgage-backed securities that are issued by
agencies or instrumentalities of the U.S. government. The Government National
Mortgage Association ("GNMA") is the principal federal government guarantor of
mortgage-backed securities. GNMA is a wholly-owned U.S. government corporation
within the Department of Housing and Urban Development. GNMA Certificates are
debt securities which represent an interest in one mortgage or a pool of
mortgages which are insured by the Federal Housing Administration or the Farmers
Home Administration or are guaranteed by the Veterans Administration. The
Portfolio may also invest in pools of conventional mortgages which are issued or
guaranteed by agencies of the U.S. government. GNMA pass-through securities are
considered to be riskless with respect to default in that (i) the underlying
mortgage loan portfolio is comprised entirely of government-backed loans and
(ii) the timely payment of both principal and interest on the securities is
guaranteed by the full faith and credit of the U.S. government, regardless of
whether or not payments have been made on the underlying mortgages. GNMA
pass-through securities are, however, subject to the same market risk as
comparable debt securities. Therefore, the market value of the Portfolio's GNMA
securities can be expected to fluctuate in response to changes in prevailing
interest rate levels.
Residential mortgage loans are pooled also by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FHLMC is a privately managed, publicly chartered
agency created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. FHLMC issues
participation certificates ("PCs") which represent interests in mortgages from
FHLMC's national portfolio. The mortgage loans in FHLMC's portfolio are not U.S.
government backed; rather, the loans are either uninsured with loan-to-value
ratios of 80% or less, or privately insured if the loan-to-value ratio exceeds
80%. FHLMC guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs; the U.S. government does not guarantee any aspect of
FHLMC PCs.
The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private shareholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include savings and loan associations, savings banks, commercial banks,
credit unions and mortgage bankers. FNMA guarantees the timely payment of
principal and interest on the pass-through securities issued by FNMA; the U.S.
government does not guarantee any aspect of the FNMA pass-through securities.
The Portfolio may also invest in privately-issued mortgage-backed
securities to the extent permitted by their investment restrictions.
Mortgage-backed securities offered by private issuers include pass-through
securities comprised of pools of conventional residential mortgage loans;
mortgage-backed bonds which are considered to be debt obligations of the
institution issuing the bonds and which are collateralized by mortgage loans;
and collateralized mortgage obligations ("CMOs") which are collateralized by
mortgage-backed securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages.
5
<PAGE>
Asset-backed securities represent direct or indirect participation in, or
are secured by and payable from, assets other than mortgage-backed assets such
as motor vehicle installment sales contracts, installment loan contracts, leases
of various types of real and personal property and receivables from revolving
credit agreements (credit cards). Asset-backed securities have yield
characteristics similar to those of mortgage-backed securities and, accordingly,
are subject to many of the same risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which the Portfolio sells
a security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate. The
Portfolio will use the proceeds of reverse repurchase agreements only to satisfy
unusually heavy redemption requests or for other temporary or emergency purposes
without the necessity of selling portfolio securities.
Generally, a reverse repurchase agreement enables the Portfolio to recover
for the term of the reverse repurchase agreement all or most of the cash
invested in the portfolio securities sold and to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Portfolio of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise. In addition,
interest costs on the money received in a reverse repurchase agreement may
exceed the return received on the investments made by the Portfolio with those
monies.
WHEN ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolio may purchase securities on a when-issued or delayed delivery
basis. The Portfolio will enter into such transactions only when it has the
intention of actually acquiring the securities. To facilitate such acquisitions,
the Portfolio's custodian will segregate cash or high quality liquid assets in
an amount at least equal to such commitments. On delivery dates for such
transactions, the Portfolio will meet its obligations from maturities, sales of
the segregated securities or from other available sources of cash. If it chooses
to dispose of the right to acquire a when-issued security prior to its
acquisition, the Portfolio could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. At the time it makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, the Portfolio will record the transaction as a purchase and thereafter
reflect the value of such securities in determining its net asset value.
INVESTMENT COMPANY SECURITIES
From time to time, the Portfolio may invest in securities of other
investment companies. The Portfolio is subject to the provisions of Section
12(d)(1) of the 1940 Act.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases. Municipal leases frequently
have special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations of many
state constitutions and statutes are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. The Portfolio
will only purchase municipal leases subject to a non-appropriation clause when
the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit, or guarantee of a bank or other entity that meets
the criteria described in the Prospectus under "Taxable Investments."
In evaluating municipal lease obligations, Janus Capital will consider such
factors as it deems appropriate, including: (a) whether the lease can be
canceled; (b) the ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the lease obligor; (d)
the likelihood that the municipality will discontinue appropriating funding for
the leased property in the event such property is no longer considered essential
by the municipality; (e) the legal recourse of the lease obligee in the event of
such a failure to appropriate funding; (f) whether the security is backed by a
credit enhancement such as insurance; and (g) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or services other
than those covered by the lease obligation. If a lease is backed by an
unconditional letter of credit or other unconditional credit enhancement, then
Janus Capital may determine that a lease is an eligible security solely on the
basis of its evaluation of the credit enhancement.
6
<PAGE>
Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment. The ability of issuers of municipal leases to make timely
lease payments may be adversely impacted in general economic downturns and as
relative governmental cost burdens are allocated and reallocated among federal,
state and local governmental units. Such non-payment would result in a reduction
of income to the Portfolio, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the net
asset value of the Portfolio.
PERFORMANCE DATA
As described in the Prospectus, the Portfolio may provide current
annualized and effective annualized yield quotations of the Shares based on the
Shares' daily dividends. These quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders. All
performance information supplied by the Portfolio in advertising is historical
and is not intended to indicate future returns.
In performance advertising, the Portfolio may compare any of its
performance information with data published by independent evaluators such as
Morningstar, Inc., Lipper Analytical Services, Inc., or CDC/Wiesenberger,
Donoghue's Money Fund Report or other companies which track the investment
performance of investment companies ("Fund Tracking Companies"). The Funds may
also compare their performance information with the performance of recognized
stock, bond and other indices, including but not limited to the Municipal Bond
Buyers Indices, the Salomon Brothers Bond Index, the Lehman Brothers Bond Index,
the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, U.S. Treasury bonds, bills or notes and changes in the Consumer Price
Index as published by the U.S. Department of Commerce. The Portfolio may refer
to general market performance over past time periods such as those published by
Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and Inflation
Yearbook"). The Portfolio may also refer in such materials to mutual fund
performance rankings and other data published by Fund Tracking Companies.
Performance advertising may also refer to discussions of the Portfolio and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
Any current yield quotation of the Portfolio's Shares which is used in such
a manner as to be subject to the provisions of Rule 482(d) under the Securities
Act of 1933, as amended, shall consist of an annualized historical yield,
carried at least to the nearest hundredth of one percent, based on a specific
seven calendar day period. The current yield of the Portfolio's Shares shall be
calculated by (a) determining the net change during a seven calendar day period
in the value of a hypothetical account having a balance of one share at the
beginning of the period, (b) dividing the net change by the value of the account
at the beginning of the period to obtain a base period return, and (c)
multiplying the quotient by 365/7 (i.e., annualizing). For this purpose, the net
change in account value will reflect the value of additional shares purchased
with dividends declared on the original share and dividends declared on both the
original share and any such additional shares, but will not reflect any realized
gains or losses from the sale of securities or any unrealized appreciation or
depreciation on portfolio securities. In addition, the Portfolio may advertise
effective yield quotations. Effective yield quotations are calculated by adding
1 to the base period return, raising the sum to a power equal to 365/7, and
subtracting 1 from the result (i.e., compounding).
Income calculated for the purpose of determining the yield of the
Portfolio's Shares differs from income as determined for other accounting
purposes. Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for the Portfolio's
Shares may differ from the rate of distribution the Shares paid over the same
period or the rate of income reported in the Portfolio's financial statements.
Although published yield information is useful to investors in reviewing
the performance of the Portfolio's Shares, investors should be aware that the
Shares' yield fluctuates from day to day and that the Shares' yield for any
given period is not an indication or representation by the Portfolio of future
yields or rates of return on the Portfolio's Shares. Also, because Shares of the
Portfolio may only be purchased through variable insurance contracts, the
prospectus of the participating insurance company sponsoring such contract
should be carefully reviewed for information on relevant charges and expenses.
The Shares' yield is not fixed or guaranteed, and an investment in the Portfolio
is not insured. Accordingly, the Shares' yield information may not necessarily
be used to compare Portfolio Shares with investment alternatives which, like
money market instruments or bank accounts, may provide a fixed rate of interest.
In addition, because investments in the Portfolio are not insured or guaranteed,
the Shares' yield information may not necessarily be used to compare the
Portfolio with investment alternatives which are insured or guaranteed.
The current yield and effective yield of the Shares of the Portfolio for
the seven day period ended December 31, 1996, were 5.27% and 5.41%,
respectively.
DETERMINATION OF NET ASSET VALUE
Pursuant to the rules of the Securities and Exchange Commission, the
Trustees have established procedures to stabilize the Portfolio's net asset
value at $1.00 per Share. These procedures include a review of the extent of any
deviation of net asset value per share as a result of fluctuating interest
rates, based on available market rates, from the Portfolio's $1.00 amortized
cost price per Share. Should that deviation exceed 1/2 of 1%, the Trustees will
consider whether any action should be initiated to eliminate
7
<PAGE>
or reduce material dilution or other unfair results to shareholders. Such action
may include redemption of shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends and utilizing a net asset value per
share as determined by using available market quotations. The Portfolio i) will
maintain a dollar-weighted average portfolio maturity of 90 days or less; ii)
will not purchase any instrument with a remaining maturity greater than 397 days
or subject to a repurchase agreement having a duration of greater than 397 days;
iii) will limit portfolio investments, including repurchase agreements, to those
U.S. dollar-denominated instruments that Janus Capital has determined present
minimal credit risks pursuant to procedures established by the Trustees; and iv)
will comply with certain reporting and recordkeeping procedures. The Trust has
also established procedures to ensure that portfolio securities meet the
Portfolio's high quality criteria.
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 which performed services with respect to shareholder accounts. The
minimum aggregate size required for eligibilty 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 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 record keeping for which the Portfolio may reimburse Janus
Capital for its costs.
The Portfolio has agreed to compensate Janus Capital for its advisory
services by the monthly payment of an adivsory fee at the annual rate of .25% of
the Portfolio's average daily net assets. 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 .50% of average daily net assets. Mortality risk,
expense risk and other charges imposed by participating insurance companies are
excluded from the above expense limitation.
For the period from the commencement of the Portfolio's operations (May 1,
1995) until December 31, 1995 and the fiscal year ended December 31, 1996, the
Portfolio paid no advisory fees, after applicable fee waivers. Without the
waivers, the advisory fee would have been $2,590 and $9,287 repectively, for
these periods.
The Advisory Agreement became effective on March 10, 1995 and will continue
in effect until June 16, 1997, 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 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 funds advised by Janus Capital may also transfer daily
uninvested cash balances into one or more joint trading accounts. Assets in the
joint trading accounts are invested in money market instruments and the proceeds
are allocated to the participating funds on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
is managed in accordance with that objective by a particular portfolio manager
or team of portfolio managers. As a result, from time to time two or more
different managed accounts may pursue divergent investment strategies with
respect to investments or categories of investments.
8
<PAGE>
As indicated in the Prospectus, Janus Capital does not permit portfolio
managers to purchase and sell securities for their own accounts except under the
limited exceptions contained in Janus Capital's policy regarding personal
investing by directors, officers and employees of Janus Capital and the
Portfolio. The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolio 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 Portfolio to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading. The provisions of the policy are
administered by and subject to exceptions authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI") owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns 12% of
its voting stock and, by agreement with KCSI, selects a majority of Janus
Capital's Board.
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
United Missouri Bank, N.A., P.O. Box 419226, Kansas City, Missouri
64141-6226, is the Portfolio's custodian. The custodian holds the Portfolio's
assets in safekeeping and collects and remits 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 with respect 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 DST's portfolio and fund accounting system a base fee paid
monthly between $250 to $1,250 per month based on the number of Janus funds
utilizing the system and an asset charge of $1 per million dollars of net assets
(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 a credit against the charges of DST and its
affiliates with regard to comissions earned by such affiliate. See "Portfolio
Transactions and Brokerage."
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.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; and research products or services provided. In recognition of
the value of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with whom it has negotiated a commission
that is in excess of the commission another broker or dealer would have charged
for effecting that transaction if Janus Capital determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research provided by such broker or dealer viewed in terms of
either that particular transaction or of the overall responsibilities of Janus
Capital. These research and other services may include, but are not limited to,
general economic and security market reviews, industry and company reviews,
evaluations of securities, recommendations as to the purchase and sale of
securities, and access to third party publications, computer and electronic
equipment and software. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts.
9
<PAGE>
For the fiscal year ended December 31, 1996 and the fiscal period ended
December 31, 1995, the Portfolio did not incur any brokerage commissions. The
Portfolio generally buys and sells securities in principal transactions, in
which no commissions are paid. However, the Portfolio may engage an agent and
pay commissions for such transactions if Janus Capital believes that the net
result of the transaction to the Portfolio will be no less favorable than that
of contemporaneously available principle transactions.
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 may consider sales of Portfolio shares or shares of other
Janus funds by a broker-dealer or the recommendation of a broker-dealer to its
customers that they purchase such shares as a factor in the selection of
broker-dealers to execute Portfolio transactions. Janus Capital may also
consider payments made by brokers effecting transactions for a Portfolio i) to
the Portfolio or ii) to other persons on behalf of the Portfolio for services
provided to the Portfolio for which it would be obligated to pay. In placing
portfolio business with such broker-dealers, Janus Capital will seek the best
execution of each transaction.
When the Funds purchase or sell a security in the over-the-counter market,
the transaction takes place directly with a principal market-maker, without the
use of a broker, except in those circumstances where in the opinion of Janus
Capital better prices and executions will be achieved through the use of a
broker.
OFFICERS AND TRUSTEES
The following are the names of the Trustees and officers of Janus Aspen
Series, a Delaware business trust of which the Portfolio is a series, 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 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
Trustee and Executive Vice President of Janus Investment Fund+. Chief
Investment Officer, Vice President and Director of Janus Capital.
Sharon S. Pichler* - Executive Vice President and Portfolio Manager
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President of Janus Money Market Fund, Janus Tax-Exempt Money
Market Fund and Janus Government Money Market Fund series of Janus
Investment Fund+. Vice President of Janus Capital. Formerly, Assistant Vice
President and portfolio manager at USAA Investment Management Co.
(1990-1994).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4928
Vice President and General Counsel of Janus Investment Fund+. Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Director, Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
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 and Janus
Distributors. Formerly (1979 to 1992), with the accounting firm of Price
Waterhouse LLP, Denver, Colorado. Formerly (1992-1996), Treasurer of Janus
Investment Fund and Janus Aspen Series.
- --------------------------------------------------------------------------------
*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.
10
<PAGE>
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. 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 Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments).
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund+. President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund+. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
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 its officers and review the investment decisions
of the officers although they do not actively participate on a regular basis in
making such decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Trust Instrument, Delaware Law or
the 1940 Act.
The Money Market Funds Committee, consisting of Messrs. Craig, Loo, Mullen,
and Rothe monitors the compliance with policies and procedures adopted
particularly for money market funds.
- --------------------------------------------------------------------------------
*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.
11
<PAGE>
The following table shows the aggregate compensation earned by and paid to
each Trustee by the Portfolio and all funds advised and sponsored by Janus
Capital (collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive pension or retirement benefits from the Portfolio or the Janus
Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
from the Portfolio for from the Janus Funds
fiscal year ended for calendar year ended
Name of Person, Position December 31, 1996 December 31, 1996**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, III, Trustee* $0 $0
John W. Shepardson, Trustee+ *** $73,000
William D. Stewart, Trustee *** $70,000
Gary O. Loo, Trustee *** $70,000
Dennis B. Mullen, Trustee *** $67,000
Martin H. Waldinger, Trustee *** $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.
**As of December 31, 1996, Janus Funds consisted of two registered investment
companies comprised of a total of 29 funds.
***Aggregate compensation for the period was de minimis.
+Mr. Shepardson retired on March 31, 1997.
++Mr. Rothe began serving as Trustee on January 1, 1997.
PURCHASE OF SHARES
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
regular trading session of the New York Stock Exchange ("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.
REDEMPTION OF SHARES
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 net asset value of the
Portfolio during any 90-day period for any one shareholder. Should redemptions
by any shareholder exceed such limitation, their 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
"Determination of Net Asset Value" and such valuation will be made as of the
same time the redemption price is determined.
The right to require the 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 Securities and Exchange Commission, or the NYSE
is closed except for holidays and weekends, (2) the Securities and Exchange
Commission permits such suspension and so orders, or (3) an emergency exists as
determined by the Securities and Exchange Commission so that disposal of
securities or determination of NAV is not reasonably practicable.
DIVIDENDS AND TAX STATUS
Dividends representing substantially all of the net investment income and
any net realized gains on sales of securities are declared daily, Saturdays,
Sundays and holidays included, and distributed on the last business day of each
month. If a month begins on a Saturday, Sunday, or holiday, dividends for those
days are declared at the end of the preceding month and distributed on the first
business day of the month. The Portfolio intends to qualify as a "regulated
investment company" by satisfying certain requirements prescribed by Subchapter
M of the Internal Revenue Code of 1986. In addition, the Portfolio intends to
comply with the diversification requirements of Internal Revenue 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.
12
<PAGE>
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 April
4, 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 is as follows:
Western Reserve - 99.88%
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
The Portfolio is an open-end management investment company registered under
the 1940 Act as a series of the Trust, which was organized as a Delaware
business trust 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 and classes of shares. 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.
SHARES OF THE TRUST
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $0.001 per share for each series of the
Trust. Shares of each series of the Trust 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.
Each 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 contracts and life insurance contracts, as well as certain qualified
retirement plans. A second class of shares, Retirement Shares, are offered only
to certain other 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.
The present Trustees were elected by the initial trustee of the Trust on
May 25, 1993, and were approved by the initial shareholder 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 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.
13
<PAGE>
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 the interest of a portfolio or
class in the 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 Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities to which this SAI relates. If further
information is desired with respect to the Portfolio or such securities,
reference is made to the Registration Statement and the exhibits filed as a part
thereof.
FINANCIAL STATEMENTS
The following audited financial statements for the period ended December
31, 1996 are hereby incorporated into this Statement of Additional Information
by reference to the Portfolio's Annual Report dated December 31, 1996. A copy of
such report accompanies this Statement of Additional Information.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT
Schedule of Investments as of December 31, 1996
Statement of Operations for the period May 1, 1996 to December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Changes in Net Assets for the period May 1, 1996 to December
31, 1996
Financial Highlights for the period May 1, 1996 to December 31, 1996
Notes to Financial Statements
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this Statement of Additional Information
and are not part of the Registration Statement.
14
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S AND STANDARD & POOR'S
MUNICIPAL AND CORPORATE BONDS AND MUNICIPAL LOANS
The two highest ratings of Standard & Poor's Ratings Services ("S&P") for
municipal and corporate bonds are AAA and AA. Bonds rated AAA have the highest
rating assigned by S&P to a debt obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in a
small degree. The AA rating may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within that rating category.
The two highest ratings of Moody's Investors Service, Inc. ("Moody's") for
municipal and corporate bonds are Aaa and Aa. Bonds rated Aaa are judged by
Moody's to be of the best quality. Bonds rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. Moody's states that Aa bonds are rated
lower than the best bonds because margins of protection or other elements make
long-term risks appear somewhat larger than Aaa securities. The generic rating
Aa may be modified by the addition of the numerals 1, 2 or 3. The modifier 1
indicates that the security ranks in the higher end of the Aa rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of such rating category.
SHORT TERM MUNICIPAL LOANS
S&P's highest rating for short-term municipal loans is SP-1. S&P states
that short-term municipal securities bearing the SP-1 designation have a strong
capacity to pay principal and interest. Those issues rated SP-1 which are
determined to possess a very strong capacity to pay debt service will be given a
plus (+) designation. Issues rated SP-2 have satisfactory capacity to pay
principal and interest with some vulnerability to adverse financial and economic
changes over the term of the notes.
Moody's highest rating for short-term municipal loans is MIG-1/VMIG-1.
Moody's states that short-term municipal securities rated MIG-1/VMIG-1 are of
the best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG-2/VMIG-2 designation are
of high quality, with margins of protection ample although not so large as in
the MIG-1/VMIG-1 group.
OTHER SHORT-TERM DEBT SECURITIES
Prime-1 and Prime-2 are the two highest ratings assigned by Moody's for
other short-term debt securities and commercial paper, and A-1 and A-2 are the
two highest ratings for commercial paper assigned by S&P. Moody's uses the
numbers 1, 2 and 3 to denote relative strength within its highest classification
of Prime, while S&P uses the numbers 1, 2 and 3 to denote relative strength
within its highest classification of A. Issuers rated Prime-1 by Moody's have a
superior ability for repayment of senior short-term debt obligations and have
many of the following characteristics: leading market positions in
well-established industries, high rates of return on funds employed,
conservative capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earnings coverage of fixed financial charges
and high internal cash generation, and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 by Moody's have a strong ability for repayment of senior short-term debt
obligations and display many of the same characteristics displayed by issuers
rated Prime-1, but to a lesser degree. Issuers rated A-1 by S&P carry a strong
degree of safety regarding timely repayment. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+) designation.
Issuers rated A-2 by S&P carry a satisfactory degree of safety regarding timely
repayment.
FITCH
F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than
issues rated F-1+.
F-2 Good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is
not as great as the F-1+ and F-1 ratings.
15
<PAGE>
DUFF & PHELPS INC.
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative sources
of funds, is clearly outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
THOMSON BANKWATCH, INC.
TBW-1 The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
IBCA, INC.
A1+ Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of
A1+ is assigned.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely repayment.
B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.
C Obligations for which there is a high risk of default or which are
currently in default.
16
<PAGE>
APPENDIX B
DESCRIPTION OF MUNICIPAL SECURITIES
Municipal Notes generally are used to provide for short-term capital needs
and usually have maturities of one year or less. They include the following:
1. Project Notes, which carry a U.S. government guarantee, are issued by
public bodies (called "local issuing agencies") created under the laws of a
state, territory, or U.S. possession. They have maturities that range up to one
year from the date of issuance. Project Notes are backed by an agreement between
the local issuing agency and the Federal Department of Housing and Urban
Development. These Notes provide financing for a wide range of financial
assistance programs for housing, redevelopment, and related needs (such as
low-income housing programs and renewal programs).
2. Tax Anticipation Notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and are payable
from these specific future taxes.
3. Revenue Anticipation Notes are issued in expectation of receipt of other
types of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.
4. Bond Anticipation Notes are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds then
provide the money for the repayment of the Notes.
5. Construction Loan Notes are sold to provide construction financing.
After successful completion and acceptance, many projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association ("Fannie Mae") or the Government National Mortgage
Association ("Ginnie Mae").
6. Tax-Exempt Commercial Paper is a short-term obligation with a stated
maturity of 365 days or less. It is issued by agencies of state and local
governments to finance seasonal working capital needs or as short-term financing
in anticipation of longer term financing.
Municipal Bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:
1. General Obligation Bonds are issued by such entities as states,
counties, cities, towns, and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind General Obligation Bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
2. Revenue Bonds in recent years have come to include an increasingly wide
variety of types of municipal obligations. As with other kinds of municipal
obligations, the issuers of revenue bonds may consist of virtually any form of
state or local governmental entity, including states, state agencies, cities,
counties, authorities of various kinds, such as public housing or redevelopment
authorities, and special districts, such as water, sewer or sanitary districts.
Generally, revenue bonds are secured by the revenues or net revenues derived
from a particular facility, group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are issued
to finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these bonds provide additional
security in the form of a debt service reserve fund to be used to make principal
and interest payments. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Housing authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated (see 3 below).
3. Private Activity Bonds are considered municipal bonds if the interest
paid thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing and health. These bonds are
also used to finance public facilities such as airports, mass transit systems
and ports. The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property as security for such
payment.
While, at one time, the pertinent provisions of the Internal Revenue Code
permitted private activity bonds to bear tax-exempt interest in connection with
virtually any type of commercial or industrial project (subject to various
restrictions as to authorized
17
<PAGE>
costs, size limitations, state per capita volume restrictions, and other
matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
rental multi-family housing facilities, nonprofit hospital and nursing home
projects, airports, docks and wharves, mass commuting facilities and solid waste
disposal projects, among others, and for the refunding (that is, the tax-exempt
refinancing) of various kinds of other private commercial projects originally
financed with tax-exempt bonds. In future years, the types of projects
qualifying under the Code for tax-exempt financing are expected to become
increasingly limited.
Because of terminology formerly used in the Internal Revenue Code,
virtually any form of private activity bond may still be referred to as an
"industrial development bond," but more and more frequently revenue bonds have
become classified according to the particular type of facility being financed,
such as hospital revenue bonds, nursing home revenue bonds, multi-family housing
revenues bonds, single family housing revenue bonds, industrial development
revenue bonds, solid waste resource recovery revenue bonds, and so on.
Other Municipal Obligations, incurred for a variety of financing purposes,
include: municipal leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local governments
and authorities to acquire a wide variety of equipment and facilities such as
fire and sanitation vehicles, telecommunications equipment and other capital
assets. Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the government issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Fund will only purchase municipal
leases subject to a non-appropriation clause when the payment of principal and
accrued interest is backed by an unconditional irrevocable letter of credit, or
guarantee of a bank or other entity that meets the criteria described in the
Prospectus.
Tax-exempt bonds are also categorized according to whether the interest is
or is not includible in the calculation of alternative minimum taxes imposed on
individuals, according to whether the costs of acquiring or carrying the bonds
are or are not deductible in part by banks and other financial institutions, and
according to other criteria relevant for Federal income tax purposes. Due to the
increasing complexity of Internal Revenue Code and related requirements
governing the issuance of tax-exempt bonds, industry practice has uniformly
required, as a condition to the issuance of such bonds, but particularly for
revenue bonds, an opinion of nationally recognized bond counsel as to the
tax-exempt status of interest on the bonds.
<PAGE>
18
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
JANUS ASPEN SERIES
RETIREMENT SHARES
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 1997
- --------------------------------------------------------------------------------
Growth Portfolio Balanced Portfolio
Aggressive Growth Portfolio Flexible Income Portfolio
International Growth Portfolio High-Yield Portfolio
Worldwide Growth Portfolio Short-Term Bond Portfolio
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 portfolios listed above, each of which
is a separate series of Janus Aspen Series, a Delaware business trust (the
"Trust"). Each of these series of the Trust represents shares of beneficial
interest in a separate portfolio of securities and other assets with its own
objective and policies (individually, a "Portfolio" and collectively, the
"Portfolios"). Each Portfolio is managed separately by Janus Capital Corporation
("Janus Capital").
The Shares may be purchased only by certain participant directed qualified
plans. Each Portfolio also offers a second class of shares to the separate
accounts of insurance companies for the purpose of funding variable life
insurance policies 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, 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 Portfolios' operations and activities than
the Prospectus.
[LOGO] JANUS
<PAGE>
JANUS ASPEN SERIES
RETIREMENT SHARES
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
Investment Policies, Restrictions and Techniques...................3
Investment Objectives...........................................3
Portfolio Policies..............................................3
Investment Restrictions Applicable to All Portfolios............4
Investment Policies Applicable to Certain Portfolios............5
Types of Securities and Investment Techniques...................5
Illiquid Investments .........................................5
Zero Coupon, Pay-In-Kind and Step Coupon Securities...........5
Pass-Through Securities.......................................6
Investment Company Securities ................................7
Depositary Receipts ..........................................7
Municipal Obligations.........................................7
Other Income-Producing Securities.............................7
Repurchase and Reverse Repurchase Agreements..................8
High-Yield/High-Risk Securities...............................8
Futures, Options and Other Derivative Instruments.............9
Investment Adviser................................................15
Custodian, Transfer Agent and Certain Affiliations................17
Portfolio Transactions and Brokerage..............................18
Officers and Trustees.............................................20
Shares of the Trust...............................................22
Net Asset Value Determination..................................22
Purchases......................................................23
Distribution Plan..............................................23
Redemptions....................................................23
Income Dividends, Capital Gains Distributions and Tax Status......23
Miscellaneous Information.........................................24
Shares of the Trust............................................24
Voting Rights..................................................24
Independent Accountants........................................24
Registration Statement.........................................24
Performance Information...........................................25
Financial Statements .............................................26
Appendix A .......................................................27
Explanation of Ratings Categories .............................27
- --------------------------------------------------------------------------------
2
<PAGE>
INVESTMENT POLICIES, RESTRICTIONS AND TECHNIQUES
Each Portfolio's investment objective is discussed in the Prospectus and
summarized below. There is no assurance that the Portfolios will achieve their
respective objectives. The investment objectives of the Portfolios are not
fundamental and may be changed by the Trustees without shareholder approval.
INVESTMENT OBJECTIVES
Growth Portfolio is a diversified fund that seeks long-term growth of
capital in a manner consistent with the preservation of capital by investing in
common stocks of issuers of any size. Generally, this Portfolio emphasizes
issuers with larger market capitalizations.
Aggressive Growth Portfolio is a nondiversified fund that seeks long-term
growth of capital by investing primarily in common stocks. The Portfolio intends
to normally invest at least 50% of its equity assets in securities issued by
medium-sized companies (as defined in the Prospectus).
International Growth Portfolio is a diversified fund that seeks long-term
growth of capital by investing primarily in common stocks of foreign issuers of
any size. The Portfolio normally invests at least 65% of its total assets in
issuers from at least five different countries excluding the United States.
Worldwide Growth Portfolio is a diversified fund that seeks long-term
growth of capital in a manner consistent with the preservation of capital by
investing primarily in common stocks of foreign and domestic issuers of any
size. Worldwide Growth Portfolio normally invests in issuers from at least five
different countries including the United States.
Balanced Portfolio is a diversified fund that seeks long-term capital
growth, consistent with preservation of capital and balanced by current income.
The Portfolio normally invests 40-60% of its assets in securities selected
primarily for growth potential and 40-60% of its assets in securities selected
primarily for their income potential.
Flexible Income Portfolio is a diversified fund that seeks to maximize
total return consistent with preservation of capital. Total return is expected
to result from a combination of current income and capital appreciation,
although income will normally be the dominant component of total return. The
Portfolio invests in all types of income-producing securities, and may have
substantial holdings of debt securities rated below investment grade.
High-Yield Portfolio is a diversified fund that seeks high current income
as its primary objective and capital appreciation as its secondary objective
when consistent with the primary objective by investing in high-yield/high-risk
fixed income securities. The Portfolio emphasizes investments in high-yield
corporate debt securities ("junk bonds") and may invest all of its assets in
such securities.
Short-Term Bond Portfolio is a diversified fund that seeks as high a level
of current income as is consistent with the preservation of capital by investing
primarily in short- and intermediate-term fixed-income securities. It will
normally maintain an average weighted effective maturity not to exceed three
years.
PORTFOLIO POLICIES
The Prospectus discusses the types of securities in which the Portfolios
will invest, policies of the Portfolios and the investment techniques of the
Portfolios. The Prospectus includes a discussion of portfolio turnover policies.
Portfolio turnover is calculated by dividing total purchases or sales, whichever
is less, by the average monthly value of a Portfolio's securities. The following
table summarizes the portfolio turnover rates for the fiscal periods indicated.
The information below is for fiscal years ended December 31.
Portfolio Name 1996 1995
----------------------------------------------------------------------
Growth Portfolio 87% 185%
Aggressive Growth Portfolio 88% 155%
International Growth Portfolio 65% 211%
Worldwide Growth Portfolio 62% 113%
Balanced Portfolio 103% 149%
Flexible Income Portfolio 250% 236%
High-Yield Portfolio 301%(1) N/A
Short-Term Bond Portfolio 416% 417%
----------------------------------------------------------------------
(1) May 1, 1996 (inception) to December 31, 1996, annualized.
3
<PAGE>
INVESTMENT RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
As indicated in the Prospectus, the Portfolios are subject to certain
fundamental policies and restrictions that may not be changed without
shareholder approval. Shareholder approval means approval by the lesser of (i)
more than 50% of the outstanding voting securities of the Trust (or a particular
Portfolio or particular class of Shares if a matter affects just that Portfolio
or that class of Shares), or (ii) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Trust (or a particular Portfolio or class of Shares) are
present or represented by proxy. As fundamental policies, each of the Portfolios
may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to fifty percent (50%) of the value of the total assets of
Aggressive Growth Portfolio and as to seventy-five percent (75%) of the value of
the total assets of the other Portfolios, purchase the securities of any one
issuer (except cash items and "government securities" as defined under the
Investment Company Act of 1940, as amended (the "1940 Act")), if immediately
after and as a result of such purchase, the value of the holdings of a Portfolio
in the securities of such issuer exceeds 5% of the value of such Portfolio's
total assets. With respect to the other 50% of the value of its total assets,
Aggressive Growth Portfolio may invest in the securities of as few as two
issuers.
(2) Invest 25% or more of the value of their respective 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 Portfolios may own debt or equity securities issued by companies engaged in
those businesses.
(4) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent the Portfolios from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of a Portfolio's total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt securities or
repurchase agreements).
(6) Act as an underwriter of securities issued by others, except to the
extent that a Portfolio may be deemed an underwriter in connection with the
disposition of its portfolio securities.
As a fundamental policy, each Portfolio may, notwithstanding any other
investment policy or limitation (whether or not fundamental), invest all of its
assets in the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
limitations as such Portfolio.
The Trustees have adopted additional investment restrictions for the
Portfolios. These restrictions are operating policies of the Portfolios and may
be changed by the Trustees without shareholder approval. The additional
investment restrictions adopted by the Trustees to date include the following:
(a) A Portfolio will not (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions will exceed 5% of the fair market value of a
Portfolio's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; and (ii) enter into
any futures contracts if the aggregate amount of such Portfolio's commitments
under outstanding futures contracts positions would exceed the market value of
its total assets.
(b) The Portfolios do not currently intend to sell securities short, unless
they own or have the right to obtain securities equivalent in kind and amount to
the securities sold short without the payment of any additional consideration
therefor, and provided that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.
(c) The Portfolios do not currently intend to purchase securities on
margin, except that the Portfolios may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute
purchasing securities on margin.
(d) A Portfolio may not mortgage or pledge any securities owned or held by
such Portfolio in amounts that exceed, in the aggregate, 15% of that Portfolio's
net asset value, provided that this limitation does not apply to reverse
repurchase agreements, deposits of assets to margin, guarantee positions in
futures, options, swaps or forward contracts, or the segregation of assets in
connection with such contracts.
(e) The Portfolios may borrow money for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of their respective total assets (including the amount borrowed) less
liabilities (other than borrowings). If borrowings exceed 25% of the value of a
Portfolio's total assets by reason of a decline in net assets, the Portfolio
4
<PAGE>
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 Portfolios do not currently intend to purchase any security or
enter into a repurchase agreement, if as a result, more than 15% of their
respective net assets would be invested in repurchase agreements not entitling
the holder to payment of principal and interest within seven days and in
securities that are illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market. The Trustees, or the
Portfolios' investment adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933
("Rule 144A Securities"), or any successor to such rule, Section 4(2) commercial
paper and municipal lease obligations. Accordingly, such securities may not be
subject to the foregoing limitation.
(g) The Portfolios may not invest in companies for the purpose of
exercising control of management.
For the purposes of these investment restrictions, the identification of
the issuer of a municipal obligation depends on the terms and conditions of the
security. When assets and revenues of a political subdivision are separate from
those of the government that created the subdivision and the security is backed
only by the assets and revenues of the subdivision, the subdivision is deemed to
be the sole issuer. Similarly, in the case of an industrial development bond, if
the bond is backed only by assets and revenues of a nongovernmental user, then
the nongovernmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security that would be
treated as an issue of the guaranteeing entity.
For purposes of the Portfolios' restriction on investing in a particular
industry, the Portfolios 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 Portfolios may further classify issuers in accordance
with industry classifications as published by the Securities and Exchange
Commission ("SEC").
INVESTMENT POLICIES APPLICABLE TO CERTAIN PORTFOLIOS
Balanced Portfolio. As an operational policy, at least 25% of the assets of
Balanced Portfolio normally will be invested in fixed-income senior securities,
which include debt securities and preferred stock.
Flexible Income Portfolio. As a fundamental policy, this Portfolio may not
purchase a non-income-producing security if, after such purchase, less than 80%
of the Portfolio's total assets would be invested in income-producing
securities. Income-producing securities include securities that make periodic
interest payments as well as those that make interest payments on a deferred
basis or pay interest only at maturity (e.g., Treasury bills or zero coupon
bonds).
Short-Term Bond Portfolio. As an operational policy, this Portfolio will
not invest in any debt security that, at the time of purchase, causes its
portfolio of debt securities to have a dollar-weighted average, then remaining
effective term to maturity of three years or more. The portfolio manager may
consider estimated prepayment dates or call dates of certain securities in
computing the portfolio's effective maturity.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
ILLIQUID INVESTMENTS
Each 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 Portfolios have authorized Janus Capital to make liquidity determinations
with respect to its securities, including Rule 144A Securities, commercial paper
and municipal lease obligations. Under the guidelines established by the
Trustees, Janus Capital will consider the following factors: 1) the frequency of
trades and quoted prices for the obligation; 2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; 3)
the willingness of dealers to undertake to make a market in the security; and 4)
the nature of the security and the nature of the marketplace trades, including
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer. 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
Each Portfolio may invest up to 10% (without limit for High-Yield
Portfolio) 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
5
<PAGE>
any periodic payment of interest prior to maturity. Step coupon bonds trade at a
discount from their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate thereafter. The
discount from the face amount or par value depends on the time remaining until
cash payments begin, prevailing interest rates, liquidity of the security and
the perceived credit quality of the issuer. Pay-in-kind bonds normally give the
issuer an option to pay cash at a coupon payment date or give the holder of the
security a similar bond with the same coupon rate and a face value equal to the
amount of the coupon payment that would have been made.
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), a Portfolio must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds. Because a Portfolio will
not receive cash payments on a current basis in respect of accrued
original-issue discount on zero coupon bonds or step coupon bonds during the
period before interest payments begin, in some years that Portfolio may have to
distribute cash obtained from other sources in order to satisfy the distribution
requirements under the Code. A Portfolio might obtain such cash from selling
other portfolio holdings which might cause that Portfolio to incur capital gains
or losses on the sale. Additionally, these actions are likely to reduce the
assets to which Portfolio expenses could be allocated and to reduce the rate of
return for that Portfolio. In some circumstances, such sales might be necessary
in order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for a Portfolio to sell the
securities at the time.
Generally, the market prices of zero coupon, step coupon and pay-in-kind
securities are more volatile than the prices of securities that pay interest
periodically and in cash and are likely to respond to changes in interest rates
to a greater degree than other types of debt securities having similar
maturities and credit quality.
PASS-THROUGH SECURITIES
The Portfolios may invest in various types of pass-through securities, such
as mortgage-backed securities, asset-backed securities and participation
interests. A pass-through security is a share or certificate of interest in a
pool of debt obligations that have been repackaged by an intermediary, such as a
bank or broker-dealer. The purchaser of a pass-through security receives an
undivided interest in the underlying pool of securities. The issuers of the
underlying securities make interest and principal payments to the intermediary
which are passed through to purchasers, such as the Portfolios. The most common
type of pass-through securities are mortgage-backed securities. Government
National Mortgage Association ("GNMA") Certificates are mortgage-backed
securities that evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrowers over the term of the loan rather than returned in a lump sum at
maturity. A Portfolio will generally purchase "modified pass-through" GNMA
Certificates, which entitle the holder to receive a share of all interest and
principal payments paid and owned on the mortgage pool, net of fees paid to the
"issuer" and GNMA, regardless of whether or not the mortgagor actually makes the
payment. GNMA Certificates are backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. government.
The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. FHLMC guarantees timely payments of
interest on PCs and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semiannually and return principal once a year in guaranteed minimum payments.
This type of security is guaranteed by FHLMC as to timely payment of principal
and interest but it is not guaranteed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") issues guaranteed
mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each FNMA Certificate represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. This type of security is guaranteed by FNMA as to timely payment of
principal and interest but it is not guaranteed by the full faith and credit of
the U.S. government.
Except for GMCs, each of the mortgage-backed securities described above is
characterized by monthly payments to the holder, reflecting the monthly payments
made by the borrowers who received the underlying mortgage loans. The payments
to the security holders (such as the Portfolios), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as 20 or 30 years, the
borrowers can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. A portfolio manager will consider
estimated prepayment rates in calculating the average-weighted maturity of a
Portfolio. A borrower is more likely to prepay a mortgage that bears a
relatively high rate of interest. This means that in times of declining interest
rates, higher yielding mortgage-backed securities held by a Portfolio might be
converted to cash and that Portfolio will be forced to accept lower interest
rates when that cash is used to purchase additional securities in
6
<PAGE>
the mortgage-backed securities sector or in other investment sectors.
Additionally, prepayments during such periods will limit a Portfolio's ability
to participate in as large a market gain as may be experienced with a comparable
security not subject to prepayment.
Asset-backed securities represent interests in pools of consumer loans and
are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obligor nor guarantor of the security and
interest and principal payments ultimately depend upon payment of the underlying
loans by individuals. Tax-exempt asset-backed securities include units of
beneficial interests in pools of purchase contracts, financing leases, and sales
agreements that may be created when a municipality enters into an installment
purchase contract or lease with a vendor. Such securities may be secured by the
assets purchased or leased by the municipality; however, if the municipality
stops making payments, there generally will be no recourse against the vendor.
The market for tax-exempt asset-backed securities is still relatively new. These
obligations are likely to involve unscheduled prepayments of principal.
INVESTMENT COMPANY SECURITIES
From time to time, a Portfolio may invest in securities of other investment
companies, including money market funds managed by Janus Capital. The
Portfolios' investments in such money market funds are subject to the terms of
an exemptive order obtained by the Janus funds which currently provides that
each 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 Portfolios are subject to the provisions of Section 12(d)(1) of the
1940 Act.
DEPOSITARY RECEIPTS
The Portfolios 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 Portfolios 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.
MUNICIPAL OBLIGATIONS
The Portfolios may invest in municipal obligations issued by states,
territories and possessions of the United States and the District of Columbia.
The value of municipal obligations can be affected by changes in their actual or
perceived credit quality. The credit quality of municipal obligations can be
affected by, among other things, the financial condition of the issuer or
guarantor, the issuer's future borrowing plans and sources of revenue, the
economic feasibility of the revenue bond project or general borrowing purpose,
political or economic developments in the region where the security is issued,
and the liquidity of the security. Because municipal securities are generally
traded over-the-counter, the liquidity of a particular issue often depends on
the willingness of dealers to make a market in the security. The liquidity of
some municipal obligations may be enhanced by demand features, which would
enable a Portfolio to demand payment on short notice from the issuer or a
financial intermediary.
OTHER INCOME-PRODUCING SECURITIES
Other types of income producing securities that the Portfolios may purchase
include, but are not limited to, the following types of securities:
Variable and floating rate obligations. These types of securities are
relatively long-term instruments that often carry demand features permitting the
holder to demand payment of principal at any time or at specified intervals
prior to maturity.
Standby commitments. These instruments, which are similar to a put, give a
Portfolio the option to obligate a broker, dealer or bank to repurchase a
security held by that Portfolio at a specified price.
Tender option bonds. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker, dealer
or bank) to grant the holders of such securities the option to tender the
securities to the institution at periodic intervals.
Inverse floaters. Inverse floaters are debt instruments whose interest
bears an inverse relationship to the interest rate on another security. The
Portfolios will not invest more than 5% of their respective assets in inverse
floaters.
7
<PAGE>
The Portfolios will purchase standby commitments, tender options 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, a Portfolio purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
price on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon incremental amount that is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the agreed upon
resale price and marked-to-market daily) of the underlying security or
"collateral." A Portfolio may engage in a repurchase agreement with respect to
any security in which it is authorized to invest. A risk associated with
repurchase agreements is the failure of the seller to repurchase the securities
as agreed, which may cause a Portfolio to suffer a loss if the market value of
such securities declines before they can be liquidated on the open market. In
the event of bankruptcy or insolvency of the seller, a Portfolio may encounter
delays and incur costs in liquidating the underlying security. Repurchase
agreements that mature in more than seven days will be subject to the 15% limit
on illiquid investments. While it is not possible to eliminate all risks from
these transactions, it is the policy of the Portfolios to limit repurchase
agreements to those parties whose creditworthiness has been reviewed and found
satisfactory by Janus Capital.
A Portfolio may use reverse repurchase agreements to provide cash to
satisfy unusually heavy redemption requests or for other temporary or emergency
purposes without the necessity of selling portfolio securities, or to earn
additional income on portfolio securities, such as Treasury bills or notes. In a
reverse repurchase agreement, a Portfolio sells a portfolio security to another
party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, a Portfolio will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Portfolios will enter into reverse
repurchase agreements only with parties that Janus Capital deems creditworthy.
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
Flexible Income Portfolio and High-Yield Portfolio may invest without limit
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")). No other Portfolio
intends to invest 35% or more of its net assets in such securities. Lower rated
securities involve a higher degree of credit risk, which is the risk that the
issuer will not make interest or principal payments when due. In the event of an
unanticipated default, a Portfolio would experience a reduction in its income,
and could expect a decline in the market value of the securities so affected.
Each Portfolio may also invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated securities, may not have as broad a market. 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.
Unrated debt securities will be included in the 35% limit of each Portfolio
unless its manager deems such securities to be the equivalent of investment
grade securities.
Subject to the above limits, each Portfolio may purchase defaulted
securities only when their portfolio managers believe, 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 respective 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 these portfolios generally
will purchase securities for which their portfolio managers expect 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 Portfolios will limit holdings
8
<PAGE>
of any such securities to amounts that the portfolio managers believe 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 Portfolios may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income securities.
U.S. futures contracts are traded on exchanges which have been designated
"contract markets" by the CFTC and must be executed through a futures commission
merchant ("FCM"), or brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain other liquid assets by the Portfolios' custodian or subcustodian for the
benefit of the FCM. Initial margin payments are similar to good faith deposits
or performance bonds. Unlike margin extended by a securities broker, initial
margin payments do not constitute purchasing securities on margin for purposes
of the Portfolio's investment limitations. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments for the benefit of the FCM to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. In the event of the bankruptcy of the FCM that holds
margin on behalf of a Portfolio, that Portfolio may be entitled to return of
margin owed to such Portfolio only in proportion to the amount received by the
FCM's other customers. Janus Capital will attempt to minimize the risk by
careful monitoring of the creditworthiness of the FCMs with which the Portfolios
do business and by depositing margin payments in a segregated account with the
Portfolios' custodian.
The Portfolios intend to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" adopted by
the CFTC and the National Futures Association, which regulate trading in the
futures markets. The Portfolios will use futures contracts and related options
primarily for bona fide hedging purposes within the meaning of CFTC regulations.
To the extent that the Portfolios hold positions in futures contracts and
related options that do not fall within the definition of bona fide hedging
transactions, the aggregate initial margin and premiums required to establish
such positions will not exceed 5% of the fair market value of a Portfolio's net
assets, after taking into account unrealized profits and unrealized losses on
any such contracts it has entered into.
Although a Portfolio will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to that Portfolio immediately upon closing out the futures position,
while settlement of securities transactions could take several days. However,
because a Portfolio's cash that may otherwise be invested would be held
uninvested or invested in other liquid assets so long as the futures position
remains open, such Portfolio's return could be diminished due to the opportunity
losses of foregoing other potential investments.
A Portfolio's primary purpose in entering into futures contracts is to
protect that Portfolio from fluctuations in the value of securities or interest
rates without actually buying or selling the underlying debt or equity security.
For example, if the Portfolio anticipates an increase in the price of stocks,
and it intends to purchase stocks at a later time, that Portfolio could enter
into a futures contract to purchase a stock index as a temporary substitute for
stock purchases. If an increase in the market occurs that influences the stock
index as anticipated, the value of the futures contracts will increase, thereby
serving as a hedge against that Portfolio not participating in a market advance.
This technique is sometimes known as an anticipatory hedge. To the extent a
Portfolio enters into futures contracts for this purpose, the segregated assets
maintained to cover such Portfolio's obligations with respect to the futures
contracts will consist of 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 that Portfolio with respect to
the futures contracts. Conversely, if a Portfolio holds stocks and seeks to
protect itself from a decrease in stock prices, the Portfolio might sell stock
index futures contracts, thereby hoping to offset the potential decline in the
value of its portfolio securities by a corresponding increase in the value of
the futures contract position. A Portfolio could protect against a decline in
stock prices by selling portfolio securities and investing in money market
instruments, but the use of futures contracts enables it to maintain a defensive
position without having to sell portfolio securities.
If a Portfolio owns Treasury bonds and the portfolio manager expects
interest rates to increase, that Portfolio may take a short position in interest
rate futures contracts. Taking such a position would have much the same effect
as that Portfolio selling Treasury bonds in its portfolio. If interest rates
increase as anticipated, the value of the Treasury bonds would decline, but the
value of that Portfolio's interest rate futures contract will increase, thereby
keeping the net asset value of that Portfolio from
9
<PAGE>
declining as much as it may have otherwise. If, on the other hand, a portfolio
manager expects interest rates to decline, that Portfolio may take a long
position in interest rate futures contracts in anticipation of later closing out
the futures position and purchasing the bonds. Although a Portfolio can
accomplish similar results by buying securities with long maturities and selling
securities with short maturities, given the greater liquidity of the futures
market than the cash market, it may be possible to accomplish the same result
more easily and more quickly by using futures contracts as an investment tool to
reduce risk.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced and prices in the futures market distorted. Third, from the
point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by a portfolio manager
still may not result in a successful use of futures.
Futures contracts entail risks. Although the Portfolios believe that use of
such contracts will benefit the Portfolios, a Portfolio's overall performance
could be worse than if such Portfolio had not entered into futures contracts if
the portfolio manager's investment judgement proves incorrect. For example, if a
Portfolio has hedged against the effects of a possible decrease in prices of
securities held in its portfolio and prices increase instead, that Portfolio
will lose part or all of the benefit of the increased value of these securities
because of offsetting losses in its futures positions. In addition, if a
Portfolio has insufficient cash, it may have to sell securities from its
portfolio to meet daily variation margin requirements. Those sales may be, but
will not necessarily be, at increased prices which reflect the rising market and
may occur at a time when the sales are disadvantageous to such Portfolio.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to a
Portfolio will not match exactly such Portfolio's current or potential
investments. A Portfolio may buy and sell futures contracts based on underlying
instruments with different characteristics from the securities in which it
typically invests - for example, by hedging investments in portfolio securities
with a futures contract based on a broad index of securities - which involves a
risk that the futures position will not correlate precisely with the performance
of such Portfolio's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a
Portfolio's investments. Futures prices are affected by factors such as current
and anticipated short-term interest rates, changes in volatility of the
underlying instruments and the time remaining until expiration of the contract.
Those factors may affect securities prices differently from futures prices.
Imperfect correlations between a Portfolio's investments and its futures
positions also may result from differing levels of demand in the futures markets
and the securities markets, from structural differences in how futures and
securities are traded, and from imposition of daily price fluctuation limits for
futures contracts. A Portfolio may buy or sell futures contracts with a greater
or lesser value than the securities it wishes to hedge or is considering
purchasing in order to attempt to compensate for differences in historical
volatility between the futures contract and the securities, although this may
not be successful in all cases. If price changes in a Portfolio's futures
positions are poorly correlated with its other investments, its futures
positions may fail to produce desired gains or result in losses that are not
offset by the gains in that Portfolio's other investments.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of three days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for a Portfolio to
enter into new positions or close out existing positions. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, a Portfolio may not be able to promptly liquidate unfavorable
futures positions and potentially could be required to continue to hold a
futures position until the delivery date, regardless of changes in its value. As
a result, such Portfolio's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts. The Portfolios may buy and write put and call
options on futures contracts. An option on a future gives a Portfolio the right
(but not the obligation) to buy or sell a futures contract at a specified price
on or before a specified date. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when a Portfolio is not fully invested it may buy
a call option on a futures contract to hedge against a market advance.
10
<PAGE>
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in that Portfolio's
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
a Portfolio will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which that
Portfolio is considering buying. If a call or put option a Portfolio has written
is exercised, such Portfolio will incur a loss which will be reduced by the
amount of the premium it received. Depending on the degree of correlation
between the change in the value of its portfolio securities and changes in the
value of the futures positions, a Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
The amount of risk a Portfolio assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Contracts. A forward contract is an agreement between two parties
in which one party is obligated to deliver a stated amount of a stated asset at
a specified time in the future and the other party is obligated to pay a
specified amount for the assets at the time of delivery. The Portfolios 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 Portfolios' principal uses of
forward foreign currency exchange contracts ("forward currency contracts"). A
Portfolio may enter into forward currency contracts with stated contract values
of up to the value of that Portfolio's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency). A Portfolio will exchange
foreign currencies for U.S. dollars and for other foreign currencies in the
normal course of business and may buy and sell currencies through forward
currency contracts in order to fix a price for securities it has agreed to buy
or sell ("transaction hedge"). A Portfolio also may hedge some or all of its
investments denominated in a foreign currency 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. A Portfolio also may enter into a
forward currency contract with respect to a currency where the Portfolio is
considering the purchase or sale of investments denominated in that currency but
has not yet selected the specific investments ("anticipatory hedge"). In any of
these circumstances a Portfolio may, alternatively, enter into a forward
currency contract to purchase or sell one foreign currency for a second currency
that is expected to perform more favorably relative to the U.S. dollar if the
portfolio manager believes there is a reasonable degree of correlation between
movements in the two currencies ("cross-hedge").
These types of hedging minimize the effect of currency appreciation as well
as depreciation, but do not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the proceeds of or rates of return on a Portfolio's foreign
currency denominated portfolio securities. The matching of the increase in value
of a forward contract and the decline in the U.S. dollar equivalent value of the
foreign currency denominated asset that is the subject of the hedge generally
will not be precise. Shifting a Portfolio's currency exposure from one foreign
currency to another removes that Portfolio's opportunity to profit from
increases in the value of the original currency and involves a risk of increased
losses to such Portfolio if its portfolio manager's projection of future
exchange rates is inaccurate. Proxy hedges and cross-hedges may result in losses
if the currency used to hedge does not perform similarly to the currency in
which hedged securities are denominated. Unforeseen changes in currency prices
may result in poorer overall performance for a Portfolio than if it had not
entered into such contracts.
The Portfolios will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated or whose value is tied to,
in the currency underlying the forward contract or the currency being hedged. To
the extent that a Portfolio is not able to cover its forward currency positions
with underlying portfolio securities, the Portfolios' custodian will segregate
cash or other liquid assets having a value equal to the aggregate amount of such
Portfolio's commitments under forward contracts entered into with respect to
position hedges, cross-hedges and anticipatory hedges. If the value of the
securities used to cover a position or the value of segregated assets declines,
a Portfolio will find alternative cover or segregate additional cash or liquid
11
<PAGE>
assets on a daily basis so that the value of the covered and segregated assets
will be equal to the amount of such Portfolio's commitments with respect to such
contracts. As an alternative to segregating assets, a Portfolio may buy call
options permitting such Portfolio to buy the amount of foreign currency being
hedged by a forward sale contract or a Portfolio may buy put options permitting
it to sell the amount of foreign currency subject to a forward buy contract.
While forward contracts are not currently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event,
the Portfolios' ability to utilize forward contracts may be restricted. In
addition, a Portfolio may not always be able to enter into forward contracts at
attractive prices and may be limited in its ability to use these contracts to
hedge Portfolio assets.
Options on Foreign Currencies. The Portfolios may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, a Portfolio may buy put
options on the foreign currency. If the value of the currency declines, such
Portfolio will have the right to sell such currency for a fixed amount in U.S.
dollars, thereby offsetting, in whole or in part, the adverse effect on its
portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Portfolio may buy call options on the foreign
currency. The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Portfolio from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not move in the
direction or to the extent desired, a Portfolio could sustain losses on
transactions in foreign currency options that would require such Portfolio to
forego a portion or all of the benefits of advantageous changes in those rates.
The Portfolios may also write options on foreign currencies. For example,
to hedge against a potential decline in the U.S. dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates, a
Portfolio could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the decline in value of portfolio securities will be offset
by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, a Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow that Portfolio to hedge the
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium. If exchange rates do not move
in the expected direction, the option may be exercised and a Portfolio would be
required to buy or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on foreign
currencies, a Portfolio also may lose all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
The Portfolios may write covered call options on foreign currencies. A call
option written on a foreign currency by a Portfolio is "covered" if that
Portfolio owns the foreign currency underlying the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currencies held
in its portfolio. A call option is also covered if a Portfolio has a call on the
same foreign currency in the same principal amount as the call written if the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written, if the difference is maintained by such Portfolio in cash or other
liquid assets in a segregated account with the Portfolios' custodian.
The Portfolios also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
a Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option. Call options on foreign currencies which are
entered into for cross-hedging purposes are not covered. However, in such
circumstances, a Portfolio will collateralize the option by segregating cash or
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 Portfolios may write covered put and
call options and buy put and call options on securities that are traded on
United States and foreign securities exchanges and over-the-counter. The
Portfolios may write and buy options on the same types of securities that the
Portfolios may purchase directly.
A put option written by a Portfolio is "covered" if that Portfolio (i)
segregates cash not available for investment or other liquid assets with a value
equal to the exercise price of the put with the Portfolios' custodian or (ii)
holds a put on the same security and in the same principal amount as the put
written and the exercise price of the put held is equal to or greater than the
exercise price of the put written. The premium paid by the buyer of an option
will reflect, among other things, the relationship of the exercise
12
<PAGE>
price to the market price and the volatility of the underlying security, the
remaining term of the option, supply and demand and interest rates.
A call option written by a Portfolio is "covered" if that Portfolio owns
the underlying security covered by the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Portfolios'
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if a Portfolio holds a
call on the same security and in the same principal amount as the call written
and the exercise price of the call held (i) is equal to or less than the
exercise price of the call written or (ii) is greater than the exercise price of
the call written if the difference is maintained by that Portfolio in cash and
other liquid assets in a segregated account with its custodian.
The Portfolios also may write call options that are not covered for
cross-hedging purposes. A Portfolio collateralizes its obligation under a
written call option for cross-hedging purposes by segregating cash or other
liquid assets in an amount not less than the market value of the underlying
security, marked-to-market daily. A Portfolio would write a call option for
cross-hedging purposes, instead of writing a covered call option, when the
premium to be received from the cross-hedge transaction would exceed that which
would be received from writing a covered call option and its portfolio manager
believes that writing the option would achieve the desired hedge.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or bought, in the case of
a put option, since with regard to certain options, the writer may be assigned
an exercise notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains the amount of
the premium. This amount, of course, may, in the case of a covered call option,
be offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to buy the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously bought. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
In the case of a written call option, effecting a closing transaction will
permit a Portfolio to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of a
written put option, such transaction will permit a Portfolio to write another
put option to the extent that the exercise price is secured by other liquid
assets. Effecting a closing transaction also will permit a Portfolio to use the
cash or proceeds from the concurrent sale of any securities subject to the
option for other investments. If a Portfolio desires to sell a particular
security from its portfolio on which it has written a call option, such
Portfolio will effect a closing transaction prior to or concurrent with the sale
of the security.
A Portfolio will realize a profit from a closing transaction if the price
of the purchase transaction is less than the premium received from writing the
option or the price received from a sale transaction is more than the premium
paid to buy the option. A Portfolio will realize a loss from a closing
transaction if the price of the purchase transaction is more than the premium
received from writing the option or the price received from a sale transaction
is less than the premium paid to buy the option. Because increases in the market
of a call option generally will reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Portfolio.
An option position may be closed out only where a secondary market for an
option of the same series exists. If a secondary market does not exist, the
Portfolio may not be able to effect closing transactions in particular options
and the Portfolio would have to exercise the options in order to realize any
profit. If a Portfolio is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. The absence
of a liquid secondary market may be due to the following: (i) insufficient
trading interest in certain options, (ii) restrictions imposed by a national
securities exchange ("Exchange") on which the option is traded on opening or
closing transactions or both, (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities, (iv) unusual or unforeseen circumstances that interrupt
normal operations on an Exchange, (v) the facilities of an Exchange or of the
Options Clearing Corporation ("OCC") may not at all times be adequate to handle
current trading volume, or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options on that Exchange that had
been issued by the OCC as a result of trades on that Exchange would continue to
be exercisable in accordance with their terms.
13
<PAGE>
A Portfolio may write options in connection with buy-and-write
transactions. In other words, a Portfolio may buy a security and then write a
call option against that security. The exercise price of such call will depend
upon the expected price movement of the underlying security. The exercise price
of a call option may be below ("in-the-money"), equal to ("at-the-money") or
above ("out-of-the-money") the current value of the underlying security at the
time the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, a Portfolio's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between that Portfolio's purchase price of the security and the
exercise price. If the options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset by the amount of
premium received.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and a Portfolio's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, a Portfolio may elect to close the
position or take delivery of the security at the exercise price and that
Portfolio's return will be the premium received from the put options minus the
amount by which the market price of the security is below the exercise price.
A Portfolio may buy put options to hedge against a decline in the value of
its portfolio. By using put options in this way, a Portfolio will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.
A Portfolio may buy call options to hedge against an increase in the price
of securities that it may buy in the future. The premium paid for the call
option plus any transaction costs will reduce the benefit, if any, realized by
such Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to that
Portfolio.
Eurodollar Instruments. A Portfolio may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. A Portfolio may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with a Portfolio receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of a Portfolio's obligations over its entitlement with respect to each
interest rate swap will be calculated on a daily basis and an amount of cash or
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 Portfolios'
custodian. If a Portfolio enters into an interest rate swap on other than a net
basis, it would maintain a segregated account in the full amount accrued on a
daily basis of its obligations with respect to the swap. A Portfolio will not
enter into any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
one of the three highest rating categories of at least one 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, a Portfolio will have contractual remedies pursuant
to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Janus Capital has determined that, as
a result, the swap market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent a
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 a Portfolio. These transactions may in some instances involve
the delivery of securities or other underlying assets by a Portfolio or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that a
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, a Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
A Portfolio may buy and sell (i.e., write) caps and floors without limitation,
subject to the segregation requirement described above.
14
<PAGE>
Additional Risks of Options on Foreign Currencies, Forward Contracts and
Foreign Instruments. Unlike transactions entered into by the Portfolios in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain Exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
Exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, an option writer and a buyer or
seller of futures or forward contracts could lose amounts substantially in
excess of any premium received or initial margin or collateral posted due to the
potential additional margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting a Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
INVESTMENT ADVISER
As stated in the Prospectus, each Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928.
Each Advisory Agreement provides that Janus Capital will furnish continuous
advice and recommendations concerning the Portfolios' investments, provide
office space for the Portfolios 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
Portfolios or other Janus Funds or which perform recordkeeping or other services
with respect to shareholder accounts. The minimum aggregate size required for
eligibility for such payments, and the factors in selecting the broker-dealer
firms and institutions to which they will be made, are determined from time to
time by Janus Capital. Janus Capital is also authorized to perform the
management and administrative services necessary for the operation of the
Portfolios.
The Portfolios pay custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in connection with
the execution of portfolio transactions, legal and accounting expenses, interest
and taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Portfolio Trustees who are not affiliated
with Janus Capital and other costs of complying with applicable laws regulating
the sale of Portfolio shares. Pursuant to the Advisory Agreements, Janus Capital
furnishes certain other services, including net asset value determination,
portfolio accounting and recordkeeping, for which the Portfolios may reimburse
Janus Capital for its costs.
Growth Portfolio, Aggressive Growth Portfolio, International Growth
Portfolio, Worldwide Growth Portfolio and Balanced Portfolio have each agreed to
compensate Janus Capital for its services by the monthly payment of a fee at the
annual rate of 1% of the first $30 million of the average daily net assets of
each Portfolio, .75% of the next $270 million of the average daily net assets of
each Portfolio, .70% of the next $200 million of the average daily net assets of
each Portfolio and .65% of the average
15
<PAGE>
daily net assets of each 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 Growth Portfolio, Aggressive Growth Portfolio, International
Growth Portfolio, Worldwide Growth Portfolio and Balanced Portfolio at the
effective rate of Janus Fund, Janus Enterprise Fund, Janus Overseas Fund, Janus
Worldwide Fund and Janus Balanced Fund (the "retail funds"), respectively. The
effective rate of each retail fund is the advisory fee calculated by such fund
on the last day of each calendar quarter. If the assets of the corresponding
retail fund exceed the assets of a Portfolio as of the last day of any calendar
quarter, then the advisory fee payable by that Portfolio for the following
calendar quarter will be a flat rate equal to such effective rate. The effective
rate (annualized) of Janus Fund, Janus Enterprise Fund, Janus Overseas Fund,
Janus Worldwide Fund and Janus Balanced Fund were .65%, .73%, .68%, .66% and
.78%, respectively, for the quarter ended March 31, 1997.
In addition, Janus Capital has agreed to reimburse International Growth
Portfolio by the amount, if any, that such Portfolio's normal operating expenses
chargeable to its income account in any fiscal year, including the investment
advisory fee but excluding the distribution fee and participant administration
fee described below, brokerage commissions, interest, taxes and extraordinary
expenses, exceed 1.25% of the average daily net assets of the Portfolio for a
fiscal year through April 30, 1998.
High-Yield Portfolio has agreed to compensate Janus Capital for its
services by the monthly payment of a fee at the annual rate of .75% of the first
$300 million of average daily assets of the Portfolio and .65% of the average
daily net assets in excess of $300 million. Flexible Income Portfolio and
Short-Term Bond Portfolio have each agreed to compensate Janus Capital for its
services by the monthly payment of a fee at the annual rate of .65% of the first
$300 million of the average daily net assets of the Portfolio, plus .55% of the
average daily net assets of the Portfolio in excess of $300 million. The fee is
calculated and payable daily. Janus Capital has agreed to waive the advisory fee
payable by each of these Portfolios in an amount equal to the amount, if any,
that such Portfolio's normal operating expenses chargeable to its income account
in any fiscal year, including the investment advisory fee but excluding the
distribution fee and participant administration fee described below, brokerage
commissions, interest, taxes and extraordinary expenses, exceed 1% of the
average daily net assets for a fiscal year for Flexible Income Portfolio and
High-Yield Portfolio and .65% of the average daily net assets for a fiscal year
for Short-Term Bond Portfolio.
Janus Capital may terminate any of the fee reductions, waivers or expense
limitation arrangements described above at any time upon at least 90 days'
notice to the Trustees.
The following table summarizes the advisory fees paid by the Portfolios and
any advisory fee waivers for the periods indicated. The information below is for
fiscal years ended December 31.
<TABLE>
<CAPTION>
1996 1995 1994
Portfolio Name Advisory Fees Waivers(3) Advisory Fees Waivers(3) Advisory Fees Waivers(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio $1,410,362 -- $505,442 -- $173,369 --
Aggressive Growth Portfolio 2,102,177 -- 809,493 -- 109,603 --
International Growth Portfolio 55,211 51,880 15,182 $12,920 9,008 (2) $ 9,008(1,2)
Worldwide Growth Portfolio 2,015,059 -- 402,832 -- 157,194 --
Balanced Portfolio 344,791 -- 46,900 -- 19,489 --
Flexible Income Portfolio 116,279 -- 36,114 160 10,635 5,688
High-Yield Portfolio 2,304(4) 2,304(1,4) -- -- -- --
Short-Term Bond Portfolio 46,594 13,006 17,725 17,725(1) 11,530 11,530(1)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fee waiver by Janus Capital exceeded the advisory fee.
(2) May 2, 1994 (inception) to December 31, 1994.
(3) In addition to these fee waivers, Janus Capital has agreed to reduce the
advisory fee of the Growth, Aggressive Growth, International Growth,
Worldwide Growth, and Balanced Portfolios to the extent that such fee
exceeds the effective rate of the Janus retail fund corresponding to such
Portfolio. See the prospectus for details.
(4) May 1, 1996 (inception) to December 31, 1996.
The current Advisory Agreement for International Growth Portfolio became
effective on February 10, 1994 and the current Advisory Agreement for High-Yield
Portfolio became effective on March 12, 1996. The current Advisory Agreements
for the other Portfolios became effective on June 16, 1993. Each Advisory
Agreement will continue in effect until June 16, 1997, and thereafter from year
to year so long as such continuance is approved annually by a majority of the
Portfolios' Trustees who are not parties to the Advisory Agreements or
interested persons of any such party, and by either a majority of the
outstanding voting shares or the Trustees of the Portfolios. Each Advisory
Agreement i) may be terminated without the payment of any penalty by any
Portfolio or Janus Capital on 60 days' written notice; ii) terminates
automatically in the event of its assignment; and iii) generally, may not be
amended without the approval by vote of a majority of the Trustees of the
affected Portfolio, including the Trustees who are not interested persons of
that Portfolio or Janus Capital and, to the extent required by the 1940 Act, the
vote of a majority of the outstanding voting securities of that Portfolio.
Janus Capital also performs investment advisory services for other mutual
funds, and for individual, charitable, corporate and retirement accounts.
Investment decisions for each account managed by Janus Capital, including the
Portfolios, are made
16
<PAGE>
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 Portfolios 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 portfolio
managers to purchase and sell securities for their own accounts except under the
limited exceptions contained in Janus Capital's policy regarding personal
investing by directors, officers and employees of Janus Capital and the
Portfolios. The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolios and other
designated persons deemed to have access to current trading information to
pre-clear all transactions in securities not otherwise exempt under the policy.
Requests for trading authority will be denied when, among other reasons, the
proposed personal transaction would be contrary to the provisions of the policy
or would be deemed to adversely affect any transaction then known to be under
consideration for or to have been effected on behalf of any client account,
including the Portfolios.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Portfolios to various trading restrictions and reporting obligations.
All reportable transactions are reviewed for compliance with Janus Capital's
policy. Those persons also may be required under certain circumstances to
forfeit their profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, 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 Portfolios. State Street and the foreign subcustodians selected by
it and approved by the Trustees, have custody of the assets of the Portfolios
held outside the U.S. and cash incidental thereto. The custodians and
subcustodians hold the Portfolios' assets in safekeeping and collect and remit
the income thereon, subject to the instructions of each Portfolio.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the
Portfolios' transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the
Portfolios. Janus Service receives a participant administration fee at an annual
rate of up to .25% of the average daily net assets of the Shares of each
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 purchase and redemption
transactions, providing periodic statements, forwarding prospectuses,
shareholder reports and other materials to existing plan participants, and other
participant administrative services.
The Portfolios pay DST Systems, Inc. ("DST"), a subsidiary of KCSI, license
fees for the use of DST's portfolio and fund accounting system a base fee paid
monthly between $250 to $1,250 per month based on the number of Janus funds
utilizing the system and an asset fee of $1 per million of net assets (not to
exceed $500 per month).
The Trustees have authorized the Portfolios to use another affiliate of DST
as introducing broker for certain Portfolio transactions as a means to reduce
Portfolio expenses through a credit against the charges of DST and its
affiliates with regard to commissions earned by such affiliate. DST charges
shown above are net of such credits. See "Portfolio Transactions and Brokerage."
17
<PAGE>
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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for the Portfolios and
negotiation of its commission rates are made by Janus Capital whose policy is to
obtain the "best execution" (prompt and reliable execution at the most favorable
security price) of all portfolio transactions. The Portfolios may trade foreign
securities in foreign countries because the best available market for these
securities is often on foreign exchanges. In transactions on foreign stock
exchanges, brokers' commissions are frequently fixed and are often higher than
in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to a Portfolio or to a
third party service provider to the Portfolio to pay Portfolio expenses; and
research products or services provided. In recognition of the value of the
foregoing factors, Janus Capital may place portfolio transactions with a broker
or dealer with whom it has negotiated a commission that is in excess of the
commission another broker or dealer would have charged for effecting that
transaction if Janus Capital determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of Janus Capital. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services, and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts. Most brokers and dealers
used by Janus Capital provide research and other services described above.
For the year ended December 31, 1996, the total brokerage commissions paid
by the Portfolios to brokers and dealers in transactions identified for
execution primarily on the basis of research and other services provided to the
Portfolios are summarized below:
Portfolio Name Commissions Transactions
- --------------------------------------------------------------------------------
Growth Portfolio $163,794 $164,640,506
Aggressive Growth Portfolio $161,691 $ 96,445,133
International Growth Portfolio $ 4,402 $ 2,034,303
Worldwide Growth Portfolio $133,402 $ 90,219,385
Balanced Portfolio $ 21,308 $ 18,036,884
- --------------------------------------------------------------------------------
NOTE: Portfolios that are not included in the table did not pay any commissions
related to research for the stated period.
Janus Capital may use research products and services in servicing other
accounts in addition to the Portfolios. If Janus Capital determines that any
research product or service has a mixed use, such that it also serves functions
that do not assist in the investment decision-making process, Janus Capital may
allocate the costs of such service or product accordingly. Only that portion of
the product or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus Capital.
Janus Capital does not enter into agreements with any brokers regarding the
placement of securities transactions because of the research services they
provide. It does, however, have an internal procedure for allocating
transactions in a manner consistent with its execution policy to brokers that it
has identified as providing superior executions and research, research-related
products or services which benefit its advisory clients, including the
Portfolios. Research products and services incidental to effecting securities
transactions furnished by brokers or dealers may be used in servicing any or all
of Janus Capital's clients and such research may not necessarily be used by
Janus Capital in connection with the accounts which paid commissions to the
broker-dealer providing such research products and services.
18
<PAGE>
Janus Capital may consider sales of Portfolio shares or shares of other
Janus funds by a broker-dealer or the recommendation of a broker-dealer to its
customers that they purchase Portfolio shares as a factor in the selection of
broker-dealers to execute Portfolio transactions. Janus Capital may also
consider payments made by brokers effecting transactions for a Portfolio i) to
the Portfolio or ii) to other persons on behalf of the Portfolio for services
provided to the Portfolio for which it would be obligated to pay. In placing
Portfolio business with such broker-dealers, Janus Capital will seek the best
execution of each transaction.
When the Portfolios purchase or sell a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where in the opinion
of Janus Capital better prices and executions will be achieved through the use
of a broker.
The Portfolios' Trustees have authorized Janus Capital to place
transactions with DST Securities, Inc. ("DSTS"), a wholly-owned broker-dealer
subsidiary of DST. Janus Capital may do so if it reasonably believes that the
quality of the transaction and the associated commission are fair and reasonable
and if, overall, the associated transaction costs, net of any credits described
above under "Custodian, Transfer Agent and Certain Affiliations," are lower than
those that would otherwise be incurred.
The following table lists the total amount of brokerage commissions paid by
each Portfolio for the fiscal periods ending on December 31st of each year:
<TABLE>
<CAPTION>
Portfolio Name 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio $ 415,247 $355,523 $85,851
Aggressive Growth Portfolio $ 616,051 $574,631 $86,296
International Growth Portfolio $ 49,472 $ 14,394 $ 987(1)
Worldwide Growth Portfolio $1,332,024 $345,216 $33,299
Balanced Portfolio $ 86,264 $ 18,745 $ 4,171
High-Yield Portfolio $ 186(2) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) May 2, 1994 (inception) to December 31, 1994.
(2) May 1, 1996 (inception) to December 31, 1996.
NOTE: Portfolios that are not included in the table did not pay brokerage
commissions because securities transactions for such Portfolios involved
dealers acting as principals.
Included in such brokerage commissions are the following amounts paid to
DSTS, which served to reduce each Portfolio's out-of-pocket expenses as follows:
<TABLE>
<CAPTION>
Commission
Paid through DSTS
for the Period Ended Reduction % of Total % of Total
Fund Name December 31, 1996* of Expenses* Commissions+ Transactions+
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $4,645 $3,484 1.12% 0.97%
Aggressive Growth Portfolio $1,929 $1,447 0.31% 0.51%
International Growth Portfolio $ 67 $ 51 0.14% 0.41%
Worldwide Growth Portfolio $6,189 $4,642 0.46% 0.97%
Balanced Portfolio $2,565 $1,924 2.97% 2.44%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid through DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions are due, in part, to variations among share prices and
number of shares traded, while average price per share commission rates
were substantially the same.
NOTE: Portfolios that did not execute trades with DSTS during the periods
indicated are not included in the table.
<TABLE>
<CAPTION>
Commission Commission Paid
Paid Through through DSTS
DSTS for the for the Period Reduction of
Period Ended Reduction of % of Total % of Total Ended Expenses for
Portfolio Name 12/31/95* Expenses* Commissions+ Transactions+ 12/31/94* that Period*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio $ 9,498 $ 7,123 2.67% 2.29% $2,466 $1,850
Aggressive Growth Portfolio $17,564 $13,173 3.06% 3.00% $2,775 $2,081
International Growth Portfolio $ 37 $ 28 0.26% 0.23% N/A N/A
Worldwide Growth Portfolio $ 4,499 $ 3,374 1.30% 1.71% $ 201 $ 151
Balanced Portfolio $ 450 $ 337 2.40% 2.12% $ 77 $ 57
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid to DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions are due, in part, to variations among share prices and
number of shares traded, while average price per share commission rates
were substantially the same.
NOTE: Portfolios that did not execute trades with DSTS during the periods
indicated are not included in the table.
19
<PAGE>
As of December 31, 1996, certain Portfolios owned securities of their
regular broker-dealers (or parents), as shown below:
<TABLE>
<CAPTION>
Portfolio Name Name of Broker-Dealer Value of Securities Owned
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Portfolio Charles Schwab & Co., Inc. $4,040,000
Balanced Portfolio Charles Schwab & Co., Inc. $ 380,800
Short-Term Bond Portfolio Merrill Lynch, Pierce, Fenner & Smith $ 247,813
</TABLE>
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, Trustee and Portfolio Manager of Janus Investment
Fund+. Chief Investment Officer, Vice President and Director of Janus
Capital.
James P. Goff* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Vice President of Janus Capital. Formerly, securities analyst at Janus
Capital (1988 to 1992).
Warren B. Lammert* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Vice President of Janus Capital. Formerly, securities analyst at Janus
Capital (1990 to 1992).
Ronald V. Speaker* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund+.
Vice President of Janus Capital. Formerly, securities analyst and research
associate at Janus Capital (1986 to 1992).
Helen Young Hayes* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Vice President of Janus Capital. Formerly (1987 to 1993), securities
analyst at Janus Capital.
Blaine P. Rollins* - Executive Vice President
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).
Sandy R. Rufenacht* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Formerly, senior accountant, fixed-income trader and fixed-income research
analyst at Janus Capital (1990-1995).
- --------------------------------------------------------------------------------
* 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.
20
<PAGE>
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4928
Vice President and General Counsel of Janus Investment Fund+. Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Director, Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
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 and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado. Formerly (1992-1996),
Treasurer of Janus Investment Fund and Janus Aspen Series.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street, Suite 300
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. 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 Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments).
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund+. President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund+. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
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 Specialty
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.
21
<PAGE>
The Trustees are responsible for major decisions relating to each
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolios by their officers and review the investment
decisions of the officers although they do not actively participate on a regular
basis in making such decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Trust Instrument, Delaware law or
the 1940 Act.
The following table shows the aggregate compensation paid to each Trustee
by the Portfolios and all funds advised and sponsored by Janus Capital
(collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive pension or retirement benefits from the Portfolios or the Janus
Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
from the Portfolios for from the Janus Funds
fiscal year ended for calendar year ended
Name of Person, Position December 31, 1996 December 31, 1996**
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, III* $0 $0
John W. Shepardson, Trustee+ $1,536 $73,000
William D. Stewart, Trustee $1,613 $70,000
Gary O. Loo, Trustee $1,380 $70,000
Dennis B. Mullen, Trustee $1,535 $67,000
Martin H. Waldinger, Trustee $1,458 $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. **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 the Shares of
each Portfolio 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 the Shares of each Portfolio is not determined on
days the NYSE is closed (generally, New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
The per Share NAV of the Shares of each Portfolio is determined by dividing the
total value of the securities and other assets, less liabilities, attributable
to the Shares of a Portfolio, by the total number of Shares outstanding. In
determining NAV, securities listed on an Exchange, the NASDAQ National Market
and foreign markets are valued at the closing prices on such markets, or if such
price is lacking for the trading period immediately preceding the time of
determination, such securities are valued at their current bid price. Municipal
securities held by the Portfolios are traded primarily in the over-the-counter
market. Valuations of such securities are furnished by one or more pricing
services employed by the Portfolios and are based upon last trade or closing
sales prices or a computerized matrix system or appraisals obtained by a pricing
service, in each case in reliance upon information concerning market
transactions and quotations from recognized municipal securities dealers. Other
securities that are traded on the over-the-counter market are valued at their
closing bid prices. Foreign securities and currencies are converted to U.S.
dollars using the exchange rate in effect at the close of the NYSE. Each
Portfolio will determine the market value of individual securities held by it,
by using prices provided by one or more professional pricing services which may
provide market prices to other funds, or, as needed, by obtaining market
quotations from independent broker-dealers. Short-term securities maturing
within 60 days are valued on the amortized cost basis. Securities for which
quotations are not readily available, and other assets, are valued at fair
values determined in good faith under procedures established by and under the
supervision of the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which a Portfolio's NAV is not calculated. A Portfolio calculates its NAV
per Share, and therefore effects sales, redemptions and repurchases of its
Shares, as of the close of the NYSE once on each day on which the NYSE is open.
Such calculation may not take place contemporaneously with the determination of
the prices of the foreign portfolio securities used in such calculation.
22
<PAGE>
PURCHASES
The Shares of the Portfolios can be purchased only by certain participant
directed qualified plans. The Shares of the Portfolios 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 a Portfolio or
its authorized agent. Your plan documents contain detailed information about
investing in the different Portfolios.
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 a 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 upon 60 days' notice, 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
Portfolios are governed by Rule 18f-1 under the 1940 Act, which requires each
Portfolio to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the NAV of that Portfolio during any 90-day period for any one shareholder.
Should redemptions by any shareholder exceed such limitation, a Portfolio will
have the option of redeeming the excess in cash or in kind. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage costs in
converting the assets to cash. The method of valuing securities used to make
redemptions in kind will be the same as the method of valuing portfolio
securities described under "Shares of the Trust - Net Asset Value Determination"
and such valuation will be made as of the same time the redemption price is
determined.
The right to require the Portfolios to redeem their 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 Portfolios to make semiannual
distributions in June and December of substantially all of their respective
investment income and an annual distribution in June of their respective net
realized capital gains, if any. The Portfolios intend to qualify as regulated
investment companies by satisfying certain requirements prescribed by Subchapter
M of the Code. In addition, because a class of shares of each Portfolio is sold
in connection with variable insurance contracts, each Portfolio intends to
comply with the diversification requirements of Code Section 817(h) related to
the tax-deferred status of insurance company separate accounts.
All income dividends and capital gains distributions, if any, on a
Portfolio's Shares are reinvested automatically in additional Shares of that
Portfolio at the NAV determined on the first business day following the record
date.
The Portfolios may purchase securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS. In order to
avoid taxes and interest that must be paid by the Portfolios if these
instruments are profitable, the Portfolios may make various elections permitted
by the tax laws. However, these elections could require that the Portfolios
recognize taxable income, which in turn must be distributed, before the
securities are sold and before cash is received to pay the distributions.
23
<PAGE>
Some foreign securities purchased by the Portfolios 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 Portfolios 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 each
Portfolio which will reduce its investment company taxable income.
Because Shares 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.
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 offers eleven separate series, known as
"portfolios," each of which offers two classes of shares. Additional series
and/or classes of shares 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 each Portfolio are fully paid and nonassessable when issued.
The Shares of a Portfolio participate equally in dividends and other
distributions by the Shares of such Portfolio, and in residual assets of that
Portfolio in the event of liquidation. Shares of each Portfolio have no
preemptive, conversion or subscription rights.
The Portfolios currently each offer two classes of shares. The Shares
discussed in this SAI are offered only to certain participant directed qualified
plans. A second class of shares, Institutional Shares, is offered only in
connection with investments in and payments under variable insurance contracts
as well as other qualified retirement plans.
VOTING RIGHTS
The Trustees are responsible for major decisions relating to each
Portfolio's policies and objectives; the Trustees oversee the operation of each
Portfolio by its officers and review the investment decisions of the officers.
The present Trustees were elected by the initial trustee of the Trust on
May 25, 1993, and were approved by the initial shareholder 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 their
Portfolio, to amend the Trust Instrument, to bring certain derivative actions
and on any other matters on which a shareholder vote is required by the 1940
Act, the Trust Instrument, the Trust's Bylaws or the Trustees.
Each share of each 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 the
portfolio or class in the 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 Portfolios, audit the Portfolios' annual
financial statements and prepare their tax returns.
REGISTRATION STATEMENT
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this SAI relates. If further information is desired with
respect to the Portfolios or such securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
24
<PAGE>
PERFORMANCE INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for the Shares of a Portfolio
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in such Shares over periods of 1, 5, and 10 years (up to
the life of the Portfolio). These are the annual total rates of return that
would equate the initial amount invested to the ending redeemable value. These
rates of return are calculated pursuant to the following formula: P(1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Portfolio
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid.
The average annual total return of the Institutional Shares of each
Portfolio, computed as of December 31, 1996, is shown in the table below. The
Retirement Shares were not yet available as of December 31, 1996. The Retirement
Shares of each Portfolio bear additional fees that are not borne by the
Institutional Shares, and thus the performance of the Retirement Shares is
expected to be lower than that of the Institutional Shares.
<TABLE>
<CAPTION>
Average Annual Total Return
------------------------------------------------
Date Number of
Available Months in Five Ten Life of
Portfolio Name for Sale Lifetime One Year Years Years Portfolio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio - Institutional Shares 9/13/93 39.5 18.45% N/A N/A 16.22%
Aggressive Growth Portfolio -
Institutional Shares 9/13/93 39.5 7.95% N/A N/A 21.33%
International Growth Portfolio -
Institutional Shares 5/2/94 32 34.71% N/A N/A 19.62%
Worldwide Growth Portfolio -
Institutional Shares 9/13/93 39.5 29.04% N/A N/A 23.20%
Balanced Portfolio - Institutional Shares 9/13/93 39.5 16.18% N/A N/A 14.63%
Flexible Income Portfolio -
Institutional Shares 9/13/93 39.5 9.19% N/A N/A 9.54%
High-Yield Portfolio - Institutional Shares 5/1/96 8 N/A N/A N/A 12.40%
Short-Term Bond Portfolio -
Institutional Shares 9/13/93 39.5 3.98% N/A N/A 4.42%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Yield quotations for a 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
The yield for the 30-day period ending December 31, 1996, for the
Institutional Shares of the following Portfolios is shown below:
Flexible Income Portfolio - Institutional Shares - 7.39%
Short-Term Bond Portfolio - Institutional Shares - 5.37%
High-Yield Portfolio - Institutional Shares - 8.93%
The Retirement Shares were not yet available as of December 31, 1996. The
Retirement Shares of each Portfolio bear additional fees that are not borne by
the Institutional Shares, and thus the performance of the Retirement Shares is
expected to be lower than that of the Institutional Shares.
From time to time in advertisements or sales material, the Portfolios may
discuss their performance ratings or other information as published by
recognized mutual fund statistical rating services, including, but not limited
to, Lipper Analytical Services, Inc., Ibbotson Associates, Micropal or
Morningstar or by publications of general interest such as Forbes or Money. The
Portfolios
25
<PAGE>
may also compare their performance to that of other selected mutual funds,
mutual fund averages or recognized stock market indicators, including, but not
limited to, the Standard & Poor's 500 Composite Stock Price Index, the Standard
& Poor's 400 Midcap Index, the Dow Jones Industrial Average, the Lehman Brothers
Government/Corporate Bond Index, the Lehman Brothers Government/Corporate 1-3
Year Bond Index, the Lehman Brothers Long Government/Corporate Bond Index, the
Lehman Brothers Intermediate Government Bond Index, the Lehman Brothers
Municipal Bond Index, the Russell 2000 Index and the NASDAQ composite. In
addition, the Portfolios may compare their total return or yield to the yield on
U.S. Treasury obligations and to the percentage change in the Consumer Price
Index. Worldwide Growth Portfolio and International Growth Portfolio may also
compare their performance to the record of global market indicators, such as the
Morgan Stanley International World Index or Morgan Stanley Capital International
Europe, Australia, Far East Index (EAFE Index). Such performance ratings or
comparisons may be made with funds that may have different investment
restrictions, objectives, policies or techniques than the Portfolios and such
other funds or market indicators may be comprised of securities that differ
significantly from the Portfolios' investments.
The Retirement Shares of the Portfolios were established on May 1, 1997.
FINANCIAL STATEMENTS
The following audited financial statements for Institutional Shares of the
Portfolios for the fiscal year ended December 31, 1996 are hereby incorporated
into this Statement of Additional Information by reference to the Annual Report
relating to the Institutional Shares of the Portfolios dated December 31, 1996.
A copy of such report accompanies this SAI. The Retirement Shares had not yet
commenced operations as of December 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT:
Schedules of Investments as of December 31, 1996
Statements of Operations for the period ended December 31, 1996
Statements of Assets and Liabilities as of December 31, 1996
Statements of Changes in Net Assets for the periods ended December 31, 1996
and December 31, 1995
Financial Highlights for each of the periods indicated
Notes to Financial Statements
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this Statement of Additional Information
and are not part of the Registration Statement.
26
<PAGE>
APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
STANDARD & POOR'S RATINGS SERVICES
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal and
interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions
or changing circumstances more likely to lead to a weakened
capacity to pay principal and interest than for higher rated
bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's capacity
CCC, CC, C to meet required interest and principal payments. BB - lowest
degree of speculation; C - the highest degree of speculation.
Quality and protective characteristics outweighed by large
uncertainties or major risk exposure to adverse conditions.
D In default.
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present
but certain protective elements may be lacking or may be
unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of interest
and principal payments not well safeguarded during good and bad
times.
B Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect
to principal or interest payments.
Ca Speculative in a high degree; could be in default or have other
marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
27
<PAGE>
This page intentionally left blank.
<PAGE>
JANUS ASPEN SERIES
CAPITAL APPRECIATION PORTFOLIO
RETIREMENT SHARES
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 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, 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
- --------------------------------------------------------------------------------
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
Miscellaneous Information .........................................20
Shares of the Trust ............................................20
Voting Rights ..................................................21
Independent Accountants ........................................21
Registration Statement .........................................21
Performance Information ...........................................21
Appendix A ........................................................23
Explanation of Rating Categories ...............................23
- --------------------------------------------------------------------------------
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
rates.
Portfolio turnover is calculated by dividing total long-term purchases or
sales, whichever is less, by the average monthly value of a portfolio's
long-term portfolio securities. The Portfolio anticipates that its portfolio
turnover rate should not exceed 200%.
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").
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.
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
4
<PAGE>
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, 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.
5
<PAGE>
INVESTMENT COMPANY SECURITIES
From time to time, the Portfolio may invest in securities of other
investment companies, including money market funds managed by Janus Capital. The
Portfolio's investments in such money market funds are subject to the terms of
an exemptive order obtained by 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 Portfolio is subject to the provisions of Section 12(d)(1) of the
1940 Act.
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"). Certain variable rate securities (including
certain mortgage-backed securities) pay interest at a rate that varied 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.
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. 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 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
6
<PAGE>
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 does not intend to invest 35% or more of it's 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") and unrated securities of
equivalent quality). 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. 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. Not
withstanding 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 the 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. Default 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.
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
7
<PAGE>
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.
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.
8
<PAGE>
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 Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the 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.
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
9
<PAGE>
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.
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.
10
<PAGE>
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.
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.
11
<PAGE>
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
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.
12
<PAGE>
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 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
13
<PAGE>
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 the agreed to compensate Janus Capital for its services
by the monthly payment of a fee at the annual rate of 1% of the first $30
million of the average daily net assets of the Portfolio, .75% of the next $270
million of the average daily net assets of the Portfolio, .70% of the next $200
million of the average daily net assets of the Portfolio and .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 .75% for the
quarter ended March 31, 1997.
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, 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.
Janus Capital may terminate the fee reduction or expense limitation
described above at any time upon at least 90 days' notice to the Trustees.
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.
14
<PAGE>
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 portfolio
managers to purchase and sell securities for their own accounts except under the
limited circumstances contained in Janus Capital's policy regarding personal
investing by directors, officers and employees of Janus Capital and the
Portfolio. The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolio 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 Portfolio 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 selected by it
and approved by the Trustees, 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 DST's portfolio and fund accounting system a base fee paid
monthly between $250 to $1,250 per month based on the number of Janus funds
utilizing the system and an asset charge of $1 per million dollars of net assets
(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 a credit against the charges of DST and its
affiliates with regard to commissions earned by such affiliate. See "Portfolio
Transactions and Brokerage."
15
<PAGE>
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.
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, analysis 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
analysis, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts. Most brokers and dealers
used by Janus Capital provide research and other services described above.
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>
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).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4928
Vice President and General Counsel of Janus Investment Fund+. Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Director, Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
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 and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado. 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. 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 Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
- --------------------------------------------------------------------------------
* 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>
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
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund+. President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund+. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
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 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* N/A $0
James P. Craig, Trustee* N/A $0
John W. Shepardson, Trustee+ N/A $73,000
William D. Stewart, Trustee N/A $70,000
Gary O. Loo, Trustee N/A $70,000
Dennis B. Mullen, Trustee N/A $67,000
Martin H. Waldinger, Trustee N/A $73,000
James T. Rothe, Trustee++ N/A $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, 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 the 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 upon 60 days' notice, 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 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, 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 contracts or plans. See the plan documents for additional information.
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 offers 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 investments in and payments to variable insurance contracts
as well as certain qualified retirement plans.
20
<PAGE>
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.
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 or by
publications of general interest such as Forbes or 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 Standard & Poor's 400
Midcap Index,
21
<PAGE>
the Dow Jones Industrial Average, the Lehman Brothers Government/Corporate Bond
Index, the Lehman Brothers Government/ Corporate 1-3 Year Bond Index, the Lehman
Brothers Long Government/Corporate Bond Index, the Lehman Brothers Intermediate
Government Bond Index, the Lehman Brothers Municipal Bond Index, the Russell
2000 Index and the NASDAQ composite. In addition, the 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.
22
<PAGE>
APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
STANDARD & POOR'S RATINGS SERVICES
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal and
interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions
or changing circumstances more likely to lead to a weakened
capacity to pay principal and interest than for higher rated
bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's capacity
CCC, CC, C to meet required interest and principal payments. BB - lowest
degree of speculation; C - the highest degree of speculation.
Quality and protective characteristics outweighed by large
uncertainties or major risk exposure to adverse conditions.
D In default.
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present
but certain protective elements may be lacking or may be
unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of interest
and principal payments not well safeguarded during good and bad
times.
B Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect
to principal or interest payments.
Ca Speculative in a high degree; could be in default or have other
marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
23
<PAGE>
This page intentionally left blank.
<PAGE>
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
RETIREMENT SHARES
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 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 policies 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, 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 ..............................15
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
Miscellaneous Information .........................................20
Shares of the Trust ............................................20
Voting Rights ..................................................21
Independent Accountants ........................................21
Registration Statement .........................................21
Performance Information ...........................................21
Appendix A ........................................................23
Explanation of Rating Categories ...............................23
- --------------------------------------------------------------------------------
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
rates.
Portfolio turnover is calculated by dividing total long-term purchases or
sales, whichever is less, by the average monthly value of a portfolio's
long-term portfolio securities. The Portfolio anticipates that its portfolio
turnover rate should not exceed 200%.
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").
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.
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
4
<PAGE>
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, 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.
5
<PAGE>
INVESTMENT COMPANY SECURITIES
From time to time, the Portfolio may invest in securities of other
investment companies, including money market funds managed by Janus Capital. The
Portfolio's investments in such money market funds are subject to the terms of
an exemptive order obtained by 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 Portfolio is subject to the provisions of Section 12(d)(1) of the
1940 Act.
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 option to tender the securities to a bank,
broker-dealer or other financial institution at periodic intervals and receive
the face value of the bond. This type of security is commonly used as a means of
enhancing the security's liquidity.
Inverse floaters. Inverse floaters are debt instruments whose interest
bears an inverse relationship to the interest rate on another security. The
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 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
6
<PAGE>
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 th Portfolio's intent to segregate
assets in the amount of the reverse repurchase agreement minimizes this effect.
HIGH-YIELD/HIGH-RISK SECURITIES
The Portfolio does not intend to invest 35% or more 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. Unrated debt
securities will be included in the 35% limit unless the portfolio managers deem
such securities to be the equivalent of investment grade securities.
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 these Portfolios generally
will purchase securities for which their portfolio managers expect 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 managers believe 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 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
7
<PAGE>
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.
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.
8
<PAGE>
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 Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the 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.
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
9
<PAGE>
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.
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.
10
<PAGE>
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.
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.
11
<PAGE>
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
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.
12
<PAGE>
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 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
13
<PAGE>
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 1% of the first $30 million
of the average daily net assets of the Portfolio, .75% of the next $270 million
of the average daily net assets of the Portfolio, .70% of the next $200 million
of the average daily net assets of the Portfolio and .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 .94% for
the quarter ended March 31, 1997.
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, 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
1.25% of the average daily net assets of the Portfolio through at least April
30, 1998.
Janus Capital may terminate either the fee reduction or expense discussed
above at any time upon at least 90 days' notice to the Trustees.
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.
14
<PAGE>
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 portfolio
managers to purchase and sell securities for their own accounts except under the
limited circumstances contained in Janus Capital's policy regarding personal
investing by directors, officers and employees of Janus Capital and the
Portfolio. The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolio 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 Portfolio 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 selected by it
and approved by the Trustees, 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 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 DST's portfolio and fund accounting system a base fee paid
monthly between $250 to $1,250 per month based on the number of Janus funds
utilizing the system and an asset charge of $1 per million dollars of net assets
(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 a credit against the charges of DST and its
affiliates with regard to commissions earned by such affiliate. See "Portfolio
Transactions and Brokerage."
15
<PAGE>
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.
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. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts. Most brokers and dealers
used by Janus Capital provide research and other services described above.
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>
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).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4928
Vice President and General Counsel of Janus Investment Fund+. Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Director, Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4928
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 and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado. 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. 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 Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
- --------------------------------------------------------------------------------
* 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>
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
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund+. President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund+. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
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 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 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* N/A $0
James P. Craig, Trustee* N/A $0
John W. Shepardson, Trustee+ N/A $73,000
William D. Stewart, Trustee N/A $70,000
Gary O. Loo, Trustee N/A $70,000
Dennis B. Mullen, Trustee N/A $67,000
Martin H. Waldinger, Trustee N/A $73,000
James T. Rothe, Trustee++ N/A $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, 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.
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 the 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 upon 60 days' notice, without penalty, by vote of a
majority of the outstanding Shares of a Portfolio or by vote of a majority of
12b-1 Trustees.
19
<PAGE>
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 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, 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.
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 and classes
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. 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.
20
<PAGE>
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.
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.
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
21
<PAGE>
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 or by
publications of general interest such as Forbes or 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 Standard & Poor's 400
Midcap Index, the Dow Jones Industrial Average, the Lehman Brothers
Government/Corporate Bond Index, the Lehman Brothers Government/ Corporate 1-3
Year Bond Index, the Lehman Brothers Long Government/Corporate Bond Index, the
Lehman Brothers Intermediate Government Bond Index, the Lehman Brothers
Municipal Bond Index, the Russell 2000 Index and the NASDAQ composite. In
addition, the 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.
22
<PAGE>
APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
STANDARD & POOR'S RATINGS SERVICES
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal and
interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions
or changing circumstances more likely to lead to a weakened
capacity to pay principal and interest than for higher rated
bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's capacity
CCC, CC, C to meet required interest and principal payments. BB - lowest
degree of speculation; C - the highest degree of speculation.
Quality and protective characteristics outweighed by large
uncertainties or major risk exposure to adverse conditions.
D In default.
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present
but certain protective elements may be lacking or may be
unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of interest
and principal payments not well safeguarded during good and bad
times.
B Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect
to principal or interest payments.
Ca Speculative in a high degree; could be in default or have other
marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
23
<PAGE>
This page intentionally left blank.
<PAGE>
JANUS ASPEN SERIES
MONEY MARKET PORTFOLIO
RETIREMENT SHARES
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 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 Money Market 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, 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>
MONEY MARKET PORTFOLIO
RETIREMENT SHARES
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
Investment Policies and Restrictions................................3
Types of Securities and Investment Techniques.......................4
Performance Data....................................................7
Determination of Net Asset Value....................................7
Investment Adviser..................................................8
Custodian, Transfer Agent and Certain Affiliations..................9
Portfolio Transactions and Brokerage................................9
Officers and Trustees..............................................10
Purchase of Shares.................................................12
Distribution Plan..................................................12
Redemption of Shares...............................................12
Dividends and Tax Status...........................................13
Principal Shareholders.............................................13
Miscellaneous Information..........................................13
The Trust.......................................................13
Shares of the Trust.............................................13
Voting Rights...................................................13
Independent Accountants.........................................14
Registration Statement..........................................14
Financial Statements...............................................14
Appendix A - Description of Securities Ratings.....................15
Appendix B - Description of Municipal Securities...................17
- --------------------------------------------------------------------------------
2
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
As discussed in the Prospectus, the Portfolio's investment objective is to
seek maximum current income to the extent consistent with stability of capital.
There can be no assurance that the Portfolio will achieve its investment
objective or maintain a stable net asset value of $1.00 per share. The
investment objective of the Portfolio is not fundamental and may be changed by
the Trustees of the Trust (the "Trustees") without shareholder approval.
INVESTMENT RESTRICTIONS
As indicated in the Prospectus, the Portfolio has adopted certain
fundamental investment restrictions that cannot be changed without shareholder
approval. Shareholder approval means approval by the lesser of (i) more than 50%
of the outstanding voting securities of the Trust (or 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 used in the restrictions set forth below and as used elsewhere in this
SAI, the term "U.S. Government Securities" shall have the meaning set forth in
the Investment Company Act of 1940, as amended (the "1940 Act"). The 1940 Act
defines U.S. government securities as securities issued or guaranteed by the
United States government, its agencies or instrumentalities and has been
interpreted to include repurchase agreements covered and municipal securities
refunded with escrowed U.S. government securities.
The Portfolio has adopted the following fundamental policies:
(1) With respect to 75% of its assets, the Portfolio may not purchase a
security other than a U.S. Government Security, if, as a result, more than 5% of
its total assets would be invested in the securities of a single issuer or the
Portfolio would own more than 10% of the outstanding voting securities of any
single issuer. (As noted in the Prospectus, the Portfolio is currently subject
to the greater diversification standards of Rule 2a-7, which are not
fundamental.)
(2) The Portfolio may not purchase securities if 25% or more of the value
of its total assets would be invested in the securities of issuers conducting
their principal business activities in the same industry; provided that: (i)
there is no limit on investments in U.S. Government Securities or in obligations
of domestic commercial banks (including U.S. branches of foreign banks subject
to regulations under U.S. laws applicable to domestic banks and, to the extent
that its parent is unconditionally liable for the obligation, foreign branches
of U.S. banks); (ii) this limitation shall not apply to the Portfolio's
investments in municipal securities; (iii) there is no limit on investment in
issuers domiciled in a single country; (iv) financial service companies are
classified according to the end users of their services (for example, automobile
finance, bank finance and diversified finance are each considered to be a
separate industry); and (v) utility companies are classified according to their
services (for example, gas, gas transmission, electric, and telephone are each
considered to be a separate industry).
(3) The Portfolio may not act as an underwriter of securities issued by
others, except to the extent that it may be deemed an underwriter in connection
with the disposition of its portfolio securities.
(4) The Portfolio may not 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).
(5) The Portfolio may not purchase or sell real estate or any interest
therein, except that the Portfolio may invest in debt obligations secured by
real estate or interests therein or securities issued by companies that invest
in real estate or interests therein.
(6) The Portfolio may borrow money for temporary or emergency purposes (not
for leveraging) in an amount not exceeding 25% of the value of its total assets
(including the amount borrowed) less liabilities (other than borrowings). If
borrowings exceed 25% of the value of the Portfolio's total assets by reason of
a decline in net assets, it will reduce its borrowings within three business
days to the extent necessary to comply with the 25% limitation. Reverse
repurchase agreements or the segregation of assets in connection with such
agreements shall not be considered borrowing for the purposes of this limit.
(7) The Portfolio may, notwithstanding any other investment policy or
restriction (whether or not fundamental), invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and restrictions as the
Portfolio.
The Portfolio has adopted the following nonfundamental investment
restrictions that may be changed by the Trustees without shareholder approval:
3
<PAGE>
(1) The Portfolio may not invest in securities or enter into repurchase
agreements with respect to any securities if, as a result, more than 10% of its
net assets would be invested in repurchase agreements not entitling the holder
to payment of principal within seven days and in other securities that are not
readily marketable ("illiquid securities"). The Trustees, or the Portfolio's
investment adviser acting pursuant to authority delegated by the Trustees, may
determine that a readily available market exists for certain securities such as
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to such rule, Section 4(2) commercial paper and municipal
lease obligations. Accordingly, such securities may not be subject to the
foregoing limitation.
(2) The Portfolio may not purchase securities on margin, or make short
sales of securities, except for short sales against the box and the use of
short-term credit necessary for the clearance of purchases and sales of
portfolio securities.
(3) The Portfolio may not pledge, mortgage, hypothecate or encumber any of
its assets except to secure permitted borrowings or in connection with permitted
short sales.
(4) 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., subject to the exceptions noted in fundamental
restriction number two above. To the extent that such classifications are so
broad that the primary economic characteristics in a single class are materially
different, the Portfolio may further classify issuers in accordance with
industry classifications as published by the Securities and Exchange Commission.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
The Portfolio may invest only in "eligible securities" as defined in Rule
2a-7 adopted under the 1940 Act. Generally, an eligible security is a security
that (i) is denominated in U.S. dollars and has a remaining maturity of 397 days
or less (as calculated pursuant to Rule 2a-7); (ii) is rated, or is issued by an
issuer with short-term debt outstanding that is rated, in one of the two highest
rating categories by any two nationally recognized statistical rating
organizations ("NRSROs") or, if only one NRSRO has issued a rating, by that
NRSRO (the "Requisite NRSROs") or is unrated and of comparable quality to a
rated security, as determined by Janus Capital; and (iii) has been determined by
Janus Capital to present minimal credit risks pursuant to procedures approved by
the Trustees. In addition, the Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less. A description of the ratings of some
NRSROs appears in Appendix A.
Under Rule 2a-7, the Portfolio may not invest more than five percent of its
total assets in the securities of any one issuer other than U.S. Government
Securities, provided that in certain cases it may invest more than 5% of its
assets in a single issuer for a period of up to three business days.
Pursuant to Rule 2a-7, the Portfolio will invest at least 95% of its total
assets in "first-tier" securities. First-tier securities are eligible securities
that are rated, or are issued by an issuer with short-term debt outstanding that
is rated, in the highest rating category by the Requisite NRSROs or are unrated
and of comparable quality to a rated security. In addition, the Portfolio may
invest in "second-tier" securities which are eligible securities that are not
first-tier securities. However, the Portfolio may not invest in a second-tier
security if immediately after the acquisition thereof it would have invested
more than (i) the greater of one percent of its total assets or one million
dollars in second-tier securities issued by that issuer, or (ii) five percent of
its total assets in second-tier securities.
The following discussion of types of securities in which the Portfolio may
invest supplements and should be read in conjunction with the Prospectus.
PARTICIPATION INTERESTS
The Portfolio may purchase participation interests in loans or securities
in which it may invest directly. Participation interests are generally sponsored
or issued by banks or other financial institutions. A participation interest
gives the Portfolio an undivided interest in the underlying loans or securities
in the proportion that the Portfolio's interest bears to the total principal
amount of the underlying loans or securities. Participation interests, which may
have fixed, floating or variable rates, may carry a demand feature backed by a
letter of credit or guarantee of a bank or institution permitting the holder to
tender them back to the bank or other institution. For certain participation
interests, the Portfolio will have the right to demand payment, on not more than
seven days' notice, for all or a part of the Portfolio's participation interest.
The Portfolio intends to exercise any demand rights it may have upon default
under the terms of the loan or security, to provide liquidity or to maintain or
improve the quality of the Portfolio's investment portfolio. The Portfolio will
only purchase participation interests that Janus Capital determines present
minimal credit risks.
4
<PAGE>
VARIABLE AND FLOATING RATE NOTES
The Portfolio also may purchase variable and floating rate demand notes of
corporations, which are unsecured obligations redeemable upon not more than 30
days' notice. These obligations include master demand notes that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid investment.
MORTGAGE- AND ASSET-BACKED SECURITIES
The Portfolio may invest in mortgage-backed securities, which represent an
interest in a pool of mortgages made by lenders such as commercial banks,
savings and loan institutions, mortgage bankers, mortgage brokers and savings
banks. Mortgage-backed securities may be issued by governmental or
government-related entities or by non-governmental entities such as banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. In
contrast, mortgage-backed securities provide periodic payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the periodic payments and optional prepayments made by the
individual borrowers on their mortgage loans, net of any fees paid to the issuer
or guarantor of such securities. Additional payments to holders of
mortgage-backed securities are caused by prepayments resulting from the sale of
the underlying residential property, refinancing or foreclosure, net of fees or
costs which may be incurred.
As prepayment rates of individual pools of mortgage loans vary widely, it
is not possible to predict accurately the average life of a particular security.
Although mortgage-backed securities are issued with stated maturities of up to
forty years, unscheduled or early payments of principal and interest on the
underlying mortgages may shorten considerably the effective maturities.
Mortgage-backed securities may have varying assumptions for average life. The
volume of prepayments of principal on a pool of mortgages underlying a
particular security will influence the yield of that security, and the principal
returned to the Portfolio may be reinvested in instruments whose yield may be
higher or lower than that which might have been obtained had the prepayments not
occurred. When interest rates are declining, prepayments usually increase, with
the result that reinvestment of principal prepayments will be at a lower rate
than the rate applicable to the original mortgage-backed security.
The Portfolio may invest in mortgage-backed securities that are issued by
agencies or instrumentalities of the U.S. government. The Government National
Mortgage Association ("GNMA") is the principal federal government guarantor of
mortgage-backed securities. GNMA is a wholly-owned U.S. government corporation
within the Department of Housing and Urban Development. GNMA Certificates are
debt securities which represent an interest in one mortgage or a pool of
mortgages which are insured by the Federal Housing Administration or the Farmers
Home Administration or are guaranteed by the Veterans Administration. The
Portfolio may also invest in pools of conventional mortgages which are issued or
guaranteed by agencies of the U.S. government. GNMA pass-through securities are
considered to be riskless with respect to default in that (i) the underlying
mortgage loan portfolio is comprised entirely of government-backed loans and
(ii) the timely payment of both principal and interest on the securities is
guaranteed by the full faith and credit of the U.S. government, regardless of
whether or not payments have been made on the underlying mortgages. GNMA
pass-through securities are, however, subject to the same market risk as
comparable debt securities. Therefore, the market value of the Portfolio's GNMA
securities can be expected to fluctuate in response to changes in prevailing
interest rate levels.
Residential mortgage loans are pooled also by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FHLMC is a privately managed, publicly chartered
agency created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. FHLMC issues
participation certificates ("PCs") which represent interests in mortgages from
FHLMC's national portfolio. The mortgage loans in FHLMC's portfolio are not U.S.
government backed; rather, the loans are either uninsured with loan-to-value
ratios of 80% or less, or privately insured if the loan-to-value ratio exceeds
80%. FHLMC guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs; the U.S. government does not guarantee any aspect of
FHLMC PCs.
The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private shareholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include savings and loan associations, savings banks, commercial banks,
credit unions and mortgage bankers. FNMA guarantees the timely payment of
principal and interest on the pass-through securities issued by FNMA; the U.S.
government does not guarantee any aspect of the FNMA pass-through securities.
The Portfolio may also invest in privately-issued mortgage-backed
securities to the extent permitted by their investment restrictions.
Mortgage-backed securities offered by private issuers include pass-through
securities comprised of pools of
5
<PAGE>
conventional residential mortgage loans; mortgage-backed bonds which are
considered to be debt obligations of the institution issuing the bonds and which
are collateralized by mortgage loans; and collateralized mortgage obligations
("CMOs") which are collateralized by mortgage-backed securities issued by GNMA,
FHLMC or FNMA or by pools of conventional mortgages.
Asset-backed securities represent direct or indirect participation in, or
are secured by and payable from, assets other than mortgage-backed assets such
as motor vehicle installment sales contracts, installment loan contracts, leases
of various types of real and personal property and receivables from revolving
credit agreements (credit cards). Asset-backed securities have yield
characteristics similar to those of mortgage-backed securities and, accordingly,
are subject to many of the same risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which the Portfolio sells
a security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate. The
Portfolio will use the proceeds of reverse repurchase agreements only to satisfy
unusually heavy redemption requests or for other temporary or emergency purposes
without the necessity of selling portfolio securities.
Generally, a reverse repurchase agreement enables the Portfolio to recover
for the term of the reverse repurchase agreement all or most of the cash
invested in the portfolio securities sold and to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Portfolio of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise. In addition,
interest costs on the money received in a reverse repurchase agreement may
exceed the return received on the investments made by the Portfolio with those
monies.
WHEN ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolio may purchase securities on a when-issued or delayed delivery
basis. The Portfolio will enter into such transactions only when it has the
intention of actually acquiring the securities. To facilitate such acquisitions,
the Portfolio's custodian will segregate cash or high quality liquid assets in
an amount at least equal to such commitments. On delivery dates for such
transactions, the Portfolio will meet its obligations from maturities, sales of
the segregated securities or from other available sources of cash. If it chooses
to dispose of the right to acquire a when-issued security prior to its
acquisition, the Portfolio could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. At the time it makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, the Portfolio will record the transaction as a purchase and thereafter
reflect the value of such securities in determining its net asset value.
INVESTMENT COMPANY SECURITIES
From time to time, the Portfolio may invest in securities of other
investment companies. The Portfolio is subject to the provisions of Section
12(d)(1) of the 1940 Act.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases. Municipal leases frequently
have special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations of many
state constitutions and statutes are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. The Portfolio
will only purchase municipal leases subject to a non-appropriation clause when
the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit, or guarantee of a bank or other entity that meets
the criteria described in the Prospectus under "Taxable Investments."
In evaluating municipal lease obligations, Janus Capital will consider such
factors as it deems appropriate, including: (a) whether the lease can be
canceled; (b) the ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the lease obligor; (d)
the likelihood that the municipality will discontinue appropriating funding for
the leased property in the event such property is no longer considered essential
by the municipality; (e) the legal recourse of the lease obligee in the event of
such a failure to appropriate funding; (f) whether the security is backed by a
credit enhancement such as insurance; and (g) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or services other
than those covered by the lease obligation. If a lease is backed by an
unconditional letter of credit or other unconditional
6
<PAGE>
credit enhancement, then Janus Capital may determine that a lease is an eligible
security solely on the basis of its evaluation of the credit enhancement.
Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment. The ability of issuers of municipal leases to make timely
lease payments may be adversely impacted in general economic downturns and as
relative governmental cost burdens are allocated and reallocated among federal,
state and local governmental units. Such non-payment would result in a reduction
of income to the Portfolio, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the net
asset value of the Portfolio.
PERFORMANCE DATA
As described in the Prospectus, the Portfolio may provide current
annualized and effective annualized yield quotations of the Shares based on the
Shares' daily dividends. These quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders. All
performance information supplied by the Portfolio in advertising is historical
and is not intended to indicate future returns.
In performance advertising, the Portfolio may compare any of its
performance information with data published by independent evaluators such as
Morningstar, Inc., Lipper Analytical Services, Inc., or CDC/Wiesenberger,
Donoghue's Money Fund Report or other companies which track the investment
performance of investment companies ("Fund Tracking Companies"). The Funds may
also compare their performance information with the performance of recognized
stock, bond and other indices, including but not limited to the Municipal Bond
Buyers Indices, the Salomon Brothers Bond Index, the Lehman Brothers Bond Index,
the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, U.S. Treasury bonds, bills or notes and changes in the Consumer Price
Index as published by the U.S. Department of Commerce. The Portfolio may refer
to general market performance over past time periods such as those published by
Ibbotson Associates (for instance, its "Stocks, Bonds, Bills and Inflation
Yearbook"). The Portfolio may also refer in such materials to mutual fund
performance rankings and other data published by Fund Tracking Companies.
Performance advertising may also refer to discussions of the Portfolio and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
Any current yield quotation of the Portfolio's Shares which is used in such
a manner as to be subject to the provisions of Rule 482(d) under the Securities
Act of 1933, as amended, shall consist of an annualized historical yield,
carried at least to the nearest hundredth of one percent, based on a specific
seven calendar day period. The current yield of the Portfolio's Shares shall be
calculated by (a) determining the net change during a seven calendar day period
in the value of a hypothetical account having a balance of one share at the
beginning of the period, (b) dividing the net change by the value of the account
at the beginning of the period to obtain a base period return, and (c)
multiplying the quotient by 365/7 (i.e., annualizing). For this purpose, the net
change in account value will reflect the value of additional shares purchased
with dividends declared on the original share and dividends declared on both the
original share and any such additional shares, but will not reflect any realized
gains or losses from the sale of securities or any unrealized appreciation or
depreciation on portfolio securities. In addition, the Portfolio may advertise
effective yield quotations. Effective yield quotations are calculated by adding
1 to the base period return, raising the sum to a power equal to 365/7, and
subtracting 1 from the result (i.e., compounding).
Income calculated for the purpose of determining the yield of the
Portfolio's Shares differs from income as determined for other accounting
purposes. Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for the Portfolio's
Shares may differ from the rate of distribution the Shares paid over the same
period or the rate of income reported in the Portfolio's financial statements.
Although published yield information is useful to investors in reviewing
the performance of the Portfolio's Shares, investors should be aware that the
Shares' yield fluctuates from day to day and that the Shares' yield for any
given period is not an indication or representation by the Portfolio of future
yields or rates of return on the Portfolio's Shares. The Shares' yield is not
fixed or guaranteed, and an investment in the Portfolio is not insured.
Accordingly, the Shares' yield information may not necessarily be used to
compare Portfolio Shares with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. In addition,
because investments in the Portfolio are not insured or guaranteed, the Shares'
yield information may not necessarily be used to compare the Portfolio with
investment alternatives which are insured or guaranteed.
The current yield and effective yield for the Institutional Shares of the
Portfolio for the seven day period ended December 31, 1996, were 5.27% and
5.41%, respectively. The Retirement Shares had not yet commenced operations as
of December 31, 1996. The performance of the Retirement Shares is expected to be
lower from that of the Institutional Shares because the Retirement Shares are
subject to additional fees.
DETERMINATION OF NET ASSET VALUE
Pursuant to the rules of the Securities and Exchange Commission, the
Trustees have established procedures to stabilize the Portfolio's net asset
value at $1.00 per Share. These procedures include a review of the extent of any
deviation of net asset value
7
<PAGE>
per Share as a result of fluctuating interest rates, based on available market
rates, from the Portfolio's $1.00 amortized cost price per Share. Should that
deviation exceed 1/2 of 1%, the Trustees will consider whether any action should
be initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. The Portfolio i) will maintain a dollar-weighted average portfolio
maturity of 90 days or less; ii) will not purchase any instrument with a
remaining maturity greater than 397 days or subject to a repurchase agreement
having a duration of greater than 397 days; iii) will limit portfolio
investments, including repurchase agreements, to those U.S. dollar-denominated
instruments that Janus Capital has determined present minimal credit risks
pursuant to procedures established by the Trustees; and iv) will comply with
certain reporting and recordkeeping procedures. The Trust has also established
procedures to ensure that portfolio securities meet the Portfolio's high quality
criteria.
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 which perfomed 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 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 record keeping for which the Portfolio may reimburse Janus
Capital for its costs.
The Portfolio has agreed to compensate Janus Capital for its advisory
services by the monthly payment of an advisory fee at the annual rate of .25% of
the Portfolio's average daily net assets. 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 .50% of average daily net assets.
For the period from the commencement of the Portfolio's operations (May 1,
1995) until December 31, 1995 and for the fiscal year ended December 31, 1996,
the Portfolio paid no advisory fees, after applicable fee waivers. Without the
waivers, the advisory fee would have been $2,590 and $9,287, respectively, for
these periods.
The Advisory Agreement became effective on March 10, 1995 and will continue
in effect until June 16, 1997, 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 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 Portfolios and other funds advised by Janus Capital may also transfer daily
uninvested cash balances into one or more joint trading accounts. Assets in the
joint trading accounts are invested in money market instruments and the proceeds
are allocated to the participating funds on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
is managed in accordance with that objective by a particular portfolio manager
or team of portfolio managers. As a result, from time to time two or more
different managed accounts may pursue divergent investment strategies with
respect to investments or categories of investments.
8
<PAGE>
As indicated in the Prospectus, Janus Capital does not permit portfolio
managers to purchase and sell securities for their own accounts except under the
limited exceptions contained in Janus Capital's policy regarding personal
investing by directors, officers and employees of Janus Capital and the
Portfolio. The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolio 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 Portfolio to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading. The provisions of the policy are
administered by and subject to exceptions authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI") owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns 12% of
its voting stock and, by agreement with KCSI, selects a majority of Janus
Capital's Board.
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
United Missouri Bank, N.A., P.O. Box 419226, Kansas City, Missouri
64141-6226, is the Portfolio's custodian. The custodian holds the Portfolio's
assets in safekeeping and collects and remits 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 purchase and redemption
transactions, providing periodic statements, forwarding prospectuses,
shareholder reports and other materials to existing plan participants, and other
participant administrative services.
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.
The Portfolio pays DST Systems, Inc. ("DST"), a subsidiary of KCSI, license
fees for the use of DST's portfolio and fund accounting system a base fee paid
monthly between $250 to $1,250 per month based on the number of Janus funds
utilizing the system and an asset charge of $1 per million dollars of net assets
(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 a credit against the charges of DST and its
affiliates with regard to commissions earned by such affiliate. See "Portfolio
Transactions and Brokerage."
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.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; and research products or services provided. In recognition of
the value of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with whom it has negotiated a commission
that is in excess of the commission another broker
9
<PAGE>
or dealer would have charged for effecting that transaction if Janus Capital
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research provided by such broker or
dealer viewed in terms of either that particular transaction or of the overall
responsibilities of Janus Capital. These research and other services may
include, but are not limited to, general economic and security market reviews,
industry and company reviews, evaluations of securities, recommendations as to
the purchase and sale of securities, and access to third party publications,
computer and electronic equipment and software. Research received from brokers
or dealers is supplemental to Janus Capital's own research efforts.
For the fiscal year ended December 31, 1996 and the fiscal period ended
December 31, 1995, the Portfolio did not incur any brokerage commissions. The
Portfolio generally buys and sells securities in principal and agency
transactions in which no commissions are paid. However, the Portfolio may engage
an agent and pay commissions for such transactions if Janus Capital believes
that the net result of the transaction to the Portfolio will be no less
favorable than that of contemporaneously available principal transactions.
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 may consider sales of Portfolio shares or shares of other
Janus funds by a broker-dealer or the recommendation of a broker-dealer to its
customers that they purchase such shares as a factor in the selection of
broker-dealers to execute Portfolio transactions. Janus Capital may also
consider payments made by brokers effecting transactions for a Portfolio i) to
the Portfolio or ii) to other persons on behalf of the Portfolio for services
provided to the Portfolio for which it would be obligated to pay. In placing
portfolio business with such broker-dealers, Janus Capital will seek the best
execution of each transaction.
When the Funds purchase or sell a security in the over-the-counter market,
the transaction takes place directly with a principal market-maker, without the
use of a broker, except in those circumstances where in the opinion of Janus
Capital better prices and executions will be achieved through the use of a
broker.
OFFICERS AND TRUSTEES
The following are the names of the Trustees and officers of Janus Aspen
Series, a Delaware business trust of which the Portfolio is a series, 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 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
Trustee and Executive Vice President of Janus Investment Fund+. Chief
Investment Officer, Vice President and Director of Janus Capital.
Sharon S. Pichler* - Executive Vice President and Portfolio Manager
100 Fillmore Street
Denver, CO 80206-4928
Executive Vice President of Janus Money Market Fund, Janus Tax-Exempt Money
Market Fund and Janus Government Money Market Fund series of Janus
Investment Fund+. Vice President of Janus Capital. Formerly, Assistant Vice
President and portfolio manager at USAA Investment Management Co.
(1990-1994).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4928
Vice President and General Counsel of Janus Investment Fund+. Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Director, Vice President and Secretary of Janus Capital International Ltd.
- --------------------------------------------------------------------------------
*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.
10
<PAGE>
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 and Janus
Distributors. Formerly (1979 to 1992), with the accounting firm of Price
Waterhouse LLP, Denver, Colorado. 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. 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 Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund+. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado.
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund+. President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund+. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
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 its officers and review the investment decisions
of the officers although they do not actively participate on a regular basis in
making such decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Trust Instrument, Delaware Law or
the 1940 Act.
The Money Market Funds Committee, consisting of Messrs. Craig, Loo, Mullen
and Rothe, monitors the compliance with policies and procedures adopted
particularly for money market funds.
- --------------------------------------------------------------------------------
*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.
11
<PAGE>
The following table shows the aggregate compensation earned by and paid to
each Trustee by the Portfolio and all funds advised and sponsored by Janus
Capital (collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive pension or retirement benefits from the Portfolio or the Janus
Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
from the Portfolio for from the Janus Funds
fiscal year ended for calendar year ended
Name of Person, Position December 31, 1996 December 31, 1996**
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, III, Trustee*, $0 $0
John W. Shepardson, Trustee+ *** $73,000
William D. Stewart, Trustee *** $70,000
Gary O. Loo, Trustee *** $70,000
Dennis B. Mullen, Trustee *** $67,000
Martin H. Waldinger, Trustee *** $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.
** As of December 31, 1996, Janus Funds consisted of two registered investment
companies comprised of a total of 29 funds.
*** Aggregate compensation for the period was de minimis.
+ Mr. Shepardson retired on March 31, 1997.
++ Mr. Rothe began serving as Trustee on January 1, 1997.
PURCHASE OF SHARES
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 regular trading session of the New York
Stock Exchange ("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 Investment Company Act of 1940 (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
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 the
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 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 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 upon 60 days' notice, without penalty, by vote of a
majority of the outstanding Shares of the Portfolio or by vote of a majority of
12b-1 Trustees.
REDEMPTION OF SHARES
Redemptions, like purchases, may only be effected through 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 net asset value of the Portfolio during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such limitation, their
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 "Determination of Net Asset Value" and such valuation
will be made as of the same time the redemption price is determined.
13
<PAGE>
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 Securities and Exchange Commission, or the NYSE
is closed except for holidays and weekends, (2) the Securities and Exchange
Commission permits such suspension and so orders, or (3) an emergency exists as
determined by the Securities and Exchange Commission so that disposal of
securities or determination of NAV is not reasonably practicable.
DIVIDENDS AND TAX STATUS
Dividends representing substantially all of the net investment income and
any net realized gains on sales of securities are declared daily, Saturdays,
Sundays and holidays included, and distributed on the last business day of each
month. If a month begins on a Saturday, Sunday, or holiday, dividends for those
days are declared at the end of the preceding month and distributed on the first
business day of the month. The Portfolio intends to qualify as a "regulated
investment company" by satisfying certain requirements prescribed by Subchapter
M of the Internal Revenue Code of 1986. In addition, because a class of shares
of the Portfolio are sold in connection with variable insurance contracts, the
Portfolio intends to comply with the diversification requirements of Internal
Revenue 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.
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 contracts or plans. See the plan documents for additional information.
MISCELLANEOUS INFORMATION
THE TRUST
The Portfolio is an open-end management investment company registered under
the 1940 Act as a series of the Trust, which was organized as a Delaware
business trust 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 and classes of shares. 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.
SHARES OF THE TRUST
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $0.001 per share for each series of the
Trust. Shares of each series of the Trust 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.
Each Portfolio currently offers two classes of shares. The Shares discussed
in this SAI 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. A second class of shares, Institutional Shares,
are offered only in connection with investment in and payments under variable
contracts and life 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.
The present Trustees were elected by the initial trustee of the Trust on
May 25, 1993, and were approved by the initial shareholder 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
13
<PAGE>
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 the 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 Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities to which this SAI relates. If further
information is desired with respect to the Portfolio or such securities,
reference is made to the Registration Statement and the exhibits filed as a part
thereof.
FINANCIAL STATEMENTS
The following audited financial statements for Institutional Shares of the
Portfolio the period ended December 31, 1996 are hereby incorporated into this
Statement of Additional Information by reference to the Portfolio's Annual
Report dated December 31, 1996. A copy of such report accompanies this Statement
of Additional Information. The Retirement Shares had not yet commenced
operations as of December 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT
Schedule of Investments as of December 31, 1996
Statement of Operations for the period May 1, 1996 to December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Changes in Net Assets for the period May 1, 1996 to December
31, 1996
Financial Highlights for the period May 1, 1996 to December 31, 1996
Notes to Financial Statements
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this Statement of Additional Information
and are not part of the Registration Statement.
14
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S AND STANDARD & POOR'S
MUNICIPAL AND CORPORATE BONDS AND MUNICIPAL LOANS
The two highest ratings of Standard & Poor's Ratings Services ("S&P") for
municipal and corporate bonds are AAA and AA. Bonds rated AAA have the highest
rating assigned by S&P to a debt obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in a
small degree. The AA rating may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within that rating category.
The two highest ratings of Moody's Investors Service, Inc. ("Moody's") for
municipal and corporate bonds are Aaa and Aa. Bonds rated Aaa are judged by
Moody's to be of the best quality. Bonds rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. Moody's states that Aa bonds are rated
lower than the best bonds because margins of protection or other elements make
long-term risks appear somewhat larger than Aaa securities. The generic rating
Aa may be modified by the addition of the numerals 1, 2 or 3. The modifier 1
indicates that the security ranks in the higher end of the Aa rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of such rating category.
SHORT TERM MUNICIPAL LOANS
S&P's highest rating for short-term municipal loans is SP-1. S&P states
that short-term municipal securities bearing the SP-1 designation have a strong
capacity to pay principal and interest. Those issues rated SP-1 which are
determined to possess a very strong capacity to pay debt service will be given a
plus (+) designation. Issues rated SP-2 have satisfactory capacity to pay
principal and interest with some vulnerability to adverse financial and economic
changes over the term of the notes.
Moody's highest rating for short-term municipal loans is MIG-1/VMIG-1.
Moody's states that short-term municipal securities rated MIG-1/VMIG-1 are of
the best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG-2/VMIG-2 designation are
of high quality, with margins of protection ample although not so large as in
the MIG-1/VMIG-1 group.
OTHER SHORT-TERM DEBT SECURITIES
Prime-1 and Prime-2 are the two highest ratings assigned by Moody's for
other short-term debt securities and commercial paper, and A-1 and A-2 are the
two highest ratings for commercial paper assigned by S&P. Moody's uses the
numbers 1, 2 and 3 to denote relative strength within its highest classification
of Prime, while S&P uses the numbers 1, 2 and 3 to denote relative strength
within its highest classification of A. Issuers rated Prime-1 by Moody's have a
superior ability for repayment of senior short-term debt obligations and have
many of the following characteristics: leading market positions in
well-established industries, high rates of return on funds employed,
conservative capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earnings coverage of fixed financial charges
and high internal cash generation, and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 by Moody's have a strong ability for repayment of senior short-term debt
obligations and display many of the same characteristics displayed by issuers
rated Prime-1, but to a lesser degree. Issuers rated A-1 by S&P carry a strong
degree of safety regarding timely repayment. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+) designation.
Issuers rated A-2 by S&P carry a satisfactory degree of safety regarding timely
repayment.
FITCH
F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than
issues rated F-1+.
F-2 Good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is
not as great as the F-1+ and F-1 ratings.
13
<PAGE>
DUFF & PHELPS INC.
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative sources
of funds, is clearly outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
THOMSON BANKWATCH, INC.
TBW-1 The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
IBCA, INC.
A1+ Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of
A1+ is assigned.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely repayment.
B Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.
C Obligations for which there is a high risk of default or which are
currently in default.
16
<PAGE>
APPENDIX B
DESCRIPTION OF MUNICIPAL SECURITIES
Municipal Notes generally are used to provide for short-term capital needs
and usually have maturities of one year or less. They include the following:
1. Project Notes, which carry a U.S. government guarantee, are issued by
public bodies (called "local issuing agencies") created under the laws of a
state, territory, or U.S. possession. They have maturities that range up to one
year from the date of issuance. Project Notes are backed by an agreement between
the local issuing agency and the Federal Department of Housing and Urban
Development. These Notes provide financing for a wide range of financial
assistance programs for housing, redevelopment, and related needs (such as
low-income housing programs and renewal programs).
2. Tax Anticipation Notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and are payable
from these specific future taxes.
3. Revenue Anticipation Notes are issued in expectation of receipt of other
types of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.
4. Bond Anticipation Notes are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds then
provide the money for the repayment of the Notes.
5. Construction Loan Notes are sold to provide construction financing.
After successful completion and acceptance, many projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association ("Fannie Mae") or the Government National Mortgage
Association ("Ginnie Mae").
6. Tax-Exempt Commercial Paper is a short-term obligation with a stated
maturity of 365 days or less. It is issued by agencies of state and local
governments to finance seasonal working capital needs or as short-term financing
in anticipation of longer term financing.
Municipal Bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:
1. General Obligation Bonds are issued by such entities as states,
counties, cities, towns, and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind General Obligation Bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
2. Revenue Bonds in recent years have come to include an increasingly wide
variety of types of municipal obligations. As with other kinds of municipal
obligations, the issuers of revenue bonds may consist of virtually any form of
state or local governmental entity, including states, state agencies, cities,
counties, authorities of various kinds, such as public housing or redevelopment
authorities, and special districts, such as water, sewer or sanitary districts.
Generally, revenue bonds are secured by the revenues or net revenues derived
from a particular facility, group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are issued
to finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these bonds provide additional
security in the form of a debt service reserve fund to be used to make principal
and interest payments. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Housing authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated (see 3 below).
3. Private Activity Bonds are considered municipal bonds if the interest
paid thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing and health. These bonds are
also used to finance public facilities such as airports, mass transit systems
and ports. The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property as security for such
payment.
While, at one time, the pertinent provisions of the Internal Revenue Code
permitted private activity bonds to bear tax-exempt interest in connection with
virtually any type of commercial or industrial project (subject to various
restrictions as to authorized
17
<PAGE>
costs, size limitations, state per capita volume restrictions, and other
matters), the types of qualifying projects under the Code have become
increasingly limited, particularly since the enactment of the Tax Reform Act of
1986. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
rental multi-family housing facilities, nonprofit hospital and nursing home
projects, airports, docks and wharves, mass commuting facilities and solid waste
disposal projects, among others, and for the refunding (that is, the tax-exempt
refinancing) of various kinds of other private commercial projects originally
financed with tax-exempt bonds. In future years, the types of projects
qualifying under the Code for tax-exempt financing are expected to become
increasingly limited.
Because of terminology formerly used in the Internal Revenue Code,
virtually any form of private activity bond may still be referred to as an
"industrial development bond," but more and more frequently revenue bonds have
become classified according to the particular type of facility being financed,
such as hospital revenue bonds, nursing home revenue bonds, multi-family housing
revenues bonds, single family housing revenue bonds, industrial development
revenue bonds, solid waste resource recovery revenue bonds, and so on.
Other Municipal Obligations, incurred for a variety of financing purposes,
include: municipal leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local governments
and authorities to acquire a wide variety of equipment and facilities such as
fire and sanitation vehicles, telecommunications equipment and other capital
assets. Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the government issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Portfolio will only purchase
municipal leases subject to a non-appropriation clause when the payment of
principal and accrued interest is backed by an unconditional irrevocable letter
of credit, or guarantee of a bank or other entity that meets the criteria
described in the Prospectus.
Tax-exempt bonds are also categorized according to whether the interest is
or is not includible in the calculation of alternative minimum taxes imposed on
individuals, according to whether the costs of acquiring or carrying the bonds
are or are not deductible in part by banks and other financial institutions, and
according to other criteria relevant for Federal income tax purposes. Due to the
increasing complexity of Internal Revenue Code and related requirements
governing the issuance of tax-exempt bonds, industry practice has uniformly
required, as a condition to the issuance of such bonds, but particularly for
revenue bonds, an opinion of nationally recognized bond counsel as to the
tax-exempt status of interest on the bonds.
18
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<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 Institutional Shares of all of the
Portfolios (except Equity Income and Capital Appreciation
Portfolios which have not yet commenced operations).
(a)(2) Financial Statements included in the Statement of Additional
Information:
The Financial Statements for Institutional Shares of all of
the Portfolios (except Equity Income and Capital
Appreciation Portfolios which have not yet commenced
operations) dated December 31, 1996, are incorporated herein
by reference into the respective Statements of Additional
Information.
(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.
(c) Amendment to Trust Instrument dated
December 10, 1996 is incorporated herein
by reference to Exhibit 1(c) to Post-
Effective Amendment No. 10.
Exhibit 2 (a) Restated Bylaws are incorporated herein
by reference to Exhibit 2(a) to
Post-Effective Amendment No. 7.
(b) First Amendment to the Bylaws is
incorporated herein by reference to
Exhibit 2(b) to Post-Effective Amendment
No. 7.
C-1
<PAGE>
Exhibit 3 Not Applicable
Exhibit 4 Not Applicable
Exhibit 5 (a) Form of Investment Advisory Agreement is
herein filed as Exhibit 5(a).
(b) Form of Investment Advisory Agreement
for International Growth Portfolio is
filed herein as Exhibit 5(b).
(c) Form of Investment Advisory Agreement
for Money Market Portfolio is filed
herein as Exhibit 5(c).
(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.
(e) Investment Advisory Agreement for Equity
Income Portfolio is incorporated herein
by reference to Exhibit 5(e) to
Post-Effective Amendment No. 10.
(f) Investment Advisory Agreement for
Capital Appreciation Portfolio is
incorporated herein by reference to
Exhibit 5(f) to Post-Effective Amendment
No. 10.
Exhibit 6 (a) Distribution Agreement for Retirement
Shares is incorporated herein by
reference to Exhibit 6(a) to Post-
Effective Amendment No. 10.
(b) Form of Distribution and Shareholder
Services Agreement for Retirement Shares
is filed herein as Exhibit 6(b).
Exhibit 7 Not Applicable
Exhibit 8 (a) Form of Custody Agreement between Janus
Aspen Series and Investors Fiduciary
Trust Company is herein filed as Exhibit
8(a).
(b) Form of Custodian Contract between Janus
Aspen Series and State Street Bank and
Trust Company is filed herein as Exhibit
8(b).
C-2
<PAGE>
(c) Letter Agreement dated April 4, 1994
regarding State Street Custodian
Agreement is filed herein as Exhibit
8(c).
(d) Form of Custodian Agreement between
Janus Aspen Series and United Missouri
Bank, N.A. is filed herein as Exhibit
8(d).
(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.
(f) Letter Agreement dated September 10,
1996 regarding State Street Custodian as
filed herein by reference to Exhibit
8(f) to Post-Effective Amendment No. 9.
(g) Form of Subcustodian Contract between
United Missouri Bank, N.A. and State
Street Bank and Trust Company as filed
herein by reference to Exhibit 8(g) to
Post-Effective Amendment No. 9.
Exhibit 9 (a) Transfer Agency Agreement with Janus
Service Corporation is filed herein as
Exhibit 9(a).
(b) Transfer Agency Agreement as amended May
1, 1997 is incorporated herein by
reference to Exhibit 9(b) to Post-
Effective Amendment No. 10.
(c) Form of Model Participation Agreement is
herein filed as Exhibit 9(c).
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 filed herein as
Exhibit 10.
(b) Opinion and Consent of Fund Counsel with
respect to shares of International
Growth Portfolio is filed herein as
Exhibit 10(b).
(c) Opinion and Consent of Fund Counsel with
respect to shares of Money Market
Portfolio is filed herein as Exhibit
10(c).
C-3
<PAGE>
(d) Opinion and Consent of Fund Counsel with
respect to High-Yield Portfolio is
incorporated herein by reference to
Exhibit 10(d) to Post-Effective
Amendment No. 7.
(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.
(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.
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.
Exhibit 16 Computation of Current Yield and
Effective Yield is incorporated herein
by reference to Exhibit 16 to Post-
Effective Amendment No. 6.
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.
(b) Power of Attorney dated January 2, 1997,
is incorporated herein by reference to
Exhibit 17(b) to Post-Effective
Amendment No. 10.
Exhibit 18 Rule 18f-3 Plan dated December 10, 1996
is incorporated herein by reference to
Exhibit 18 to Post-Effective Amendment
No. 10.
C-4
<PAGE>
Exhibit 27 Financial Data Schedules for
Institutional Shares of all of the
Portfolios (except Equity Income and
Capital Appreciation Portfolios) 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 April
4, 1997, was as follows:
Number of
Title of Class Record Holders
Growth Portfolio - Institutional Shares 17
Aggressive Growth Portfolio - Institutional Shares 12
Worldwide Growth Portfolio - Institutional Shares 19
Balanced Portfolio - Institutional Shares 8
Flexible Income Portfolio - Institutional Shares 6
Short-Term Bond Portfolio - Institutional Shares 1
International Growth Portfolio - Institutional Shares 12
Money Market Portfolio - Institutional Shares 2
High-Yield Portfolio - Institutional Shares 6
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 International Growth
Portfolio, Money Market Portfolio and High-Yield 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
C-5
<PAGE>
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.
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 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.
C-6
<PAGE>
(b) The principal business address, positions with Janus
Distributors and positions with Registrant of David C.
Tucker 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 officers of Janus Distributors are
Kelley Abbott Howes, President and Jennifer A. Davis,
Secretary. Ms. Howes' position with the Registrant is
described under "Officers and Trustees" in the Statement of
Additional Information. Ms. Davis does not hold any
positions with the Registrant. The principal business
address of each person is 100 Fillmore Street, Denver,
Colorado 80206-4928.
(c) Not Applicable.
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 Equity Income Portfolio and Capital
Appreciation 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-7
<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 the
requirements for 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 30th day of April, 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 April 30, 1997
Thomas H. Bailey (Principal Executive
Officer) and Trustee
/s/ Steven R. Goodbarn Vice President and April 30, 1997
Steven R. Goodbarn Chief Financial Officer
(Principal Financial Officer)
/s/ Glenn P. O'Flaherty Treasurer and Chief April 30, 1997
Glenn P. O'Flaherty Accounting Officer
(Principal Accounting Officer)
<PAGE>
/s/ James P. Craig, III Trustee April 30, 1997
James P. Craig, III
Gary O. Loo* Trustee April 30, 1997
Gary O. Loo
Dennis B. Mullen* Trustee April 30, 1997
Dennis B. Mullen
James T. Rothe* Trustee April 30, 1997
James T. Rothe
William D. Stewart* Trustee April 30, 1997
William D. Stewart
Martin H. Waldinger* Trustee April 30, 1997
Martin H. Waldinger
/s/ Steven R. Goodbarn
*By Steven R. Goodbarn
Attorney-in-Fact
<PAGE>
INDEX OF EXHIBITS
Exhibit Number Exhibit Title
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
Exhibit 5(b) Form of Investment Advisory Agreement
for International Growth Portfolio
Exhibit 5(c) Form of Investment Advisory Agreement
for Money Market Portfolio
Exhibit 6(b) Form of Distribution and Shareholder
Services Agreement for Retirement Shares
Exhibit 8(a) Form of Custody Agreement between Janus
Aspen Series and Investors Fiduciary
Trust Company
Exhibit 8(b) Form of Custodian Contract between Janus
Aspen Series and State Street Bank and
Trust Company
Exhibit 8(c) Letter Agreement dated April 4, 1994
regarding State Street Custodian
Agreement
Exhibit 8(d) Form of Custodian Agreement between
Janus Aspen Series and United Missouri
Bank, N.A.
Exhibit 9(a) Transfer Agency Agreement with Janus
Service Corporation
Exhibit 9(c) Form of Model Fund Participation
Agreement
Exhibit 10(a) Opinion and Consent of Fund Counsel for
Growth Portfolio, Aggressive Growth
Portfolio, Worldwide Growth Portfolio,
Balanced Portfolio, Flexible Income
Portfolio and Short-Term Bond Portfolio
Exhibit 10(b) Opinion and Consent of Fund Counsel for
International Growth Portfolio
Exhibit 10(c) Opinion and consent of Fund Counsel for
Money Market Portfolio
Exhibit 11 Consent of Price Waterhouse LLP
Exhibit 27 Financial Data Schedules
EXHIBIT 5(a)
JANUS ASPEN SERIES
INVESTMENT ADVISORY AGREEMENT
[GROWTH PORTFOLIO]
[AGGRESSIVE GROWTH PORTFOLIO]
[WORLDWIDE GROWTH PORTFOLIO]
[BALANCED PORTFOLIO]
[FLEXIBLE INCOME PORTFOLIO]
[SHORT-TERM BOND PORTFOLIO]
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is made this ___ day
of _______________, between JANUS ASPEN SERIES, a Delaware business trust (the
"Trust"), and JANUS CAPITAL CORPORATION, a Colorado corporation ("JCC").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has registered its shares for public offering under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust is authorized to create separate funds, each with its
own separate investment portfolio of which the beneficial interests are
represented by a separate series of shares; one of such funds created by the
Trust being designated as the [Growth Portfolio] [Aggressive Growth Portfolio]
[Worldwide Growth Portfolio] [Balanced Portfolio] [Flexible Income Portfolio]
[Short-Term Bond Portfolio] (the "Fund"); and
WHEREAS, the Trust and JCC deem it mutually advantageous that JCC should
assist the Trustees and officers of the Trust in the management of the
securities portfolio of the Fund.
NOW, THEREFORE, the parties agree as follows:
1. Investment Advisory Services. JCC shall furnish continuous advice and
recommendations to the Fund as to the acquisition, holding, or disposition of
any or all of the securities or other assets which the Fund may own or
contemplate acquiring from time to time. JCC shall give due consideration to the
investment policies and restrictions and the other statements concerning the
Fund in the Trust Instrument, bylaws, and registration statements under the 1940
Act and the 1933 Act, and to the provisions of the Internal Revenue Code, as
amended from time to time, applicable to the Fund as a regulated investment
company and as a funding vehicle for variable insurance contracts. In addition,
JCC shall cause its officers to attend meetings and furnish oral or written
reports, as the Trust may reasonably require, in order to keep the Trustees and
appropriate officers of the
-1-
<PAGE>
Trust fully informed as to the condition of the investment portfolio of the
Fund, the investment recommendations of JCC, and the investment considerations
which have given rise to those recommendations. JCC shall supervise the purchase
and sale of securities as directed by the appropriate officers of the Trust.
2. Other Services. JCC is hereby authorized (to the extent the Trust has
not otherwise contracted) but not obligated (to the extent it so notifies the
Trustees at least 60 days in advance), to perform (or arrange for the
performance by affiliates of) the management and administrative services
necessary for the operation of the Fund. JCC is specifically authorized, on
behalf of the Trust, to conduct relations with custodians, depositories,
transfer and pricing agents, accountants, attorneys, underwriters, brokers and
dealers, corporate fiduciaries, insurance company separate accounts, insurers,
banks and such other persons in any such other capacity deemed by JCC to be
necessary or desirable. JCC shall generally monitor and report to Fund officers
the Fund's compliance with investment policies and restrictions as set forth in
the currently effective prospectus and statement of additional information
relating to the shares of the Fund under the Securities Act of 1933, as amended.
JCC shall make reports to the Trustees of its performance of services hereunder
upon request therefor and furnish advice and recommendations with respect to
such other aspects of the business and affairs of the Fund as it shall determine
to be desirable. JCC is also authorized, subject to review by the Trustees, to
furnish such other services as JCC shall from time to time determine to be
necessary or useful to perform the services contemplated by this Agreement.
3. Obligations of Trust. The Trust shall have the following obligations
under this Agreement:
(a) to keep JCC continuously and fully informed as to the composition
of its investment portfolio and the nature of all of its assets
and liabilities from time to time;
(b) to furnish JCC with a certified copy of any financial statement
or report prepared for it by certified or independent public
accountants and with copies of any financial statements or
reports made to its shareholders or to any governmental body or
securities exchange;
(c) to furnish JCC with any further materials or information which
JCC may reasonably request to enable it to perform its function
under this Agreement; and
(d) to compensate JCC for its services and reimburse JCC for its
expenses incurred hereunder in accordance with the provisions
hereof.
4. Compensation. The Trust shall pay to JCC for its investment advisory
services a fee, calculated and payable for each day that this Agreement is in
effect, of [Growth Portfolio, Aggressive Growth Portfolio, Worldwide Growth
Portfolio and Balanced Portfolio: 1/365 of 1% of the first $30,000,000 of the
daily closing net asset value of the Fund, plus 1/365 of 0.75% of the next
$270,000,000 of the daily closing net
-2-
<PAGE>
asset value of the Fund, plus 1/365 of 0.70% of the next $200,000,000 of the
daily closing net asset value of the Fund, plus 1/365 of 0.65% of the daily
closing net asset value of the fund in excess of $500,000,000.] [Flexible Income
Portfolio and Short-Term Bond portfolio: 1/365 of 0.65% of the first
$300,000,000 of the daily closing net asset value of the Fund, plus 1/365 of
0.55% of the daily closing net asset value of the Fund in excess of
$300,000,000].
5. Expenses Borne by JCC. In addition to the expenses which JCC may incur
in the performance of its investment advisory functions under this Agreement,
and the expenses which it may expressly undertake to incur and pay under other
agreements with the Trust or otherwise, JCC shall incur and pay the following
expenses relating to the Fund's operations without reimbursement from the Fund:
(a) Reasonable compensation, fees and related expenses of the Trust's
officers and its Trustees, except for such Trustees who are not
interested persons of JCC;
(b) Rental of offices of the Trust; and
(c) All expenses of promoting the sale of shares of the Fund other
than expenses incurred in complying with federal and state laws,
including insurance laws, and the laws of any foreign country or
territory or other jurisdiction applicable to the issue, offer or
sale of shares of the Fund including without limitation
registration fees and costs, the costs of preparing the Fund's
registration statement and amendments thereto, and the costs and
expenses of preparing, printing, and mailing prospectuses (and
statements of additional information) to shareholders of the
Fund.
6. Expenses Borne by the Trust. The Trust assumes and shall pay all
expenses incidental to its organization, operations and business not
specifically assumed or agreed to be paid by JCC pursuant to Sections 2 and 5
hereof, including, but not limited to, investment adviser fees; any
compensation, fees, or reimbursements which the Trust pays to its Trustees who
are not interested persons of JCC; compensation of the Fund's custodian,
transfer agent, registrar and dividend disbursing agent; legal, accounting,
audit and printing expenses; administrative, clerical, recordkeeping and
bookkeeping expenses; brokerage commissions and all other expenses in connection
with execution of portfolio transactions (including any appropriate commissions
paid to JCC or its affiliates for effecting exchange listed, over-the-counter or
other securities transactions); interest; all federal, state and local taxes
(including stamp, excise, income and franchise taxes); costs of stock
certificates and expenses of delivering such certificates to purchasers thereof;
expenses of local representation in Delaware; expenses of shareholders' meetings
and of preparing, printing and distributing proxy statements, notices, and
reports to shareholders; expenses of preparing and filing reports and tax
returns with federal and state regulatory authorities; all expenses incurred in
complying with all federal and state laws and the laws of any foreign country
applicable to the issue, offer, or sale of shares of the Fund, including, but
not limited to, all costs involved in the registration or qualification of
shares of the Fund for sale in any jurisdiction,
-3-
<PAGE>
the costs of portfolio pricing services and compliance systems, and all costs
involved in preparing, printing and mailing prospectuses and statements of
additional information of the Fund; and all fees, dues and other expenses
incurred by the Trust in connection with the membership of the Trust in any
trade association or other investment company organization. To the extent that
JCC shall perform any of the above described administrative and clerical
functions, including transfer agency, registry, dividend disbursing,
recordkeeping, bookkeeping, accounting and blue sky monitoring and registration
functions, and the preparation of reports and returns, the Trust shall pay to
JCC compensation for, or reimburse JCC for its expenses incurred in connection
with, such services as JCC and the Trust shall agree from time to time, any
other provision of this Agreement notwithstanding.
7. Treatment of Investment Advice. The Trust shall treat the investment
advice and recommendations of JCC as being advisory only, and shall retain full
control over its own investment policies. However, the Trustees may delegate to
the appropriate officers of the Trust, or to a committee of the Trustees, the
power to authorize purchases, sales or other actions affecting the portfolio of
the Fund in the interim between meetings of the Trustees.
8. Brokerage Commissions. For purposes of this Agreement, brokerage
commissions paid by the Fund upon the purchase or sale of its portfolio
securities shall be considered a cost of securities of the Fund and shall be
paid by the Fund. JCC is authorized and directed to place Fund portfolio
transactions only with brokers and dealers who render satisfactory service in
the execution of orders at the most favorable prices and at reasonable
commission rates, provided, however, that JCC may pay a broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if JCC determines in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer viewed in terms of either that particular
transaction or the overall responsibilities of JCC. JCC is also authorized to
consider sales of Trust shares (or shares of other Janus funds) as a factor in
selecting broker-dealers to execute Fund portfolio transactions. In placing
portfolio business with such broker-dealers, JCC shall seek the best execution
of each transaction. Subject to the terms of this Agreement and the applicable
requirements and provisions of the law, including the 1940 Act and the
Securities Exchange Act of 1934, as amended, and in the event that JCC or an
affiliate is registered as a broker-dealer, JCC may select a broker or dealer
with which it or the Fund is affiliated. JCC or such affiliated broker-dealer
may effect or execute Fund portfolio transactions, whether on a securities
exchange or in the over-the-counter market, and receive separate compensation
from the Fund therefor. Notwithstanding the foregoing, the Trust shall retain
the right to direct the placement of all portfolio transactions, and the
Trustees of the Trust may establish policies or guidelines to be followed by JCC
in placing portfolio transactions for the Trust pursuant to the foregoing
provisions. JCC shall report on the placement of portfolio transactions in the
prior fiscal quarter at each quarterly meeting of such Trustees.
9. Termination. This Agreement may be terminated at any time, without
penalty, by the Trustees of the Trust, or by the shareholders of the Trust
acting by vote of at least a majority of its outstanding voting securities,
provided in either case that sixty (60) days advance written notice of
termination be given to JCC at its principal place of business. This
-4-
<PAGE>
Agreement may be terminated by JCC at any time, without penalty, by giving sixty
(60) days advance written notice of termination to the Trust, addressed to its
principal place of business. The Trust agrees that, consistent with the terms of
the Trust Instrument, the Trust shall cease to use the name "Janus" in
connection with the Fund as soon as reasonably practicable following any
termination of this Agreement if JCC does not continue to provide investment
advice to the Fund after such termination.
10. Assignment. This Agreement shall terminate automatically in the event
of any assignment of this Agreement.
11. Term. This Agreement shall continue in effect until June 16, 1995,
unless sooner terminated in accordance with its terms, and shall continue in
effect from year to year thereafter only so long as such continuance is
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on the
approval of the terms of such renewal, and by either the Trustees of the Trust
or the affirmative vote of a majority of the outstanding voting securities of
the Trust. The annual approvals provided for herein shall be effective to
continue this Agreement from year to year if given within a period beginning not
more than ninety (90) days prior to June 16 of each applicable year,
notwithstanding the fact that more than three hundred sixty-five (365) days may
have elapsed since the date on which such approval was last given.
12. Amendments. This Agreement may be amended by the parties only if such
amendment is specifically approved (i) by a majority of the Trustees, including
a majority of the Trustees who are not interested persons (as that phrase is
defined in Section 2(a)(19) of the 1940 Act) of JCC and, if required by
applicable law, (ii) by the affirmative vote of a majority of the outstanding
voting securities of the Fund (as that phrase is defined in Section 2(a)(42) of
the 1940 Act).
13. Other Series. The Trustees shall determine the basis for making an
appropriate allocation of the Trust's expenses (other than those directly
attributable to the Fund) between the Fund and the other series of the Trust.
14. Limitation of Personal Liability. All the parties hereto acknowledge
and agree that all liabilities of the Trust arising, directly or indirectly,
under this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Fund and that no Trustee, officer or holder of
shares of beneficial interest of the Trust shall be personally liable for any of
the foregoing liabilities. The Trust Instrument describes in detail the
respective responsibilities and limitations on liability of the Trustees,
officers and holders of shares of beneficial interest of the Trust.
15. Limitation of Liability of JCC. JCC shall not be liable for any error
of judgment or mistake of law or for any loss arising out of any investment or
for any act or omission taken with respect to the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder and
except to the extent otherwise provided by law. As used in this Section 15,
"JCC" shall include any affiliate of JCC performing services for the
-5-
<PAGE>
Trust contemplated hereunder and directors, officers and employees of JCC and
such affiliates.
16. Activities of JCC. The services of JCC to the Trust hereunder are not
to be deemed to be exclusive, and JCC and its affiliates are free to render
services to other parties. It is understood that trustees, officers and
shareholders of the Trust are or may become interested in JCC as directors,
officers and shareholders of JCC, that directors, officers, employees and
shareholders of JCC are or may become similarly interested in the Trust, and
that JCC may become interested in the Trust as a shareholder or otherwise.
17. Certain Definitions. The terms "vote of a majority of the outstanding
voting securities", "assignment" and "interested persons" when used herein,
shall have the respective meanings specified in the 1940 Act, as now in effect
or hereafter amended, and the rules and regulations thereunder, subject to such
orders, exemptions and interpretations as may be issued by the Securities and
Exchange Commission under said Act and as may be then in effect.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Investment Advisory Agreement as of the date and year first
above written.
JANUS CAPITAL CORPORATION
By:_____________________________________
JANUS ASPEN SERIES
By:_____________________________________
-6-
EXHIBIT 5(b)
JANUS ASPEN SERIES
FORM OF
INVESTMENT ADVISORY AGREEMENT
INTERNATIONAL GROWTH PORTFOLIO
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is made this ___ day
of __________________, between JANUS ASPEN SERIES, a Delaware business trust
(the "Trust"), and JANUS CAPITAL CORPORATION, a Colorado corporation ("JCC").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has registered its shares for public offering under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust is authorized to create separate funds, each with its
own separate investment portfolio of which the beneficial interests are
represented by a separate series of shares; one of such funds created by the
Trust being designated as the International Growth Portfolio (the "Fund"); and
WHEREAS, the Trust and JCC deem it mutually advantageous that JCC should
assist the Trustees and officers of the Trust in the management of the
securities portfolio of the Fund.
NOW, THEREFORE, the parties agree as follows:
1. Investment Advisory Services. JCC shall furnish continuous advice and
recommendations to the Fund as to the acquisition, holding, or disposition of
any or all of the securities or other assets which the Fund may own or
contemplate acquiring from time to time. JCC shall give due consideration to the
investment policies and restrictions and the other statements concerning the
Fund in the Trust Instrument, bylaws, and registration statements under the 1940
Act and the 1933 Act, and to the provisions of the Internal Revenue Code, as
amended from time to time, applicable to the Fund as a regulated investment
company and as a funding vehicle for variable insurance contracts. In addition,
JCC shall cause its officers to attend meetings and furnish oral or written
reports, as the Trust may reasonably require, in order to keep the Trustees and
appropriate officers of the Trust fully informed as to the condition of the
investment portfolio of the Fund, the
-1-
<PAGE>
investment recommendations of JCC, and the investment considerations which have
given rise to those recommendations. JCC shall supervise the purchase and sale
of securities as directed by the appropriate officers of the Trust.
2. Other Services. JCC is hereby authorized (to the extent the Trust has
not otherwise contracted) but not obligated (to the extent it so notifies the
Trustees at least 60 days in advance), to perform (or arrange for the
performance by affiliates of) the management and administrative services
necessary for the operation of the Fund. JCC is specifically authorized, on
behalf of the Trust, to conduct relations with custodians, depositories,
transfer and pricing agents, accountants, attorneys, underwriters, brokers and
dealers, corporate fiduciaries, insurance company separate accounts, insurers,
banks and such other persons in any such other capacity deemed by JCC to be
necessary or desirable. JCC shall generally monitor and report to Fund officers
the Fund's compliance with investment policies and restrictions as set forth in
the currently effective prospectus and statement of additional information
relating to the shares of the Fund under the Securities Act of 1933, as amended.
JCC shall make reports to the Trustees of its performance of services hereunder
upon request therefor and furnish advice and recommendations with respect to
such other aspects of the business and affairs of the Fund as it shall determine
to be desirable. JCC is also authorized, subject to review by the Trustees, to
furnish such other services as JCC shall from time to time determine to be
necessary or useful to perform the services contemplated by this Agreement.
3. Obligations of Trust. The Trust shall have the following obligations
under this Agreement:
(a) to keep JCC continuously and fully informed as to the composition
of its investment portfolio and the nature of all of its assets
and liabilities from time to time;
(b) to furnish JCC with a certified copy of any financial statement
or report prepared for it by certified or independent public
accountants and with copies of any financial statements or
reports made to its shareholders or to any governmental body or
securities exchange;
(c) to furnish JCC with any further materials or information which
JCC may reasonably request to enable it to perform its function
under this Agreement; and
(d) to compensate JCC for its services and reimburse JCC for its
expenses incurred hereunder in accordance with the provisions
hereof.
4. Compensation. The Trust shall pay to JCC for its investment advisory
services a fee, calculated and payable for each day that this Agreement is in
effect, of 1/365 of 1% of the first $30,000,000 of the daily closing net asset
value of the Fund, plus 1/365 of 0.75% of the next $270,000,000 of the daily
closing net asset value of the Fund, plus 1/365
-2-
<PAGE>
of 0.70% of the next $200,000,000 of the daily closing net asset value of the
Fund, plus 1/365 of 0.65% of the daily closing net asset value of the Fund in
excess of $500,000,000.
5. Expenses Borne by JCC. In addition to the expenses which JCC may incur
in the performance of its investment advisory functions under this Agreement,
and the expenses which it may expressly undertake to incur and pay under other
agreements with the Trust or otherwise, JCC shall incur and pay the following
expenses relating to the Fund's operations without reimbursement from the Fund:
(a) Reasonable compensation, fees and related expenses of the Trust's
officers and its Trustees, except for such Trustees who are not
interested persons of JCC;
(b) Rental of offices of the Trust; and
(c) All expenses of promoting the sale of shares of the Fund other
than expenses incurred in complying with federal and state laws,
including insurance laws, and the laws of any foreign country or
territory or other jurisdiction applicable to the issue, offer or
sale of shares of the Fund including without limitation
registration fees and costs, the costs of preparing the Fund's
registration statement and amendments thereto, and the costs and
expenses of preparing, printing, and mailing prospectuses (and
statements of additional information) to shareholders of the
Fund.
6. Expenses Borne by the Trust. The Trust assumes and shall pay all
expenses incidental to its organization, operations and business not
specifically assumed or agreed to be paid by JCC pursuant to Sections 2 and 5
hereof, including, but not limited to, investment adviser fees; any
compensation, fees, or reimbursements which the Trust pays to its Trustees who
are not interested persons of JCC; compensation of the Fund's custodian,
transfer agent, registrar and dividend disbursing agent; legal, accounting,
audit and printing expenses; administrative, clerical, recordkeeping and
bookkeeping expenses; brokerage commissions and all other expenses in connection
with execution of portfolio transactions (including any appropriate commissions
paid to JCC or its affiliates for effecting exchange listed, over-the-counter or
other securities transactions); interest; all federal, state and local taxes
(including stamp, excise, income and franchise taxes); costs of stock
certificates and expenses of delivering such certificates to purchasers thereof;
expenses of local representation in Delaware; expenses of shareholders' meetings
and of preparing, printing and distributing proxy statements, notices, and
reports to shareholders; expenses of preparing and filing reports and tax
returns with federal and state regulatory authorities; all expenses incurred in
complying with all federal and state laws and the laws of any foreign country
applicable to the issue, offer, or sale of shares of the Fund, including, but
not limited to, all costs involved in the registration or qualification of
shares of the Fund for sale in any jurisdiction, the costs of portfolio pricing
services and compliance systems, and all costs involved in preparing, printing
and mailing prospectuses and statements of additional information of the Fund;
and all fees, dues and other expenses incurred by the Trust in connection with
the
-3-
<PAGE>
membership of the Trust in any trade association or other investment company
organization. To the extent that JCC shall perform any of the above described
administrative and clerical functions, including transfer agency, registry,
dividend disbursing, recordkeeping, bookkeeping, accounting and blue sky
monitoring and registration functions, and the preparation of reports and
returns, the Trust shall pay to JCC compensation for, or reimburse JCC for its
expenses incurred in connection with, such services as JCC and the Trust shall
agree from time to time, any other provision of this Agreement notwithstanding.
7. Treatment of Investment Advice. The Trust shall treat the investment
advice and recommendations of JCC as being advisory only, and shall retain full
control over its own investment policies. However, the Trustees may delegate to
the appropriate officers of the Trust, or to a committee of the Trustees, the
power to authorize purchases, sales or other actions affecting the portfolio of
the Fund in the interim between meetings of the Trustees.
8. Brokerage Commissions. For purposes of this Agreement, brokerage
commissions paid by the Fund upon the purchase or sale of its portfolio
securities shall be considered a cost of securities of the Fund and shall be
paid by the Fund. JCC is authorized and directed to place Fund portfolio
transactions only with brokers and dealers who render satisfactory service in
the execution of orders at the most favorable prices and at reasonable
commission rates, provided, however, that JCC may pay a broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if JCC determines in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer viewed in terms of either that particular
transaction or the overall responsibilities of JCC. JCC is also authorized to
consider sales of Trust shares (or shares of other Janus funds) as a factor in
selecting broker-dealers to execute Fund portfolio transactions. In placing
portfolio business with such broker-dealers, JCC shall seek the best execution
of each transaction. Subject to the terms of this Agreement and the applicable
requirements and provisions of the law, including the 1940 Act and the
Securities Exchange Act of 1934, as amended, and in the event that JCC or an
affiliate is registered as a broker-dealer, JCC may select a broker or dealer
with which it or the Fund is affiliated. JCC or such affiliated broker-dealer
may effect or execute Fund portfolio transactions, whether on a securities
exchange or in the over-the-counter market, and receive separate compensation
from the Fund therefor. Notwithstanding the foregoing, the Trust shall retain
the right to direct the placement of all portfolio transactions, and the
Trustees of the Trust may establish policies or guidelines to be followed by JCC
in placing portfolio transactions for the Trust pursuant to the foregoing
provisions. JCC shall report on the placement of portfolio transactions in the
prior fiscal quarter at each quarterly meeting of such Trustees.
9. Termination. This Agreement may be terminated at any time, without
penalty, by the Trustees of the Trust, or by the shareholders of the Trust
acting by vote of at least a majority of its outstanding voting securities,
provided in either case that sixty (60) days advance written notice of
termination be given to JCC at its principal place of
-4-
<PAGE>
business. This Agreement may be terminated by JCC at any time, without penalty,
by giving sixty (60) days advance written notice of termination to the Trust,
addressed to its principal place of business. The Trust agrees that, consistent
with the terms of the Trust Instrument, the Trust shall cease to use the name
"Janus" in connection with the Fund as soon as reasonably practicable following
any termination of this Agreement if JCC does not continue to provide investment
advice to the Fund after such termination.
10. Assignment. This Agreement shall terminate automatically in the event
of any assignment of this Agreement.
11. Term. This Agreement shall continue in effect until June 16, 1995,
unless sooner terminated in accordance with its terms, and shall continue in
effect from year to year thereafter only so long as such continuance is
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on the
approval of the terms of such renewal, and by either the Trustees of the Trust
or the affirmative vote of a majority of the outstanding voting securities of
the Trust. The annual approvals provided for herein shall be effective to
continue this Agreement from year to year if given within a period beginning not
more than ninety (90) days prior to June 16 of each applicable year,
notwithstanding the fact that more than three hundred sixty-five (365) days may
have elapsed since the date on which such approval was last given.
12. Amendments. This Agreement may be amended by the parties only if such
amendment is specifically approved (i) by a majority of the Trustees, including
a majority of the Trustees who are not interested persons (as that phrase is
defined in Section 2(a)(19) of the 1940 Act) of JCC and, if required by
applicable law, (ii) by the affirmative vote of a majority of the outstanding
voting securities of the Fund (as that phrase is defined in Section 2(a)(42) of
the 1940 Act).
13. Other Series. The Trustees shall determine the basis for making an
appropriate allocation of the Trust's expenses (other than those directly
attributable to the Fund) between the Fund and the other series of the Trust.
14. Limitation of Personal Liability. All the parties hereto acknowledge
and agree that all liabilities of the Trust arising, directly or indirectly,
under this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Fund and that no Trustee, officer or holder of
shares of beneficial interest of the Trust shall be personally liable for any of
the foregoing liabilities. The Trust Instrument describes in detail the
respective responsibilities and limitations on liability of the Trustees,
officers and holders of shares of beneficial interest of the Trust.
15. Limitation of Liability of JCC. JCC shall not be liable for any error
of judgment or mistake of law or for any loss arising out of any investment or
for any act or omission taken with respect to the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder and
except to the extent otherwise provided by law. As used in this Section 15,
"JCC" shall include any affiliate of JCC performing services for the
-5-
<PAGE>
Trust contemplated hereunder and directors, officers and employees of JCC and
such affiliates.
16. Activities of JCC. The services of JCC to the Trust hereunder are not
to be deemed to be exclusive, and JCC and its affiliates are free to render
services to other parties. It is understood that trustees, officers and
shareholders of the Trust are or may become interested in JCC as directors,
officers and shareholders of JCC, that directors, officers, employees and
shareholders of JCC are or may become similarly interested in the Trust, and
that JCC may become interested in the Trust as a shareholder or otherwise.
17. Certain Definitions. The terms "vote of a majority of the outstanding
voting securities", "assignment" and "interested persons" when used herein,
shall have the respective meanings specified in the 1940 Act, as now in effect
or hereafter amended, and the rules and regulations thereunder, subject to such
orders, exemptions and interpretations as may be issued by the Securities and
Exchange Commission under said Act and as may be then in effect.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Investment Advisory Agreement as of the date and year first
above written.
JANUS CAPITAL CORPORATION
By:_____________________________________
JANUS ASPEN SERIES
By:_____________________________________
-6-
EXHIBIT 5(c)
FORM OF
JANUS ASPEN SERIES
INVESTMENT ADVISORY AGREEMENT
MONEY MARKET PORTFOLIO
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is made this ____ day
of March, 1995, between JANUS ASPEN SERIES, a Delaware business trust (the
"Trust"), and JANUS CAPITAL CORPORATION, a Colorado corporation ("JCC").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has registered its shares for public offering under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust is authorized to create separate funds, each with its
own separate investment portfolio of which the beneficial interests are
represented by a separate series of shares; one of such funds created by the
Trust being designated as the Money Market Portfolio (the "Fund"); and
WHEREAS, the Trust and JCC deem it mutually advantageous that JCC should
assist the Trustees and officers of the Trust in the management of the
securities portfolio of the Fund.
NOW, THEREFORE, the parties agree as follows:
1. Investment Advisory Services. JCC shall furnish continuous advice and
recommendations to the Fund as to the acquisition, holding, or disposition of
any or all of the securities or other assets which the Fund may own or
contemplate acquiring from time to time. JCC shall give due consideration to the
investment policies and restrictions and the other statements concerning the
Fund in the Trust Instrument, bylaws, and registration statements under the 1940
Act and the 1933 Act, and to the provisions of the Internal Revenue Code, as
amended from time to time, applicable to the Fund as a regulated investment
company and as a funding vehicle for variable insurance contracts. In addition,
JCC shall cause its officers to attend meetings and furnish oral or written
reports, as the Trust may reasonably require, in order to keep the Trustees and
appropriate officers of the Trust fully informed as to the condition of the
investment portfolio of the Fund, the investment recommendations of JCC, and the
investment considerations which have given rise to those recommendations. JCC
shall supervise the purchase and sale of securities as directed by the
appropriate officers of the Trust.
-1-
<PAGE>
2. Other Services. JCC is hereby authorized (to the extent the Trust has
not otherwise contracted) but not obligated (to the extent it so notifies the
Trustees at least 60 days in advance), to perform (or arrange for the
performance by affiliates) the management and administrative services necessary
for the operation of the Fund. JCC is specifically authorized, on behalf of the
Trust, to conduct relations with custodians, depositories, transfer and pricing
agents, accountants, attorneys, underwriters, brokers and dealers, corporate
fiduciaries, insurance company separate accounts, insurers, banks and such other
persons in any such other capacity deemed by JCC to be necessary or desirable.
JCC shall generally monitor and report to Fund officers the Fund's compliance
with investment policies and restrictions as set forth in the currently
effective prospectus and statement of additional information relating to the
shares of the Fund under the Securities Act of 1933, as amended. JCC shall make
reports to the Trustees of its performance of services hereunder upon request
therefor and furnish advice and recommendations with respect to such other
aspects of the business and affairs of the Fund as it shall determine to be
desirable. JCC is also authorized, subject to review by the Trustees, to furnish
such other services as JCC shall from time to time determine to be necessary or
useful to perform the services contemplated by this Agreement.
3. Obligations of Trust. The Trust shall have the following obligations
under this Agreement:
(a) to keep JCC continuously and fully informed as to the composition
of its investment portfolio and the nature of all of its assets
and liabilities from time to time;
(b) to furnish JCC with a certified copy of any financial statement
or report prepared for it by certified or independent public
accountants and with copies of any financial statements or
reports made to its shareholders or to any governmental body or
securities exchange;
(c) to furnish JCC with any further materials or information which
JCC may reasonably request to enable it to perform its function
under this Agreement; and
(d) to compensate JCC for its services and reimburse JCC for its
expenses incurred hereunder in accordance with the provisions
hereof.
4. Compensation. The Trust shall pay to JCC for its investment advisory
services a fee, calculated and payable for each day that this Agreement is in
effect, of 1/365 of 0.25% of the aggregate closing net asset value of the shares
of the Fund for each day of such month.
5. Expenses Borne by JCC. In addition to the expenses which JCC may incur
in the performance of its investment advisory functions under this Agreement,
and the expenses which it may expressly undertake to incur and pay under other
agreements with the Trust or otherwise, JCC shall incur and pay the following
expenses relating to the Fund's operations without reimbursement from the Fund:
-2-
<PAGE>
(a) Reasonable compensation, fees and related expenses of the Trust's
officers and its Trustees, except for such Trustees who are not
interested persons of JCC;
(b) Rental of offices of the Trust; and
(c) All expenses of promoting the sale of shares of the Fund other
than expenses incurred in complying with federal and state laws,
including insurance laws, and the laws of any foreign country or
territory or other jurisdiction applicable to the issue, offer or
sale of shares of the Fund including without limitation
registration fees and costs, the costs of preparing the Fund's
registration statement and amendments thereto, and the costs and
expenses of preparing, printing, and mailing prospectuses (and
statements of additional information) to shareholders of the
Fund.
6. Expenses Borne by the Trust. The Trust assumes and shall pay all
expenses incidental to its organization, operations and business not
specifically assumed or agreed to be paid by JCC pursuant to Sections 2 and 5
hereof, including, but not limited to, investment adviser fees; any
compensation, fees, or reimbursements which the Trust pays to its Trustees who
are not interested persons of JCC; compensation of the Fund's custodian,
transfer agent, registrar and dividend disbursing agent; legal, accounting,
audit and printing expenses; administrative, clerical, recordkeeping and
bookkeeping expenses; brokerage commissions and all other expenses in connection
with execution of portfolio transactions (including any appropriate commissions
paid to JCC or its affiliates for effecting exchange listed, over-the-counter or
other securities transactions); interest; all federal, state and local taxes
(including stamp, excise, income and franchise taxes); costs of stock
certificates and expenses of delivering such certificates to purchasers thereof;
expenses of local representation in Delaware; expenses of shareholders' meetings
and of preparing, printing and distributing proxy statements, notices, and
reports to shareholders; expenses of preparing and filing reports and tax
returns with federal and state regulatory authorities; all expenses incurred in
complying with all federal and state laws and the laws of any foreign country
applicable to the issue, offer, or sale of shares of the Fund, including, but
not limited to, all costs involved in the registration or qualification of
shares of the Fund for sale in any jurisdiction, the costs of portfolio pricing
services and compliance systems, and all costs involved in preparing, printing
and mailing prospectuses and statements of additional information of the Fund;
and all fees, dues and other expenses incurred by the Trust in connection with
the membership of the Trust in any trade association or other investment company
organization. To the extent that JCC shall perform any of the above described
administrative and clerical functions, including transfer agency, registry,
dividend disbursing, recordkeeping, bookkeeping, accounting and blue sky
monitoring and registration functions, and the preparation of reports and
returns, the Trust shall pay to JCC compensation for, or reimburse JCC for its
expenses incurred in connection with, such services as JCC and the Trust shall
agree from time to time, any other provision of this Agreement notwithstanding.
7. Treatment of Investment Advice. The Trust shall treat the investment
advice and recommendations of JCC as being advisory only, and shall retain full
control over its own
-3-
<PAGE>
investment policies. However, the Trustees may delegate to the appropriate
officers of the Trust, or to a committee of the Trustees, the power to authorize
purchases, sales or other actions affecting the portfolio of the Fund in the
interim between meetings of the Trustees.
8. Termination. This Agreement may be terminated at any time, without
penalty, by the Trustees of the Trust, or by the shareholders of the Trust
acting by vote of at least a majority of its outstanding voting securities,
provided in either case that sixty (60) days advance written notice of
termination be given to JCC at its principal place of business. This Agreement
may be terminated by JCC at any time, without penalty, by giving sixty (60) days
advance written notice of termination to the Trust, addressed to its principal
place of business. The Trust agrees that, consistent with the terms of the Trust
Instrument, the Trust shall cease to use the name "Janus" in connection with the
Fund as soon as reasonably practicable following any termination of this
Agreement if JCC does not continue to provide investment advice to the Fund
after such termination.
9. Assignment. This Agreement shall terminate automatically in the event of
any assignment of this Agreement.
10. Term. This Agreement shall continue in effect until June 16, 1996,
unless sooner terminated in accordance with its terms, and shall continue in
effect from year to year thereafter only so long as such continuance is
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on the
approval of the terms of such renewal, and by either the Trustees of the Trust
or the affirmative vote of a majority of the outstanding voting securities of
the Trust. The annual approvals provided for herein shall be effective to
continue this Agreement from year to year if given within a period beginning not
more than ninety (90) days prior to June 16 of each applicable year,
notwithstanding the fact that more than three hundred sixty-five (365) days may
have elapsed since the date on which such approval was last given.
11. Amendments. This Agreement may be amended by the parties only if such
amendment is specifically approved (i) by a majority of the Trustees, including
a majority of the Trustees who are not interested persons of JCC and, if
required by applicable law, (ii) by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
12. Other Series. The Trustees shall determine the basis for making an
appropriate allocation of the Trust's expenses (other than those directly
attributable to the Fund) between the Fund and the other series of the Trust.
13. Limitation of Personal Liability. All the parties hereto acknowledge
and agree that all liabilities of the Trust arising, directly or indirectly,
under this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Fund and that no Trustee, officer or holder of
shares of beneficial interest of the Trust shall be personally liable for any of
the foregoing liabilities. The Trust Instrument describes in detail the
respective responsibilities and limitations on liability of the Trustees,
officers and holders of shares of beneficial interest of the Trust.
-4-
<PAGE>
14. Limitation of Liability of JCC. JCC shall not be liable for any error
of judgment or mistake of law or for any loss arising out of any investment or
for any act or omission taken with respect to the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder and
except to the extent otherwise provided by law. As used in this Section 15,
"JCC" shall include any affiliate of JCC performing services for the Trust
contemplated hereunder and directors, officers and employees of JCC and such
affiliates.
15. Activities of JCC. The services of JCC to the Trust hereunder are not
to be deemed to be exclusive, and JCC and its affiliates are free to render
services to other parties. It is understood that trustees, officers and
shareholders of the Trust are or may become interested in JCC as directors,
officers and shareholders of JCC, that directors, officers, employees and
shareholders of JCC are or may become similarly interested in the Trust, and
that JCC may become interested in the Trust as a shareholder or otherwise.
16. Certain Definitions. The terms "vote of a majority of the outstanding
voting securities," "assignment" and "interested persons" when used herein,
shall have the respective meanings specified in the 1940 Act, as now in effect
or hereafter amended, and the rules and regulations thereunder, subject to such
orders, exemptions and interpretations as may be issued by the Securities and
Exchange Commission under said Act and as may be then in effect.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Investment Advisory Agreement as of the date and year first
above written.
JANUS CAPITAL CORPORATION
By:_____________________________________
JANUS ASPEN SERIES
By:_____________________________________
-5-
EXHIBIT 6(b)
DISTRIBUTION AND SHAREHOLDER SERVICES AGREEMENT
RETIREMENT SHARES OF JANUS ASPEN SERIES
This Agreement is made as of ______________, 1996, by and between Janus
Distributors, Inc. (the "Distributor"), a Colorado corporation, and
__________________________ (the "Service Provider"), a ____________________
corporation.
RECITALS
A. The Distributor serves as the distributor to a class of shares
designated the "Retirement Shares" of each series of Janus Aspen Series (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act").
B. Service Provider desires to provide certain distribution and shareholder
services to certain participants ("Plan Participants") in participant directed
qualified pension or retirement plans ("Plans") in connection with their
investment in the Retirement Shares of the series of the Trust listed on Exhibit
A hereto (each a "Portfolio") and Distributor desires Service Provider to
provide such services, subject to the conditions of this Agreement.
C. Pursuant to Rule 12b-1 under the 1940 Act, the Retirement Shares of each
Portfolio have adopted a Distribution and Shareholder Servicing Plan (the "12b-1
Plan") which, among other things, authorizes the Distributor to enter into this
Agreement with organizations such as Service Provider and to compensate such
organizations out of each Portfolio's average daily net assets attributable to
the Retirement Shares.
D. The parties desire that Retirement Shares of the Portfolios be available
as investment options for Plan Participants.
AGREEMENT
1. Services of Service Provider
(a) The Service Provider shall provide any combination of the
following support services, as agreed upon by the parties from time to time, to
Plan Participants who invest in the Retirement Shares of the Portfolios:
printing and delivering prospectuses, statements of additional information,
shareholder reports, proxy statements and similar materials related to the
Retirement Shares to prospective and existing Plan Participants; providing
educational materials regarding the Retirement Shares; providing facilities to
answer questions from prospective and existing Plan Participants about the
Portfolios; receiving and answering correspondence; complying with federal and
state securities laws pertaining to the sale of Retirement Shares; and
- 1 -
<PAGE>
assisting Plan Participants in completing application forms and selecting
dividend and other account options.
(b) The Service Provider will provide such office space and equipment,
telephone facilities, and personnel as may be reasonably necessary or beneficial
in order to provide such services to Plan Participants.
(c) All orders for Retirement Shares are subject to acceptance or
rejection by the Trust in its sole discretion, and the Trust may, in its
discretion and without notice, suspend or withdraw the sale of Retirement Shares
of any Portfolio, including the sale of such Retirement Shares to the Service
Provider for the account of any Plan Participant or Participants.
(d) Service Provider shall not make the Retirement Shares available to
Plan Participants except in compliance with federal and state securities law and
subject to the terms of the prospectus for the Retirement Shares. Service
Provider shall be responsible for delivering the prospectus, statement of
additional information, shareholder reports, proxy statements, and similar
materials for the Retirement Shares to Plan Participants in accordance with
applicable law.
(e) The Service Provider will furnish to the Distributor, the Trust or
their designees such information as the Distributor may reasonably request, and
will otherwise cooperate with the Distributor in the preparation of reports to
the Trust's Board of Trustees concerning this Agreement, as well as any other
reports or filings that may be required by law.
2. Indemnification. The Service Provider shall indemnify Distributor, the
Trust, and their affiliates, directors, trustees, employees and shareholders for
any loss (including without limitation, litigation costs and expenses and
attorneys' and experts' fees) directly resulting from its negligent or willful
act, omission or error, or its breach of this Agreement. Such indemnification
shall survive termination of the Agreement.
3. Approval of Informational Materials. No person is authorized to make any
representations concerning the Trust, the Portfolios, the Retirement Shares, or
Distributor except those representations contained in the then-current
prospectus and statement of additional information for the Retirement Shares and
in such printed information as Distributor or the Trust may subsequently
prepare. Service Provider shall send all filings with state and federal agencies
and marketing materials in which the Trust or the Portfolios are named to
Distributor for review at least fifteen business days prior to its filing or
general release. No such materials shall be used if Distributor reasonably
objects to such use.
4. Maintenance of Records.
(a) Service Provider shall maintain and preserve all records as
required by law to be maintained and preserved in connection with providing the
services herein. Upon the
- 2 -
<PAGE>
reasonable request of Distributor or the Trust, Service Provider shall provide
Distributor, the Trust or the representative of either, copies of all such
records.
(b) Service Provider shall maintain and transmit to Distributor on a
daily basis (or a more infrequent basis as agreed by Distributor) information on
sales, redemptions and exchanges of Retirement Shares of each Portfolio by state
or jurisdiction of residence of Plan Participants and any other information
requested by Distributor to enable Distributor or its affiliates to properly
register or report the sale of the Retirement Shares under the securities,
licensing or qualification laws of the various states and jurisdictions. Such
information shall be provided in a form mutually agreeable to Distributor and
Service Provider.
5. Operations of the Portfolios. Nothing in this Agreement shall in any way
limit the authority of the Trust or Distributor to take such lawful action as
either may deem appropriate or advisable in connection with all matters relating
to the operation of the Portfolios and the sale of the Retirement Shares. The
parties acknowledge that nothing in this Agreement shall in any way preclude or
prevent the Trust's Board of Trustees from taking any actions deemed necessary
by such Trustees in furtherance of their fiduciary duties to the Trust and its
shareholders, which, among other things, may include the refusal to sell
Retirement Shares of any Portfolio to any person, or to suspend or terminate the
offering of the Retirement Shares of any Portfolio, if such action is required
by law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Trustees, acting in good faith and in light of the Trustees'
fiduciary duties under applicable law, necessary in the best interests of the
shareholders of any Portfolio.
6. Proprietary Rights. Janus Capital Corporation ("Janus Capital") is the
sole owner of the name and mark "Janus." Neither the Service Provider, nor its
affiliates, employees, or agents shall, without prior written consent of Janus
Capital, use the name or mark "Janus" or make representations regarding the
Trust, Distributor, Janus Capital, or their affiliates, or any products or
services sponsored, managed, advised, or administered by the Trust, Distributor,
Janus Capital or their affiliates, except those contained in the then current
prospectus and the then current printed sales literature for the Retirement
Shares of the Portfolios. Upon termination of this Agreement for any reason, the
Service Provider shall immediately cease all use of any Janus mark.
7. Fees. In consideration of Service Provider's performance of the services
described in this Agreement, Distributor shall pay to the Service Provider a
monthly fee ("Distribution Fee") calculated as follows: the average aggregate
amount invested in each month in the Retirement Shares of each Portfolio by
Plans whose Plan Participants receive services hereunder by the Service Provider
is multiplied by a pro-rata fee factor. The pro-rata fee factor is calculated
by: (a) dividing the per annum factor set forth on Exhibit A for the Retirement
Shares of each Portfolio by the number of days in the applicable year, and (b)
multiplying the result by the actual number of days in the applicable month. The
average aggregate amount invested over a one-month period shall be computed by
totalling the aggregate investment by Plans whose Plan Participants receive
services hereunder by the Service Provider (share net asset value multiplied
- 3 -
<PAGE>
by total number of shares held) on each calendar day during the month and
dividing by the total number of calendar days during such month.
Distributor will calculate the fee at the end of each month and will make
such reimbursement to the Service Provider. The reimbursement check will be
accompanied by a statement showing the calculation of the monthly amounts
payable by Distributor and such other supporting data as may be reasonably
requested by the Service Provider.
8. Non-Exclusivity. Each of the parties acknowledges and agrees that this
Agreement and the arrangement described herein are intended to be non-exclusive
and that each of the parties is free to enter into similar agreements and
arrangements with other entities.
9. Representations, Warranties and Agreements. The Service Provider
represents, warrants, and covenants that:
(a) The Service Provider will comply in all material respects with all
applicable laws, rules and regulations;
(b) The Service Provider is authorized by the Plans to enter into this
Agreement;
(c) The Service Provider is registered as a broker and dealer pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act") and any applicable
state securities laws or is not required to be registered in order to enter into
and perform the services set forth in this Agreement;
(d) The performance of the duties and obligations and provision of
services by Service Provider as described in this Agreement and the receipt of
the fee provided in this Agreement will not violate federal or state banking
law, the Employment Retirement Income Security Act of 1974, as amended, the
Internal Revenue Code of 1986, as amended, federal or state securities laws, or
any other applicable law;
(e) The fee arrangement under this Agreement will be disclosed to a
Plan fiduciary unrelated to the Service Provider, prior to the Service
Provider's receipt of fees hereunder; and
(f) Neither the Service Provider, nor any affiliate, makes investment
recommendations to any of the Plans or Plan Participants.
(g) Each Plan meets the requirements for qualified plan status under
Section ___________ of the Internal Revenue Code of 1986, as amended, and the
Service Provider reasonably believes each Plan will continue to meet these
requirements. Service Provider will immediately notify the Distributor if the
Plan loses or is at risk of losing this status.
- 4 -
<PAGE>
10. Termination.
(a) Unless sooner terminated with respect to any Portfolio, this
Agreement will continue with respect to a Portfolio until June 16, 1998, and
thereafter will continue automatically for successive annual periods ending on
June 16 of each year, provided the continuance of a form of this Agreement is
specifically approved at least annually by the vote of a majority of the members
of the Board of Trustees of the Trust who are not "interested persons" (as such
term is defined in the 1940 Act) and who have no direct or indirect financial
interest in the 12b-1 Plan relating to such Portfolio or any agreement relating
to such 12b-1 Plan, including this Agreement, cast in person at a meeting called
for the purpose of voting on such approval.
(b) This Agreement will automatically terminate with respect to a
Portfolio in the event of its assignment (as such term is defined in the 1940
Act) with respect to such Portfolio. This Agreement may be terminated with
respect to any Portfolio by the Distributor or by the Service Organization,
without penalty, upon 60 days' prior written notice to the other party. This
Agreement may also be terminated with respect to any Portfolio at any time
without penalty by the vote of a majority of the members of the Board of
Trustees of the Trust who are not "interested persons" (as such term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
12b-1 Plan relating to such Portfolio or any agreement relating to such Plan,
including this Agreement, or by a vote of a majority of the Retirement Shares of
such Portfolio on 60 days' written notice.
(c) In addition, either party may terminate this Agreement immediately
if at any time it is determined by any federal or state regulatory authority
that compensation to be paid under this Agreement is in violation of or
inconsistent with any federal or state law.
11. Miscellaneous.
(a) No modification of any provision of this Agreement will be binding
unless in writing and executed by the parties. No waiver of any provision of
this Agreement will be binding unless in writing and executed by the party
granting such waiver.
(b) This Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and assigns; provided,
however that neither this Agreement nor any rights, privileges, duties, or
obligations of the parties may be assigned by either party without the written
consent of the other party or as expressly contemplated by this Agreement.
(c) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Colorado, exclusive of conflicts of laws.
(d) This Agreement may be executed in several counterparts,
each of which shall be an original but all of which together shall constitute
one and the same instrument.
- 5 -
<PAGE>
(e) All notices and other communications to either Service Provider or
Distributor will be duly given if mailed or faxed to the address set forth
below, or to such other address as either party may provide in writing to the
other party.
If to Distributor:
Janus Distributors, Inc.
100 Fillmore Street
Denver, Colorado 80206
Attn: David C. Tucker
If to the Service Provider:
JANUS DISTRIBUTORS, INC.
By: By:
Name: Name:
Title: Title:
- 6 -
<PAGE>
EXHIBIT A TO DISTRIBUTION AND SHAREHOLDER SERVICES AGREEMENT
Name of Portfolio Fee Factor*
*Shall not exceed 0.25%
- 7 -
EXHIBIT 8(a)
CUSTODY AGREEMENT
THIS AGREEMENT made the day of , by and between INVESTORS FIDUCIARY TRUST
COMPANY, a trust company chartered under the laws of the state of Missouri,
having its trust office located at 127 West 10th Street, Kansas City, Missouri
64105 ("Custodian"), and JANUS ASPEN SERIES, a Delaware business trust, (the
"Fund") consisting of separate portfolios represented by separate series of
shares of beneficial interest (referred to herein, together with any such
portfolios hereafter constituted, where appropriate, individually as the
"Portfolio"), having its principal office and place of business at 100 Fillmore
Street, Denver, Colorado 80206.
WITNESSETH:
WHEREAS, the Fund desires to appoint Investors Fiduciary Trust Company as
Custodian of the securities and monies of the Fund's investment portfolios; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN. The Fund hereby constitutes and appoints
Custodian as custodian of the securities and monies at any time owned
by the Fund and delivered to the Custodian.
2. DELIVERY OF CORPORATE DOCUMENTS. The Fund has delivered or will
deliver to Custodian prior to the effective date of this Agreement,
copies of the following documents and all amendments or supplements
thereto, properly certified or authenticated:
A. Resolutions of the Trustees of the Fund appointing Custodian as
custodian hereunder and approving the form of this Agreement; and
B. Resolutions of the Trustees of the Fund designating certain
persons to give instructions on behalf of the Fund to Custodian
and authorizing Custodian to rely upon written instructions over
his/her/their signatures.
1
<PAGE>
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
The Fund will deliver or cause to be delivered to Custodian on
the effective date of this Agreement, or as soon thereafter as
practicable, and from time to time thereafter, such portfolio
securities acquired by it and monies then owned by it as such
Fund shall determine. Custodian shall have no responsibility or
liability whatsoever for or on account of securities or monies
not so delivered. All securities so delivered to Custodian (other
than bearer securities) shall be registered in the name of the
applicable Portfolio or its nominee, or of a nominee of
Custodian, or shall be properly endorsed and in form for transfer
satisfactory to Custodian.
B. Delivery of Accounts and Records
The Fund shall turn over to Custodian all of each Portfolio
relevant accounts and records previously maintained by it.
Custodian shall be entitled to rely conclusively on the
completeness and correctness of the accounts and records turned
over to it by the Fund, and the Fund shall indemnify and hold
Custodian harmless of and from any and all expenses, damages and
losses whatsoever arising out of or in connection with any error,
omission, inaccuracy or other deficiency of such accounts and
records or the failure of the Fund to provide any portion of such
or to provide any information needed by the Custodian
knowledgeably to perform its function hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of
each Portfolio delivered to it from time to time segregated in a
separate account. Custodian will not deliver, assign, pledge or
hypothecate any such assets to any person except as permitted by
the provisions of this Agreement or any agreement executed by it
according to the terms of Section 3.S. of this Agreement. Upon
delivery of any such assets to a subcustodian pursuant to Section
3.S. of this Agreement, Custodian will create and maintain
records identifying those assets which have been delivered to the
subcustodian as belonging to each such Portfolio. The Custodian
is responsible for the securities and monies of the Fund only
until they have been transmitted to and received by other persons
as permitted under the terms of this Agreement, except for
securities and monies transmitted to United Missouri Bank, N.A.
(UMB) and United Missouri Trust Company of New York (UMBNY) for
which Custodian
2
<PAGE>
remains responsible as defined in Section 5 of this Agreement.
Custodian shall be responsible for the monies and securities of
the Fund held by eligible foreign custodians under this Agreement
to the extent the domestic subcustodian with which the Custodian
contracts is responsible to Custodian. Custodian may participate
directly or indirectly through a subcustodian in the Depository
Trust Company, Treasury/Federal Reserve Book Entry System or
Participant Trust Company (PTC) (as such entities are defined at
17 CFR Section 270.17f-4(b)) or other depository approved by the
Fund and with which Custodian has a satisfactory direct or
indirect contractual relationship.
D. Registration of Securities
Custodian will hold stocks and other registerable portfolio
securities of the Fund registered in the name of the applicable
Portfolio or in the name of any nominee of Custodian for whose
fidelity and liability Custodian will be fully responsible, or in
street certificate form, so-called, with or without any
indication of fiduciary capacity. Unless otherwise instructed,
Custodian will register all such portfolio securities in the name
of its authorized nominee. All securities, and the ownership
thereof by the Fund, which are held by Custodian hereunder,
however, shall at all times be identifiable on the records of the
Custodian. The Fund agrees to hold Custodian and its nominee
harmless for any liability arising solely from Custodian or its
nominee acting as a record holder of securities held in custody.
E. Exchange of Securities
Upon receipt of instructions as defined herein in Section 4.A.,
Custodian will exchange, or cause to be exchanged, portfolio
securities held by it for the account of the Fund for other
securities or cash issued or paid in connection with any
reorganization, recapitalization, merger, consolidation, split-up
of shares, change of par value, conversion or otherwise, and will
deposit any such securities in accordance with the terms of any
reorganization or protective plan. Without instructions,
Custodian is authorized to exchange securities held by it in
temporary form for securities in definitive form, to effect an
exchange of shares when the par value of the stock is changed,
and upon receiving payment therefor, to surrender bonds or other
securities held by it at maturity or when advised of earlier call
for redemption, except that Custodian shall receive instructions
prior to surrendering any convertible security.
3
<PAGE>
F. Purchases of Investments of the Fund
The Fund will, on each business day on which a purchase of
securities shall be made by it, deliver to Custodian instructions
which shall specify with respect to each such purchase:
1. The name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares or the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission,
taxes and other expenses payable in connection with the
purchase;
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or dealer
through whom the purchase was made.
In accordance with such instructions, Custodian will pay for out
of monies held for the account of the Portfolio, but only insofar
as monies are available therein for such purpose, and receive the
portfolio securities so purchased by or for the account of the
Portfolio except that Custodian may in its sole discretion
advance funds for the account of the Portfolio which may result
in an overdraft because the monies held by the Custodian for the
account of the Portfolio are insufficient to pay the total amount
payable upon such purchase. Such payment will be made only upon
receipt by Custodian of the securities so purchased in form for
transfer satisfactory to Custodian.
G. Sales and Deliveries of Investments of the Fund - Other than
Options and Futures
The Fund will, on each business day on which a sale of investment
securities of the Fund has been made, deliver to Custodian
instructions specifying with respect to each such sale:
1. The name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares or principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or
other information identifying the securities sold and to be
delivered;
5. The trade date;
6. The settlement date;
4
<PAGE>
7. The sale price per unit and the brokerage commission, taxes
or other expenses payable in connection with such sale;
8. The total amount to be received by the Fund upon such sale;
and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or
cause to be delivered the securities thus designated as sold for
the account of the Portfolio to the broker or other person
specified in the instructions relating to such sale, such
delivery to be made only upon receipt of payment therefor in such
form as is satisfactory to Custodian, with the understanding that
Custodian may deliver or cause to be delivered securities for
payment in accordance with the customs prevailing among dealers
in securities.
H. Purchases or Sales of Security Options, Options on Indices and
Security Index Futures Contracts
The Fund will, on each business day on which a purchase or sale
of the following options and/or futures shall be made by it,
deliver to Custodian instructions which shall specify with
respect to each such purchase or sale:
1. The name of the Portfolio making such purchase or sale;
2. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom
the sale or purchase was made.
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising,
expiring
5
<PAGE>
or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through
whom the sale or purchase was made, or other applicable
settlement instructions.
4. Security Index Futures Contracts
a. The last trading date specified in the contract and,
when available, the closing level, thereof;
b. The index level on the date the contract is entered
into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition
to instructions, and if not already in the possession
of Custodian, the Fund shall deliver a substantially
complete and executed custodial safekeeping account and
procedural agreement which shall be incorporated by
reference into this Custody Agreement); and
f. The name and address of the futures commission
merchant through whom the sale or purchase was made,
or other applicable settlement instructions.
5. Option on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
If specifically allowed for in the prospectus or statement of
additional information of the Fund:
1. Upon receipt of instructions, Custodian will release or
cause to be released securities held in custody to the
pledgee designated in such instructions by way of pledge or
hypothecation to secure any loan incurred by the Fund;
provided, however, that the securities shall be released
only upon payment to Custodian of the monies borrowed,
except that in cases where additional collateral is required
to secure a borrowing already made, further securities
6
<PAGE>
may be released or caused to be released for that purpose
upon receipt of instructions. Upon receipt of instructions,
Custodian will pay, but only from funds available for such
purpose, any such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated in
such instructions; provided, however, that the securities
will be released only upon deposit with Custodian of full
cash collateral as specified in such instructions, and that
the Fund will retain the right to any dividends, interest or
distribution on such loaned securities. Upon receipt of
instructions and the loaned securities, Custodian will
release the cash collateral to the borrower.
J. Routine Matters
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution,
purchase, transfer, or other dealings with securities or other
property of the Fund except as may be otherwise provided in this
Agreement or directed from time to time by the Trustees of the
Fund.
K. Deposit Account
Custodian will open and maintain a special purpose deposit
account or accounts in the name of Custodian ("Account"), subject
only to draft or order by Custodian upon receipt of instructions.
All monies received by Custodian from or for the account of a
Portfolio shall be deposited in the Account of such Portfolio.
Barring events not in the control of the Custodian such as
strikes, lockouts or labor disputes, riots, war or equipment or
transmission failure or damage, fire, flood, earthquake or other
natural disaster, action or inaction of governmental authority or
other causes beyond its control, at 9:00 a.m., Kansas City time,
on the second business day after deposit of any check into a
Portfolio's Account, Custodian agrees to make Fed Funds available
to such Portfolio in the amount of the check. Deposits made by
Federal Reserve wire will be available immediately and ACH wires
will be available on the next business day. Income earned on the
portfolio securities will be credited to the Account of the
applicable Portfolio based on the schedule attached as Exhibit A.
All collected funds received on behalf of a Portfolio shall be
deposited, according to Custodian's usual practices, into a
custody account on behalf of that Portfolio. The Custodian will
be entitled to reverse any credited amounts where credits have
been made and monies
7
<PAGE>
are not finally collected, provided that the Custodian has made
reasonable efforts to collect such uncollected income. If monies
are collected after such reversal, the Custodian will credit the
applicable Portfolio in that amount. Custodian may open and
maintain an Account in such other banks or trust companies as may
be designated by it and by properly authorized resolution of the
Trustees of the Fund, such Account, however, to be in the name of
Custodian and subject only to its draft or order.
L. Income and other Payments to the Portfolio
Custodian will:
1. Collect, claim and receive and deposit for the account of
the Portfolios all income and other payments which become
due and payable on or after the effective date of this
Agreement with respect to the securities deposited under
this Agreement, and credit the Account of the applicable
Portfolio in accordance with the schedule attached hereto as
Exhibit A. If for any reason, a Portfolio is credited with
income that is not subsequently collected, Custodian may
reverse that credited amount, provided that the Custodian
has made reasonable efforts to collect such uncollected
income;
2. Execute ownership and other certificates and affidavits for
all federal, state and local tax purposes in connection with
the collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income and
other payments, including but not limited to the
presentation for payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be
called, redeemed, retired or otherwise become
payable and regarding which the Custodian has
actual knowledge, or notice of which is contained
in publications of the type to which it normally
subscribes for such purpose; and
b. the endorsement for collection, in the name of the
Fund, of all checks, drafts or other negotiable
instruments.
Custodian, however, will not be required to institute suit
or take other extraordinary action to enforce collection
except upon receipt of instructions and upon being
indemnified to its satisfaction against the costs
8
<PAGE>
and expenses of such suit or other actions. Custodian will
receive, claim and collect all stock dividends, rights and other
similar items and will deal with the same pursuant to
instructions. Unless prior instructions have been received to the
contrary, Custodian will, without further instructions, sell any
rights held for the account of a Portfolio on the last trade date
prior to the date of expiration of such rights.
M. Payment of Dividends and other Distributions
On the declaration of any dividend or other distribution on the
shares of the Fund ("Fund Shares") by the Trustees of the Fund,
the Fund shall deliver to Custodian instructions with respect
thereto, including a copy of the Resolution of said Trustees
certified by the Secretary or an Assistant Secretary of the Fund
wherein there shall be set forth the record date as of which
shareholders entitled to receive such dividend or other
distribution shall be determined, the date of payment of such
dividend or distribution, and the amount payable per share on
such dividend or distribution. Except if the ex-dividend date and
the reinvestment date of any dividend are the same, in which case
funds shall remain in the custody Account, on the date specified
in such Resolution for the payment of such dividend or other
distribution, Custodian will pay out of the monies held for the
account of the applicable Portfolio, insofar as the same shall be
available for such purposes, and credit to the account of the
Dividend Disbursing Agent for the Fund, such amount as may be
necessary to pay the amount per share payable in cash on Fund
Shares issued and outstanding on the record date established by
such Resolution.
N. Shares of Fund Purchased by the Fund
Whenever Fund Shares are repurchased or redeemed by the Fund, the
Fund or its agent shall advise Custodian of the aggregate dollar
amount to be paid for such shares and shall confirm such advice
in writing. Upon receipt of such advice, Custodian shall charge
such aggregate dollar amount to the Account of the applicable
Portfolio and either deposit the same in the account maintained
for the purpose of paying for the repurchase or redemption of
Fund Shares or deliver the same in accordance with such advice.
Custodian shall not have any duty or responsibility to determine
that Fund Shares have been removed from the proper shareholder
account or accounts or that the proper number of such shares have
been canceled and removed from the shareholder records.
9
<PAGE>
O. Shares of the Fund Purchased from the Fund
Whenever Fund Shares are purchased from the Fund, the Fund will
deposit or cause to be deposited with Custodian the amount
received for such shares. Custodian shall not have any duty or
responsibility in its capacity as Custodian of the Fund to
determine that Fund Shares purchased from the Fund have been
added to the proper shareholder account or accounts or that the
proper number of such shares have been added to the shareholder
records.
P. Proxies and Notices
Custodian will promptly deliver or mail or have delivered or
mailed to the Fund all proxies properly signed, all notices of
meetings, all proxy statements and other notices, requests or
announcements affecting or relating to securities held by
Custodian for the Fund and will, upon receipt of instructions,
execute and deliver or cause its nominee to execute and deliver
or mail or have delivered or mailed such proxies or other
authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by
Custodian, neither it nor its nominee will exercise any power
inherent in any such securities, including any power to vote the
same, or execute any proxy, power of attorney, or other similar
instrument voting any of such securities, or give any consent,
approval or waiver with respect thereto, or take any other
similar action.
Q. Disbursements
Custodian will pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other
obligations of the Fund (including but not limited to obligations
in connection with the conversion, exchange or surrender of
securities owned by the Fund, interest charges, dividend
disbursements, taxes, management fees, custodian fees, legal
fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating
expenses of the Fund) pursuant to instructions of the Fund
setting forth the name of the person to whom payment is to be
made, the amount of the payment, and the purpose of the payment.
R. Daily Statement of Accounts
Custodian will, within a reasonable time, render to the Fund as
of the close of business on each day, a detailed statement of the
amounts received or paid and of securities received or delivered
for the account of
10
<PAGE>
the Portfolios during said day. Custodian will, from time to
time, upon request by the Fund, render a detailed statement of
the securities and monies held for the Portfolios under this
Agreement, and Custodian will maintain such books and records as
are necessary to enable it to do so and will permit such persons
as are authorized by the Fund including the Fund's independent
public accountants, access to such records or confirmation of the
contents of such records; and if demanded, will permit federal
and state regulatory agencies to examine the securities, books
and records. Upon the written instructions of the Fund or as
demanded by federal or state regulatory agencies, Custodian will
instruct any subcustodian to give such persons as are authorized
by the Fund including the Fund's independent public accountants,
access to such records or confirmation of the contents of such
records; and if demanded, to permit federal and state regulatory
agencies to examine the books, records and securities held by
subcustodian which relate to the Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this Agreement, all
or any of the monies or securities of the Fund may be held
in Custodian's own custody or in the custody of one or more
other banks or trust companies selected by Custodian. Any
such subcustodian must have the qualifications required for
custodian under the Investment Company Act of 1940, as
amended. The subcustodian may participate directly or
indirectly in the Depository Trust Company (DTC),
Treasury/Federal Reserve Book Entry System, Participant
Trust Company (PTC) (as such entities are defined at 17 CFR
Sec. 270.17f-4(b)), or other depository approved by the Fund
and with which Custodian has a satisfactory direct or
indirect contractual relationship. Custodian will appoint
UMB and UMBNY as subcustodians and Custodian shall be
responsible for UMB and UMBNY to the same extent it is
responsible to the Fund under Section 5 of this Agreement.
Custodian is not responsible for DTC, the Treasury/Federal
Reserve Book Entry System, and PTC except to the extent such
entities are responsible to Custodian. Upon request of the
Fund, the Custodian shall be willing to contract with other
subcustodians reasonably acceptable to the Custodian for
purposes of (i) effecting third-party repurchase
transactions with banks, brokers, dealers, or other entities
through the use of a common custodian or subcustodian, or
(ii) providing depository and clearing agency services with
respect to certain variable rate demand note securities;
provided, however, that the Custodian will be responsible to
the Fund for any loss, damage or expense suffered or
incurred by the Fund resulting from the
11
<PAGE>
actions or omissions of any such subcustodian only to the
same extent such subcustodian is responsible to the
Custodian. The Fund shall be entitled to review Custodian's
contracts with BONY, MGTC, CB, and BT.
2. Notwithstanding any other provisions of this Agreement, the
Fund's foreign securities (as defined in Rule 17f-5(c)(1)
under the Investment Company Act of 1940) and the Fund's
cash or cash equivalents, in amounts reasonably necessary to
effect the Fund's foreign securities transactions, may be
held in the custody of one or more banks or trust companies
acting as subcustodians, according to Section 3.S.1.; and
thereafter, pursuant to a written contract or contracts as
approved by the Fund's Trustees, may be transferred to an
account maintained by such subcustodian with an eligible
foreign custodian, as defined in Rule 17f-5(c)(2), provided
that any such arrangement involving a foreign custodian
shall be in accordance with the provisions of Rule 17f-5
under the Investment Company Act of 1940 as that Rule may be
amended from time to time. The Fund shall be provided the
contract with the domestic subcustodian who shall contract
with the eligible foreign subcustodians. The Custodian shall
be responsible for the monies and securities of the Fund
held by eligible foreign subcustodians to the extent the
domestic subcustodian with which the Custodian contracts is
responsible to Custodian.
T. Adoption of Procedures
Custodian and the Fund may from time to time adopt procedures as
they agree upon, and Custodian may conclusively assume that no
procedure approved by the Fund, or directed by the Fund,
conflicts with or violates any requirements of its prospectus, or
governing documents such as Articles of Incorporation,
Declaration of Trust, Bylaws, or any rule or regulation of any
regulatory body or governmental agency. The Fund will be
responsible to notify Custodian of any changes in statutes,
regulations, rules or Fund policies not specifically governing
custodians or banks which might necessitate changes in
Custodian's responsibilities or procedures.
U. Overdrafts
If Custodian shall in its sole discretion advance funds to the
account of a Portfolio which results in an overdraft because the
monies held by Custodian on behalf of such Portfolio are
insufficient to pay the total amount payable upon a purchase of
securities as specified in the Fund's instructions or for some
other reason, the amount of the overdraft shall be
12
<PAGE>
payable by the Fund to Custodian upon demand and shall bear an
interest rate determined by Custodian from the date advanced
until the date of payment.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written or oral
instructions to Custodian from a designated representative of the
Fund. Certified copies of resolutions of the Trustees of the Fund
naming one or more designated representatives to give
instructions in the name and on behalf of the Fund, may be
received and accepted from time to time by Custodian as
conclusive evidence of the authority of any designated
representative to act for the Fund and may be considered to be in
full force and effect (and Custodian will be fully protected in
acting in reliance thereon) until receipt by Custodian of notice
to the contrary. Unless the resolution delegating authority to
any person to give instructions specifically requires that the
approval of anyone else will first have been obtained, Custodian
will be under no obligation to inquire into the right of the
person giving such instructions to do so. Notwithstanding any of
the foregoing provisions of this Section 4., no authorizations or
instructions received by Custodian from the Fund will be deemed
to authorize or permit any trustee, officer, employee, or agent
of the Fund to withdraw any of the securities or similar
investments of the Fund upon the mere receipt of such
authorization or instructions from such trustee, officer,
employee or agent.
Notwithstanding any other provision of this Agreement, Custodian,
upon receipt (and acknowledgement if required at the discretion
of Custodian) of the instructions of a designated representative
of the Fund will undertake to deliver for the Fund's account
monies, (provided such monies are on hand or available) in
connection with the Fund's transactions and to wire transfer such
monies to such broker, dealer, subcustodian, bank or other agent
specified in such instructions by a designated representative of
the Fund.
B. No later than the next business day immediately following each
oral instruction, the Fund will send Custodian written
confirmation of such oral instruction. At either party's sole
discretion, either party may record on tape, or otherwise, any
oral instruction whether given in person or via telephone, each
such recording identifying the parties, the date and the time of
the beginning and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
13
<PAGE>
A. Notwithstanding any other provisions of this Agreement, Custodian
shall hold harmless and indemnify the Fund from and against any
loss or liability arising out of Custodian's breach of this
Agreement or its negligence, willful misconduct, or bad faith.
Custodian shall not be liable for consequential, special or
punitive damages. Custodian may request and obtain the advice and
opinion of counsel for the Fund, or of its own counsel with
respect to questions or matters of law, and it shall be without
liability to the Fund for any action taken or omitted by it in
good faith, in conformity with such advice or opinion. If
Custodian reasonably believes that it could not prudently act
according to the instructions of the Fund or the Fund's counsel,
it may in its discretion, with notice to the Fund, not act
according to such instructions.
B. Custodian may rely upon the advice of the Fund and upon
statements of the Fund's accountants and other persons believed
by it, in good faith, to be expert in matters upon which they are
consulted, and Custodian shall not be liable for any actions
taken, in good faith, upon such statements.
C. If the Fund requires Custodian in any capacity to take, with
respect to any securities, any action which involves the payment
of money by it, or which in Custodian's opinion might make it or
its nominee liable for payment of monies or in any other way,
Custodian, upon notice to the Fund given prior to such actions,
shall be and be kept indemnified by the Fund in an amount and
form satisfactory to Custodian against any liability on account
of such action.
D. Custodian shall be entitled to receive, and the Fund agrees to
pay to Custodian, on demand, reimbursement for such cash
disbursements, costs and expenses as may be agreed upon from time
to time by Custodian and the Fund.
E. Custodian shall be protected in acting as custodian hereunder
upon any instructions, advice, notice, request, consent,
certificate or other instrument or paper reasonably appearing to
it to be genuine and to have been properly executed and shall,
unless otherwise specifically provided herein, be entitled to
receive as conclusive proof of any fact or matter required to be
ascertained from the Fund hereunder, a certificate signed by the
Fund's President, or other officer specifically authorized for
such purpose.
F. Without limiting the generality of the foregoing, Custodian shall
be under no duty or obligation to inquire into, and shall not be
liable for:
1. The validity of the issue of any securities purchased by or
for the
14
<PAGE>
Fund, the legality of the purchase thereof or evidence of
ownership required by the Fund to be received by Custodian,
or the propriety of the decision to purchase or amount paid
therefor;
2. The legality of the sale of any securities by or for the
Fund, or the propriety of the amount for which the same are
sold;
3. The legality of the issue or sale of any shares of
beneficial interest of the Fund, or the sufficiency of the
amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund
Shares, or the propriety of the amount to be paid therefor;
or
5. The legality of the declaration of any dividend by the Fund,
or the legality of the issue of any Fund Shares in payment
of any stock dividend.
G. Custodian shall not be liable for, or considered to be Custodian
of, any money represented by any check, draft, wire transfer,
clearing house funds, uncollected funds, or instrument for the
payment of money received by it on behalf of the Fund, until
Custodian actually receives such money, provided only that it
shall advise the Fund promptly if it fails to receive any such
money in the ordinary course of business, and use its best
efforts and cooperate with the Fund toward the end that such
money shall be received.
H. Except for any subcustodians or eligible foreign custodians
appointed under Section 3.S., Custodian shall not be responsible
for loss occasioned by the acts, neglects, defaults or insolvency
of any broker, bank, trust company, or any other person with whom
Custodian may deal in the absence of negligence, or bad faith on
the part of Custodian.
I. Notwithstanding anything herein to the contrary, Custodian may,
and with respect to any foreign subcustodian appointed under
Section 3.S.2. must, provide the Fund for its approval,
agreements with banks or trust companies which will act as
subcustodians for the Fund pursuant to Section 3.S. of this
Agreement.
6. COMPENSATION. The Fund will pay to Custodian such compensation as is
stated in the Fee Schedule attached hereto as Exhibit B, which may be
changed from time to time as agreed to in writing by Custodian and the
Fund. Custodian may charge such compensation against monies held by it
for the account of the Fund. Custodian will also be entitled,
notwithstanding the provisions of Sections 5.C. or 5.D. hereof, to
charge against any monies held by it for the account of the Fund the
amount of any loss, damage, liability, advance, or expense for which
it shall be entitled to reimbursement under the provisions of this
Agreement including fees or expenses due to Custodian for other
services provided to the
15
<PAGE>
Fund by the Custodian. Custodian will not be entitled to reimbursement
by the Fund for any loss or expenses of any subcustodian, except to
the extent (i) Custodian would have been entitled to reimbursement
hereunder if it had incurred the loss or expense itself directly, and
(ii) Custodian is obligated to reimburse the subcustodian for such
loss or expense.
7. TERMINATION. Either party to this Agreement may terminate the same by
notice in writing, delivered or mailed, postage prepaid, to the other
party hereto and received not less than sixty (60) days prior to the
date upon which such termination will take effect. Upon termination of
this Agreement, the Fund will pay to Custodian such compensation for
its reimbursable disbursements, costs and expenses paid or incurred to
such date and the Fund will use its best efforts to obtain a successor
custodian. Unless the holders of a majority of the outstanding shares
of the Fund vote to have the securities, funds and other properties
held under this Agreement delivered and paid over to some other
person, firm or corporation specified in the vote, having not less
than Two Million Dollars ($2,000,000) aggregate capital, surplus and
undivided profits, as shown by its last published report, and meeting
such other qualifications for custodian as set forth in the governing
documents of the Fund, the Trustees of the Fund will, forthwith upon
giving or receiving notice of termination of this Agreement, appoint
as successor custodian a bank or trust company having such
qualifications. Custodian will, upon termination of this Agreement,
deliver to the successor custodian so specified or appointed, at
Custodian's office, all securities then held by Custodian hereunder,
duly endorsed and in form for transfer, all funds and other properties
of the Fund deposited with or held by Custodian hereunder, or will
cooperate in effecting changes in book-entries at the DTC or in the
Treasury/Federal Reserve Book-Entry System, PTC, or other depository.
In the event no such vote has been adopted by the shareholders of the
Fund and no written order designating a successor custodian has been
delivered to Custodian on or before the date when such termination
becomes effective, then Custodian will deliver the securities, funds
and properties of the Fund to a bank or trust company at the selection
of Custodian and meeting the qualifications for custodian, if any, set
forth in the governing documents of the Fund and having not less than
Two Million Dollars ($2,000,000) aggregate capital, surplus and
undivided profits, as shown by its last published report. Upon such
delivery to a successor custodian, Custodian will have no further
obligations or liabilities under this Agreement. Thereafter such bank
or trust company will be the successor custodian under this Agreement
and will be entitled to reasonable compensation for its services. In
the event that no such successor custodian can be found, the Fund will
submit to its shareholders, before permitting delivery of the cash and
securities owned by the Fund to anyone other than a successor
custodian, the question of whether the Fund will be liquidated or
function without a custodian. Notwithstanding the foregoing
requirement as to delivery upon termination of this Agreement,
Custodian may make any other delivery of the
16
<PAGE>
securities, funds and property of the Fund which is permitted by the
Investment Company Act of 1940, the Fund's governing documents then in
effect or apply to a court of competent jurisdiction for the
appointment of a successor custodian.
8. NOTICES. Notices, requests, instructions and other writings received
by the Fund at 100 Fillmore Street, Suite 300, Denver, Colorado 80206,
or at such other address as the Fund may have designated to Custodian
in writing, will be deemed to have been properly given to the Fund
hereunder; and notices, requests, instructions and other writings
received by Custodian at its offices at 127 West 10th Street, Kansas
City, Missouri 64105, or to such other address as it may have
designated to the Fund in writing, will be deemed to have been
properly given to Custodian hereunder.
9. MISCELLANEOUS.
A. This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the
respective successor and assigns of the parties hereto.
C. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and
executed by both parties hereto.
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
E. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original but all of
which together will constitute one and the same instrument.
F. If any part, term or provision of this Agreement is held by the
courts to be illegal, in conflict with any law or otherwise
invalid, the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations of
the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be
illegal or invalid.
G. Custodian will not release the identity of the Fund to an issuer
which requests such information pursuant to the Shareholder
Communications Act of 1985 for the specific purpose of direct
communications between
17
<PAGE>
such issuer and the Fund unless the Fund directs the Custodian
otherwise.
H. This Agreement may not be assigned by either party without prior
written consent of the other party.
I. If any provision of the Agreement, either in its present form or
as amended from time to time, limits, qualifies, or conflicts
with the Investment Company Act of 1940 and the rules and
regulations promulgated thereunder, such statutes, rules and
regulations shall be deemed to control and supersede such
provision without nullifying or terminating the remainder of the
provisions of this Agreement.
J. If the Fund is organized as a Delaware business trust, a copy of
the Certificate of Trust of the Fund is on file with the
Secretary of the State of Delaware and notice is hereby given
that the Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his/her capacity as an officer
of the Fund. The obligations of this Agreement shall only be
binding upon the assets and property of the Fund and shall not be
binding upon any Trustee, officer or shareholder of the Fund
individually.
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST
COMPANY
By:_____________________________________
Title:__________________________________
JANUS ASPEN SERIES
By:_____________________________________
Title:__________________________________
19
Exhibit 8(b)
FORM OF CUSTODY AGREEMENT
CUSTODIAN CONTRACT
Between
JANUS ASPEN SERIES
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It 1
2. Duties of the Custodian with Respect to Property of the
Fund Held by the Custodian in the United States 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 4
2.4 Bank Accounts 5
2.5 Availability of Federal Funds 5
2.6 Collection of Income 5
2.7 Payment of Fund Monies 6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased 7
2.9 Appointment of Agents 7
2.10 Deposit of Fund Assets in Securities System 7
2.11 Fund Assets Held in the Custodian's Direct Paper System 9
2.12 Segregated Account 10
2.13 Ownership Certificates for Tax Purposes 10
2.14 Proxies 10
2.15 Communications Relating to Portfolio Securities 11
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States 11
3.1 Appointment of Foreign Sub-Custodians 11
3.2 Assets to be Held 11
3.3 Foreign Securities Depositories 11
3.4 Agreements with Foreign Banking Institutions 12
3.5 Access of Independent Accountants of the Fund 12
3.6 Reports by Custodian 12
3.7 Transaction sin Foreign Custody Account 12
3.8 Liability of Foreign Sub-Custodians 13
3.9 Liability of Custodian 13
3.10 Monitoring Responsibilities 14
3.11 Branches of U.S. Banks 14
3.12 Tax Law 14
<PAGE>
4. Payments for Sales or Repurchase or Redemptions of Shares
of the Fund 15
5. Proper Instructions 15
6. Actions Permitted Without Express Authority 16
7. Evidence of Authority 16
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 16
9. Records 17
10. Opinion of Fund's Independent Accountants 17
11. Reports to Fund by Independent Public Accounts 17
12. Compensation of Custodian 17
13. Responsibility of Custodian 18
14. Effective Period, Termination and Amendment 18
15. Successor Custodian 19
16. Interpretive and Additional Provisions 20
17. Additional Funds 20
18. Massachusetts Law to Apply 20
19. Prior Contracts 20
20. Shareholder Communications Election 21
<PAGE>
CUSTODIAN CONTRACT
This Contract between Janus Aspen Series, a business trust organized and
existing under the laws of Delaware, having its principal place of business at
100 Fillmore Street, Suite 300, Denver, Colorado 80206-9916, hereinafter called
the "Fund", and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian".
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in six series, the
Growth Portfolio, the Aggressive Growth Portfolio, the Worldwide Growth
Portfolio, the Balanced Portfolio, the Flexible Income Portfolio and the
Short-Term Bond Portfolio (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of (i) securities
which the Fund desires to be held in places outside the United States
("foreign securities") and cash or cash equivalents incidental thereto and
(ii) securities acquired by the Fund in repurchase transactions with the
Custodian ("domestic securities") and cash and cash equivalents incidental
thereto pursuant to the provisions of the Declaration of Trust. The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all foreign
securities owned by the Portfolios from time to time. The Custodian shall
not be responsible for any property of a Portfolio held or received by the
Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
1
<PAGE>
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property to be held by
it in the United States including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as
"Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct
Paper system of the custodian pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of
the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face
2
<PAGE>
amount or number of units; provided that, in any such case, the
new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options
3
<PAGE>
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund on behalf of the Portfolio;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund on behalf of
the Portfolio;
14) Upon receipt of instructions form the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the Fund's currently
effective prospectus and statement of additional information,
("Prospectus"), in satisfaction of requests by holders of Shares
for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms
of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the
4
<PAGE>
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender
or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft of order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained
by the Portfolio in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for a Portfolio may be deposited by it to its credit
as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to domestic bearer
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent and shall credit such income,
as collected, to such Portfolio's custodian account. Without limiting
the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or
5
<PAGE>
data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Portfolio
is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options
on futures contracts to the Custodian (or any bank, banking firm
or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as
amended, to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name
of the Portfolio or in the name of a nominee of the custodian
referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered
into between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a member
of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio and in the case of warrants,
rights or similar securities as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and
6
<PAGE>
legal fees, and operating expenses of the Fund whether or not
such expenses are to be in whole or part capitalized or treated
as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in Section 2.7 (1)(d) with
respect to repurchase agreements, Section 2.10 (3) with respect to
purchases of securities in a Securities System and Section 2.11 (4)
with respect to purchases of securities in the Direct Paper System, in
any and every case where payment for purchase of domestic securities
for the account of a Portfolio is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received
by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (any may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, which acts
as a securities depository, or in the book-entry system authorized by
the U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with
7
<PAGE>
applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Portfolio in a
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to domestic securities
of the Portfolio which are maintained in a Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for domestic securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer domestic
securities sold for the account of the Portfolio upon (i) receipt
of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Portfolio.
Copies of all advices from the Securities System of transfers of
domestic securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of
the Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the Securities System by
8
<PAGE>
reason of any negligence, misfeasance or misconduct of the
custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such
loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
9
<PAGE>
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Portfolio such proxies, all
proxy soliciting materials and all notices relating to such
securities.
10
<PAGE>
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund for each Portfolio all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of domestic securities being held for the Portfolio. With
respect to tender or exchange offers, the Custodian shall transmit
promptly to the Portfolio all written information received by the
Custodian from issuers of the domestic securities whose tender or
exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the
Portfolio's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", together with
a certified resolution of the Fund's Board of Trustees, the Custodian
and the Fund may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of
Proper Instructions from the Fund the Custodian shall cease the
employment of any one or more such sub-custodians for maintaining
custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) or Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign
securities transactions. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign securities depositories only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians
11
<PAGE>
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration;
(c) adequate records will be maintained identifying the assets as
belonging to each applicable Portfolio; (d) officers of or auditors
employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions
under its agreement with the Custodian; and (e) assets of the
Portfolios held by the foreign sub-custodian will be subject only to
the instructions of the Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Custodian shall make or cause its
foreign sub-custodians to transfer, exchange or deliver foreign
securities owned by the Portfolio, but except to the extent explicitly
provided herein only in the cases specified in Section 2.2.
(b) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, the
Custodian shall pay out or cause its foreign sub-custodians to
pay out monies of the Portfolio, but
12
<PAGE>
except to the extent explicitly provided herein only in any of
the cases specified in Section 2.7.
(c) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of
each applicable Portfolio and delivery of securities maintained
for the account of each applicable Portfolio may be effected in
accordance with the customary established securities trading or
securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser
or dealer.
(d) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the
same extent as set forth in Section 2.3 of this Contract, and the
Fund agrees to hold any such nominee harmless from any liability
as a holder of record of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and the Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution appointed pursuant to the
provisions of Article 3 to the same extent as set forth in Article 1
hereof with respect to sub-custodians located in the United States and
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from or caused by the direction of or
authorization by the Fund to maintain custody of any foreign
securities or cash of the Fund in a foreign country including but not
limited to, losses resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism. Notwithstanding
the foregoing provisions of this paragraph 3.9, in delegating custody
duties to State Street
13
<PAGE>
London Ltd., the Custodian shall not be relieved of any responsibility
to the Fund for any loss due to such delegation, except such loss as
may result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.10 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such
foreign sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
3.11 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be
subject to the direction of the Custodian, State Street London Ltd. or
both.
3.12 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law
14
<PAGE>
shall be to use reasonable efforts to assist the Fund with respect to
any claim for exemption or refund under the tax law of jurisdictions
for which the Fund has provided such information.
4. Payments for Repurchase or Redemptions and Sales of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the
Board of Trustees of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares. In connection with
the redemption or repurchase of Shares of a Portfolio, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire
funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of
the Fund, the Custodian shall honor checks drawn on the Custodian by a
holder of Shares, which checks have been furnished by the Fund to the
holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund and the Transfer Agent of any
receipt by it of payments for Shares of any Portfolio.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing signed
or initialled by two or more persons as the Board of Trustees shall have
from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian
reasonably believes them to have been given by a person authorized to give
such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Fund accompanied by a
detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford
adequate safeguards for the Portfolios' assets. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.12.
15
<PAGE>
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it
to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of
the Board of Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value
per share of the outstanding shares of each Portfolio or, if directed in
writing to do so by the Fund on behalf of the Portfolio, shall itself keep
such books of account and/or compute such net asset value per share. If so
directed, the Custodian shall also calculate daily the net income of the
Portfolio as described in the Fund's currently effective prospectus related
to such Portfolio and shall advise the Fund and the Transfer Agent daily of
the total amounts of such net income and, if instructed in writing by an
officer of the Fund to do so, shall advise the Transfer Agent periodically
of the division of such net income among its various components. The
calculations of the net asset value per share and the daily income of each
Portfolio
16
<PAGE>
shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and
any other law or administrative rules or procedures which may be applicable
to the Fund. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation
of securities owned by each Portfolio and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers
in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Funds' Form N-1A, and Form N-SAR or
other annual reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by
independent public accountants on the account system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or
maintained in a Securities System, relating to the services provided by the
Custodian under this Contract; such reports, shall be of sufficient scope
and in sufficient detail, as may reasonably be required by the Fund to
provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
17
<PAGE>
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper
party or parties, including any futures commission merchant acting pursuant
to the terms of a three-party futures or options agreement. The Custodian
shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice. Notwithstanding the foregoing, the responsibility
of the Custodian with respect to redemptions effected by check shall be in
accordance with a separate agreement entered into between the Custodian and
the Fund.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable
for the payment of money or incurring liability of some other form, the
Fund on behalf of the Portfolio, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the custodian in
an amount and form satisfactory to it.
If the Fund on behalf of a Portfolio requires the Custodian, its
affiliates, subsidiaries or agents, to advance cash or securities for any
purpose (including but not limited to securities settlements, foreign
exchange contracts and assumed settlement) or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available
cash and to dispose of such Portfolio's assets to the extent necessary to
obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
18
<PAGE>
provided, however that the Custodian shall not with respect to a Portfolio
act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of such Securities System,
as required in each case by Rule 17f-4 under the Investment Company Act of
1940, as amended and that the Custodian shall not with respect to a
Portfolio act under Section 2.11 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has approved the initial use of the Direct Paper System
by such Portfolio and the receipt of an annual certificate of the Secretary
or an Assistant Secretary that the Board of Trustees has reviewed the use
by such Portfolio of the Direct Paper System; provided further, however,
that the Fund shall not amend or terminate this Contract in contravention
of any applicable federal or state regulations, or any provision of the
Declaration of Trust, and further provided, that the Fund on behalf of one
or more of the Portfolios may at any time by action of its Board of
Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses, and disbursements.
15. Successor Custodian
If a successor custodian for any Portfolio shall be appointed by the Board
of Trustees of the Fund, the custodian shall, upon termination, deliver to
such successor custodian at the office of the Custodian, duly endorsed and
in the form for transfer, all securities of each applicable Portfolio then
held by it hereunder and shall transfer to an account of the successor
custodian all of the securities of each such Portfolio held in a Securities
System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act
of 1940, doing business in Boston, Massachusetts, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by
its last published report, of not less than $25,000,000, all securities,
funds and other properties held by the Custodian on behalf of each
applicable Portfolio and all instruments held by
19
<PAGE>
the Custodian relative thereto and all other property held by it under this
Contract on behalf of each applicable Portfolio and to transfer to an
account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust
company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to
or of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period
as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor
of this Contract. Any such interpretive or additional provisions shall be
in a writing signed by both parties and shall be annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the Declaration
of Trust of the Fund. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the Growth Portfolio, the Aggressive Growth Portfolio, the
Worldwide Growth Portfolio, the Balanced Portfolio, the Flexible Income
Portfolio and the Short-Term Bond Fund with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in
writing to provide such services, such series of shares shall become a
Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20
<PAGE>
19. Limitation of Liability
A copy of the Fund's Agreement and Declaration of Trust is on file with the
Secretary of the State of Delaware, and notice is hereby given that this
Contract is executed on behalf of the Trustees of the Fund as Trustees of
the Fund and not individually, and that the obligations under this Contract
are not binding upon any of the Trustees, officers, shareholders, agents or
employees of the Fund individually, but binding only upon the assets and
property of the Fund.
20. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply
with the rule, the Custodian needs the Fund to indicate whether it
authorizes the Custodian to provide the Fund's name address, and share
position to requesting companies whose securities the Fund owns. If the
Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes"
or does not check either "yes" or "no" below, the Custodian is required by
the rule to treat the Fund as consenting to disclosure of this information
for all securities owned by the Fund or any funds or accounts established
by the Fund. For the Fund's protection, the Rule prohibits the requesting
company from using the Fund's name and address for any purpose other than
corporate communications. Please indicate below whether the Fund consents
or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [X] The Custodian is not authorized to release the Fund's name,
address, and share positions.
21
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative as of the
_____ day of ______________, 1993.
JANUS ASPEN SERIES
By______________________________________
STATE STREET BANK AND TRUST COMPANY
By______________________________________
Executive Vice President
22
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of trustees of Janus Aspen Series
for use as sub-custodians for the Fund's securities and other assets:
(Insert bank and securities depositories)
Certified
_______________________________________
Fund's Authorized Officer
Date:__________________________________
23
Exhibit 8(c)
LETTER AGREEMENT
April 4, 1994
Mr. Donald DeMarco, Vice President
State Street Bank and Trust Company
One Heritage Drive
Mutual Fund Services P2 North
No. Quincy, MA 02171
Dear Mr. DeMarco:
Please be advised that Janus Aspen Series (the "Fund") has established
International Growth Portfolio as a new series of the Fund. Pursuant to Section
17 of the Custodian Contract dated September 13, 1993, between the Fund and
State Street Bank and Trust Company ("State Street"), the Fund hereby 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 Fund and retaining one copy for
your records.
JANUS ASPEN SERIES
/s/ Janice M. Teague
Janice M. Teague, Secretary
STATE STREET BANK AND TRUST COMPANY
By /s/ A. P. Delumus, V.P.
Agreed to this 6 day of April, 1994
CC: Deborah E. Bielicke
Steven R. Goodbarn
Stephen L. Stieneker
David C. Tucker
EXHIBIT 8(d)
FORM OF
CUSTODY AGREEMENT
Dated _______________________ , 199_
Between
UMB BANK, N.A.
and
JANUS ASPEN SERIES
on behalf of
Money Market Portfolio
<PAGE>
0397X
Table of Contents
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Asset 1
(c) Instructions and Special Instructions 2
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 3
(a) Safekeeping 3
(b) Manner of Holding Securities 4
(c) Free Delivery of Assets 6
(d) Exchange of Securities 6
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 8
(h) Futures Contracts 9
(i) Segregated Accounts 9
(j) Depositary Receipts 10
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 10
(1) Interest Bearing Deposits 11
(m) Foreign Exchange Transactions Other than as Principal 11
(n) Pledges or Loans of Securities 12
(o) Stock Dividends, Rights, Etc. 13
(p) Routine Dealings 13
(q) Collections 13
(r) Deposit Accounts 14
(s) Dividends, Distributions and Redemptions 14
(t) Shares of a Fund purchased by such Fund 14
(u) Shares of a Fund purchased from such Fund 15
(v) Proxies and Notices; Compliance with the Shareholders 15
Communication Act of 1985
(w) Books and Records 15
(x) Opinion of Trust's Independent Certified Public Accountants 16
(y) Reports by Independent Certified Public Accountants 16
(z) Bills and Others Disbursements 16
<PAGE>
5. Subcustodians 16
(a) Domestic Subcustodians 16
(b) Special Subcustodians 17
(c) Supervision of a Subcustodian 17
(d) Termination of a Subcustodian 17
6. Standard of Care 18
(a) General Standard of Care 18
(b) Actions Prohibited by Applicable Law, Events Beyond 18
Custodian's Control, Armed Conflict, Sovereign Risk, Etc.
(c) Mitigation by Custodian 18
(d) Liability for Past Records 19
(e) Advice of Counsel 19
(f) Advice of the Fund and Others 19
(g) Instructions Appearing to be Genuine 19
(h) Exceptions from Liability 19
7. Liability of the Custodian for Actions of Others 20
(a) Domestic Subcustodians 20
(b) Securities Systems, Interim Subcustodians, 20
Special Subcustodians,
Securities Depositories and Clearing Agencies
(c) Defaults or Insolvencies of Brokers, Banks, Etc. 20
(d) Reimbursement of Expenses 21
8. Indemnification 21
(a) Indemnification by Fund 21
(b) Indemnification by Custodian 21
9. Advances 21
10. Security for Obligation to Custodian 22
11. Compensation 23
12. Powers of Attorney 23
13. Termination and Assignment 23
14. Additional Funds 24
15. Notices 24
16. Miscellaneous 24
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this ____ day of _______________, 199_, between
UMB Bank, N.A., a national banking association with its principal place of
business located at Kansas City, Missouri (hereinafter "Custodian"), and Janus
Aspen Series (the "Trust") on behalf of each of the Funds set forth on Appendix
B hereto, together with such additional Funds which shall from time to time be
made parties to this Agreement in the manner set forth herein (individually, a
"Fund" and collectively, the "Funds").
WITNESSETH:
WHEREAS, each Fund is a separate series of the Trust representing shares of
beneficial interest in a separate portfolio of assets, and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for the
custody of Assets (as hereinafter defined) owned by such Fund which Assets are
to be held in such accounts as such Fund may establish from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the terms and
conditions hereof.
NOW THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby and appoints the Custodian as custodian of Assets
belonging to each such Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills,
rights, script, warrants, interim certificates and all negotiable or
nonnegotiable paper commonly known as Securities and other instruments or
obligations.
(b) "Assets" shall mean Securities, monies and other property held by
the Custodian for the benefit of a Fund.
1
<PAGE>
(c)(l) "Instructions", as used herein, shall mean: (i) a tested telex,
a written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf
of a Fund by an Authorized Person (as hereinafter defined); (ii) a
telephonic or other oral communication from a person the Custodian
reasonably believes to be an Authorized Person; or (iii) a communication
effected directly between an electro-mechanical or electronic device or
system (including, without limitation, computers) on behalf of a Fund.
Instructions in the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set forth in
clause (i) above, but the lack of such confirmation shall in no way affect
any action taken by the Custodian in reliance upon oral Instructions which
it reasonably believes to be genuine prior to the Custodian's receipt of
such confirmation. Each Fund authorizes the Custodian to record any and all
telephonic or other oral Instructions communicated to the Custodian.
(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of a Fund or any other person designated by the Treasurer of such
Fund in writing, which countersignature or confirmation shall be included
on the same instrument containing the Instructions or on a separate
instrument relating thereto.
(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and the Funds.
(4) Where appropriate, Instructions and Special Instructions shall be
continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution does
not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly certified or
authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Trust
as in effect on the date hereof;
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees of the Trust appointing the Custodian
and approving the form of this Agreement; and
2
<PAGE>
(d) Each Fund's current prospectus and statements of additional
information.
The Trust or a Fund, as appropriate, shall promptly furnish the
Custodian with copies of any updates, amendments or supplements to the
foregoing documents.
In addition, the Trust has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Trustees and all amendments or
supplements thereto, properly certified or authenticated, designating certain
officers or employees of each such Fund who will have continuing authority to
certify to the Custodian: (a) the names, titles, signatures and scope of
authority of all officers and employees authorized to give Instructions or any
other notice, request, direction, instruction, certificate or instrument on
behalf of each Fund, and (b) the names, titles and signatures of those persons
authorized to countersign or confirm Special Instructions on behalf of each Fund
(in both cases collectively, the "Authorized Persons" and individually, an
"Authorized Person"). Such Resolutions and certificates may be accepted and
relied upon by the Custodian as conclusive evidence of the facts set forth
therein and shall be considered to be in full force and effect until delivery to
the Custodian of a similar Resolution or certificate to the contrary. Upon
delivery of a certificate which deletes or does not include the name(s) of a
person previously authorized to give Instructions or to countersign or confirm
Special Instructions, such persons shall no longer be considered an Authorized
Person. Unless the resolution and certificate specifically limit the authority
of an Authorized Person to specific matters or requires that the approval of
anyone else will first have been obtained, the Custodian will be under no
obligation to inquire into the right of the person giving such Instructions or
Special Instructions to do so. Notwithstanding any of the foregoing, no
Instructions or Special Instructions received by the Custodian from a Fund will
be deemed to authorize or permit any director, trustee, officer, employee, or
agent of such Fund to withdraw any of the Assets of such Fund upon the mere
receipt of such authorization, Special Instructions or Instructions from such
director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC
SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to Section
5(b) of this Agreement, the Custodian shall have and perform the powers and
duties hereinafter set forth in this Section 4. For purposes of this Section 4
all references to powers and duties of the "Custodian" shall also refer to any
Domestic Subcustodian appointed pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time. The Custodian shall not be responsible
for any property of a Fund held or received by such Fund and not delivered
to the Custodian.
3
<PAGE>
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or
(ii) in book-entry form by a Securities System (as hereinafter defined) in
accordance with the provisions of subparagraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which have
been delivered to it in physical form, by registering the same in the name
of the appropriate Fund or its nominee, or in the name of the Custodian or
its nominee, for whose actions such Fund and Custodian, respectively, shall
be fully responsible. Upon the receipt of Instructions, the Custodian shall
hold such Securities in street certificate form, so called, with or without
any indication of fiduciary capacity. However, unless it receives
Instructions to the contrary, the Custodian will register all such
portfolio Securities in the name of the Custodian's authorized nominee. All
such Securities shall be held in an account of the Custodian containing
only assets of the appropriate Fund or only assets held by the Custodian as
a fiduciary, provided that the records of the Custodian shall indicate at
all times the Fund or other customer for which such Securities are held in
such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a) The
Depository Trust Company; (b) The Participants Trust Company; and (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No.
300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series
No. 27-76, 31 CFR 350.2, or (iii) the book-entry regulations of federal
agencies substantially in the form of 31 CFR 306.115. Upon the receipt of
Special Instructions, the Custodian may deposit and/or maintain domestic
Securities owned by a Fund in any other domestic clearing agency registered
with the Securities and Exchange Commission ("SEC") under Section 17A of
the Securities Exchange Act of 1934 (or as may otherwise be authorized by
the SEC to serve in the capacity of depository or clearing agent for the
Securities or other assets of investment companies) which acts as a
Securities depository. Each of the foregoing shall be referred to in this
Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be
in accordance with applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through
one or more agents or Subcustodians which are also qualified
to act as custodians for investment companies.
(ii) The Custodian shall deposit and/or maintain the Securities
in a Securities System, provided that such Securities are
represented in an account ("Account") of the Custodian in
the Securities System that includes only assets held by the
Custodian as a fiduciary, custodian or otherwise for
customers.
4
<PAGE>
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds
which are maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the
account of a Fund only upon (a) receipt of advice from the
Securities System that such Securities have been transferred
to the Account of the Custodian in accordance with the rules
of the Securities System, and (b) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of such Fund. The Custodian shall
transfer Securities sold for the account of a Fund only upon
(a) receipt of advice from the Securities System that
payment for such Securities has been transferred to the
Account of the Custodian in accordance with the rules of the
Securities System, and (b) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of such Fund. The Custodian shall
transfer Securities sold for the account of a Fund only upon
(a) receipt of advice from the Securities System that
payment for such Securities has been transferred to the
Account of the Custodian in accordance with the rules of the
Securities System, and (b) the making of an entry on the
records of the Custodian to reflect such transfer and
payment for the account of such Fund. Copies of all advices
from the Securities System relating to transfers of
Securities for the account of a Fund shall be maintained for
such Fund by the Custodian. The Custodian shall deliver to a
Fund on the next succeeding business day daily transaction
reports which shall include each day's transactions in the
Securities System for the account of such Fund. Such
transaction reports shall be delivered to such Fund or any
agent designated by such Fund pursuant to Instructions, by
computer or in such other manner as such Fund and Custodian
may agree.
(v) The Custodian shall promptly provide the Funds with reports
obtained by the Custodian or any Subcustodian with respect
to a Securities System's accounting system, internal
accounting control and procedures for safeguarding
Securities deposited in the Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a
Fund as promptly as practicable and shall take all actions
reasonably practicable to safeguard the Securities of such
Fund maintained with such Securities System.
5
<PAGE>
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement, the
Custodian, upon receipt of Special Instructions, will undertake to
make free delivery of Assets, provided such Assets are on hand and
available, in connection with a Fund's transactions and to transfer
such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special
Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange
portfolio Securities held by it for a Fund for other Securities or
cash paid in connection with any reorganization, recapitalization,
merger, consolidation, or conversion of convertible Securities, and
will deposit any such Securities in accordance with the terms of any
reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive
form, to surrender Securities for transfer into a name or nominee name
as permitted in Section 4(b)(2), to effect an exchange of shares in a
stock split or when the par value of the stock is changed, to sell any
fractional shares, and, upon receiving payment therefor, to surrender
bonds or other Securities held by it at maturity or call, except that
the Custodian shall not surrender any convertible security (except
mandatory conversions) held by a Fund without appropriate
Instructions.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay
for such Securities out of monies held for a Fund's account for
which the purchase was made, but only insofar as monies are
available therein for such purpose, and receive the portfolio
Securities so purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment will be made
only upon receipt of Securities by the Custodian, a clearing
corporation of a national Securities exchange of which the
Custodian is a member, or a Securities System in accordance with
the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a
repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the
Securities System that the Securities underlying such repurchase
agreement have been transferred by book-entry into the Account
6
<PAGE>
maintained with such Securities System by the Custodian, provided
that the Custodian's instructions to the Securities System
require that the Securities System may make payment of such funds
to the other party to the repurchase agreement only upon transfer
by book-entry of the Securities underlying the repurchase
agreement into such Account; (ii) in the case of Interest Bearing
Deposits, currency deposits, and other deposits, foreign exchange
transactions, futures contracts or options, pursuant to Sections
4(g), 4(h), 4(1), and 4(m) hereof, the Custodian may make payment
therefor before receipt of an advice of transaction; and (iii) in
the case of Securities as to which payment for the Security and
receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the instrument
representing the Security expected to take place in different
locations or through separate parties, such as commercial paper
which is indexed to foreign currency exchange rates, derivatives
and similar Securities, the Custodian may make payment for such
Securities prior to delivery thereof in accordance with such
generally accepted trade practice or the terms of the instrument
representing such Security.
(2) Other Assets Purchased. Upon receipt of Instructions and
except as otherwise provided herein, the Custodian shall pay for
and receive other Assets for the account of a Fund as provided in
Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the
Custodian will, with respect to a sale, deliver or cause to be
delivered the Securities designated as sold to the broker or
other person specified in the Instructions relating to such sale.
Unless the Custodian has received Special Instructions to the
contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank
cashier's check, bank credit, or bank wire transfer; (b) credit
to the account of the Custodian with a clearing corporation of a
national Securities exchange of which the Custodian is a member;
or (c) credit to the Account of the Custodian with a Securities
System, in accordance with the provisions of Section 4(b)(3)
hereof. Notwithstanding the foregoing, Securities held in
physical form may be delivered and paid for in accordance with
"street delivery custom" to a broker or its clearing agent,
against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken
reasonable steps to ensure prompt collection of the payment for,
or return of, such Securities by the broker or its clearing
agent, and provided further that the Custodian shall not be
responsible for the selection of or the failure or inability
7
<PAGE>
to perform of such broker or its clearing agent or for any
related loss arising from delivery or custody of such Securities
prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment
for and deliver other Assets for the account of a Fund as
provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase of an
option or sale of a covered call option, the Custodian shall: (a)
receive and retain confirmations or other documents, if any,
evidencing the purchase or writing of the option by a Fund; (b)
if the transaction involves the sale of a covered call option,
deposit and maintain in a segregated account the Securities
(either physically or by book-entry in a Securities System)
subject to the covered call option written on behalf of such
Fund; and (c) pay, release and/or transfer such Securities, cash
or other Assets in accordance with any notices or other
communications evidencing the expiration, termination or exercise
of such options which are furnished to the Custodian by the
Options Clearing Corporation (the "OCC"), the securities or
options exchanges on which such options were traded, or such
other organization as may be responsible for handling such option
transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the
Custodian, the appropriate Fund and the broker-dealer shall enter
into an agreement to comply with the rules of the OCC or of any
registered national securities exchange or similar
organizations(s). Pursuant to that agreement and such Fund's
Instructions, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the writing
of the option; (b) deposit and maintain in a segregated account,
Securities (either physically or by book-entry in a Securities
System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with
any such agreement and with any notices or other communications
evidencing the expiration, termination or exercise of such option
which are furnished to the Custodian by the OCC, the securities
or options exchanges on which such options were traded, or such
other organization as may be responsible for handling such option
transactions.
8
<PAGE>
(3) The appropriate Fund and the broker-dealer shall be
responsible for determining the quality and quantity of assets
held in any segregated account established in compliance with
applicable margin maintenance requirements and the performance of
other terms of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a
futures margin procedural agreement among the appropriate Fund, the
Custodian and the designated futures commission merchant (a
"Procedural Agreement"). Under the Procedural Agreement the Custodian
shall: (a) receive and retain confirmations, if any, evidencing the
purchase or sale of a futures contract or an option on a futures
contract by such Fund; (b) deposit and maintain in a segregated
account cash, Securities and/or other Assets designated as initial,
maintenance or variation "margin" deposits intended to secure such
Fund's performance of its obligations under any futures contracts
purchased or sold, or any options on futures contracts written by such
Fund, in accordance with the provisions of any Procedural Agreement
designed to comply with the provisions of the Commodity Futures
Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release Assets from and/or
transfer Assets into such margin accounts only in accordance with any
such Procedural Agreements. The appropriate Fund and such futures
commission merchant shall be responsible for determining the type and
amount of Assets held in the segregated account or paid to the
broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on
a futures contract in accordance with its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred
Assets of such Fund, including Securities maintained by the Custodian
in a Securities System pursuant to Paragraph (b)(3) of this Section 4,
said account or accounts to be maintained (i) for the purposes set
forth in Sections 4(g), 4(h) and 4(n) and (ii) for the purpose of
compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release
or releases relating to the maintenance of segregated accounts by
registered investment companies, or (iii) for such other purposes as
may be set forth, from time to time, in Special Instructions. The
Custodian shall not be responsible for the determination of the type
or
9
<PAGE>
amount of Assets to be held in any segregated account referred to in
this paragraph, or for compliance by the Fund with required procedures
noted in (ii) above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall surrender or
cause to be surrendered Securities to the depositary used for such
Securities by an issuer of American Depositary Receipts, Global
Depository Receipts or European Depositary Receipts (hereinafter
referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence
satisfactory to the Custodian or Subcustodian that the depositary has
received instructions to issue ADRs with respect to such Securities in
the name of the Custodian or a nominee of the Custodian, for delivery
in accordance with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or
cause to be surrendered ADRs to the issuer thereof, against a written
receipt therefor adequately describing the ADRs surrendered and
written evidence satisfactory to the Custodian of Subcustodian that
the issuer of the ADRs has received instructions to cause its
depository to deliver the Securities underlying such ADRs in
accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar Securities to the issuer or
trustee thereof (or to the agent of such issuer or trustee) for the
purpose of exercise or sale, provided that the new Securities, cash or
other Assets, if any, acquired as a result of such actions are to be
delivered to the Custodian; and (b) deposit Securities upon
invitations for tenders thereof, provided that the consideration for
such Securities is to be paid or delivered to the Custodian, or the
tendered Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary,
the Custodian shall take all necessary action, unless otherwise
directed to the contrary in Instructions, to comply with the terms of
all mandatory or compulsory exchanges, calls, tenders, redemptions, or
similar rights of security ownership, and shall notify the appropriate
Fund of such action in writing by facsimile transmission or in such
other manner as such Fund and Custodian may agree in writing.
The Fund agrees that if it gives an Instruction for the
performance of an act on the last permissible date of a period
established by any optional
10
<PAGE>
offer or on the last permissible date for the performance of such act,
the Fund shall hold the Bank harmless from any adverse consequences in
connection with acting upon or failing to act upon such Instructions,
unless such adverse consequences result from the willful misfeasance
or bad faith of the custodian, its employees or agents.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred
to, collectively, as "Interest Bearing Deposits") for the account of a
Fund, the Custodian shall purchase such Interest Bearing Deposits in
the name of such Fund with such banks or trust companies, including
the Custodian, any Subcustodian or any subsidiary or affiliate of the
Custodian (hereinafter referred to as "Banking Institutions"), and in
such amounts as such Fund may direct pursuant to Instructions. Such
Interest Bearing Deposits may be denominated in U.S. dollars or other
currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for
Interest Bearing Deposits issued by the Custodian shall be that of a
U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those issued by the Custodian, (a) the Custodian
shall be responsible for the collection of income and the transmission
of cash to and from such accounts; and (b) the Custodian shall have no
duty with respect to the selection of the Banking Institution or for
the failure of such Banking Institution to pay upon demand.
(m) Foreign Exchange Transactions Other than as Principal.
(1) Upon receipt of Instructions, the Custodian shall settle
foreign exchange contracts or options to purchase and sell
foreign currencies for spot and future delivery on behalf of and
for the account of a Fund with such currency brokers or Banking
Institutions as such Fund may determine and direct pursuant to
Instructions. Each Fund accepts full responsibility for its use
of third party foreign exchange brokers and for execution of said
foreign exchange contracts and understands that the Fund shall be
responsible for any and all costs and interest charges which may
be incurred as a result of the failure or delay of its third
party broker to deliver foreign exchange. The Custodian shall
have no responsibility with respect to the selection of the
currency brokers or Banking Institutions with which a Fund deals
or, so long as the Custodian acts in accordance with
Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
11
<PAGE>
(2) Notwithstanding anything to the contrary contained herein,
upon receipt of Special Instructions the Custodian may, in
connection with a foreign exchange contract, make free outgoing
payments of cash in the form of U.S. Dollars or foreign currency
prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the
pledgees designated in such Instructions by way of pledge or
hypothecation to secure loans incurred by such Fund with various
lenders including but not limited to the Custodian; provided,
however, that the Securities shall be released only upon payment
to the Custodian of the monies borrowed, except that in cases
where additional collateral is required to secure existing
borrowings, further Securities may be released or delivered, or
caused to be released or delivered for that purpose upon receipt
of Special Instructions. Upon receipt of Instructions, the
Custodian will pay, but only from funds available for such
purpose, any such loan upon re-delivery to it of the Securities
pledged or hypothecated therefor and upon surrender of the note
or notes evidencing such loan. In lieu of delivering collateral
to a pledgee, the Custodian, on the receipt of Instructions,
shall transfer the pledged Securities to a segregated account for
the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a
separate Securities Lending Agreement, the Custodian will release
Securities held in custody to the borrower designated in such
Special Instructions and may, except as otherwise provided below,
deliver borrowed Securities prior to the receipt of collateral,
if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash
collateral, the Custodian's instructions to the Securities System
shall require that the Securities System deliver the Securities
of the appropriate Fund to the borrower thereof only upon receipt
of the collateral for such borrowing. The Custodian shall have no
responsibility or liability for any loss arising from the
delivery of Securities prior to the receipt of collateral in
accordance with such Special Instructions. Upon receipt of
Instructions and the loaned Securities, the Custodian will
release the collateral to the borrower.
12
<PAGE>
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends,
rights, and other items of like nature on behalf of a Fund and, upon
receipt of Instructions, take action with respect to the same as
directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and
mechanical matters in accordance with industry standards in connection
with the sale, exchange, substitution, purchase, transfer, or other
dealings with Securities or other property of each Fund except as may
be otherwise provided in this Agreement or directed from time to time
by Instructions or Special Instructions from any particular Fund. The
Custodian may also make payments to itself or others from the Assets
for disbursements and out-of-pocket expenses incidental to handling
Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to
the appropriate Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to each
Fund with respect to portfolio Securities and other Assets; (b)
promptly credit to the account of each Fund all income and other
payments relating to portfolio Securities and other Assets held by the
Custodian hereunder upon Custodian's receipt of such income or
payments or as otherwise agreed in writing by the Custodian and any
particular Fund; (c) promptly endorse and deliver any instruments
required to effect such collection; and (d) promptly execute ownership
and other certificates and affidavits for all federal, state, local
and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio Securities and other Assets, or in
connection with the transfer of such Securities or other Assets;
provided, however, that with respect to portfolio Securities
registered in so-called street name, or physical Securities with
variable interest rates, the Custodian shall use its best efforts to
collect amounts due and payable to any such Fund. The Custodian shall
notify a Fund in writing by facsimile transmission or in such other
manner as such Fund and Custodian may agree in writing if any amount
payable with respect to portfolio Securities or other Assets is not
received by the Custodian when due. The Custodian shall not be
required to institute suit or take other extraordinary action to
enforce collection except upon receipt of Instructions and being
indemnified to its satisfaction against the cost and expenses of such
suit or other actions.
13
<PAGE>
(r) Deposit Accounts.
The Custodian will open and maintain one or more special purpose
deposit accounts in the name of the Custodian, on behalf of a Fund,
subject only to draft or order by Custodian upon receipt of
Instructions. All monies received by the Custodian from or for the
account of a Fund shall be deposited in said accounts. Barring events
not under the control of the Custodian, at 9:00 a.m., New York time,
on the second business day after deposit of any check into an account,
the Custodian agrees to make Fed Funds available to a Fund in the
amount of the check. Deposits made by Federal Reserve wire will be
available to such Fund immediately and ACH wires will be available to
the Fund on the next business day. Income earned on the portfolio
Securities will be credited to the Fund's deposit account. The
Custodian will be entitled to reverse any credited amounts where
credits have been made and monies are not finally collected. If monies
are collected after such reversal, the Custodian may open and maintain
accounts in its own banking department, or in such other banks or
trust companies as may be designated by it or by the Fund in writing,
all such accounts, however, to be in the name of Custodian, on behalf
of a Fund, and subject only to its draft or order. Funds received and
held for the account of different Funds shall be maintained in
separate accounts established for each Fund.
(s) Dividends, Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to
shareholders of such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of such Fund
(collectively, the "Shares"), the Custodian shall promptly release
cash or Securities insofar as available. In the case of cash, the
Custodian shall, upon the receipt of Instructions, transfer funds by
check or wire transfer to any account at any bank or trust company
designated by the Fund in such Instructions. In the case of
Securities, the Custodian shall, upon the receipt of Special
Instructions, make such transfer to any entity or account designated
by each such Fund in such Special Instructions.
(t) Shares of a Fund purchased by such Fund.
Whenever any Shares are repurchased or redeemed by a Fund, the
Fund or its agent shall advise the Custodian of the aggregate dollar
amount to be paid for such Shares and shall confirm such advice in
writing. Upon receipt of such advice, the Custodian shall charge such
aggregate dollar amount to the account of the Fund and either deposit
the same in the account maintained for purposes of paying for the
redemption of Shares or deliver the same in accordance with such
advice. The Custodian shall not have any duty
14
<PAGE>
or responsibility to determine that Shares have been removed from the
proper shareholder account or accounts or that the proper number of
Shares have been cancelled and removed from the shareholder records.
(u) Shares of a Fund purchased from such Fund.
Whenever Shares are purchased from a Fund, the Fund will deposit
or cause to be deposited with the Custodian the amount received for
such Shares. The Custodian shall not have any duty or responsibility
to determine that Shares purchased from a Fund have been added to the
proper shareholder account or accounts or that the proper number of
such Shares have been added to the shareholder records.
(v) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985.
The Custodian shall deliver or cause to be delivered to the
appropriate Fund all forms of proxies, all notices of meetings, and
any other notices or announcements affecting or relating to Securities
owned by such Fund that are received by the Custodian, any
Subcustodian, or any nominee of either of them, and, upon receipt of
Instructions, the Custodian shall execute and deliver, or cause such
Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to
Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such Securities, or execute any proxy to vote
thereon, or give any consent or take any other action with respect
thereto.
The Custodian will not release the identity of a Fund to an
issuer which requests such information pursuant to the Shareholder
Communication Act of 1985 for the specific purpose of direct
communications between such issuer and the Fund unless such Fund
directs the Custodian otherwise in writing.
(w) Books and Records.
The Custodian shall maintain such records relating to its
activities under this Agreement as are required to be maintained by
Rule 31a-1 under the Investment Company Act of 1940 ("the 1940 Act")
and to preserve them for the periods prescribed in Rule 31a-2 under
the 1940 Act. These records shall be open for inspection by duly
authorized officers, employees or agents (including independent public
accountants) of the Trust during normal business hours of the
Custodian.
15
<PAGE>
The Custodian shall provide accountings relating to its
activities under this Agreement as shall be agreed upon by each Fund
and the Custodian.
(x) Opinion of Trust's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as the Trust may
request to obtain from year to year favorable opinions from the
Trust's independent certified public accountants with respect to the
Custodian's activities hereunder and in connection with the
preparation of each such Fund's periodic reports to the SEC and with
respect to any other requirements of the SEC.
(y) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such
Fund a written report prepared by the Custodian's independent
certified public accountants with respect to the services provided by
the Custodian under this Agreement, including, without limitation, the
Custodian's accounting system, internal accounting control and
procedures for safeguarding cash, Securities and other Assets,
including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report
shall be of sufficient scope and in sufficient detail as may
reasonably be required by the Trust and as may reasonably be obtained
by the Custodian.
(z) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause
to be paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians or
Special Subcustodians (as each are hereinafter defined) to act on behalf of any
one or more Funds. A Domestic Subcustodian, in accordance with the provisions of
this Agreement, may also appoint a Special Subcustodian to act on behalf of any
one or more Funds. For purposes of this Agreement, all Domestic Subcustodians
and Special Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint any
bank as defined in Section 2(a)(5) of the 1940 Act or any trust
company or other entity, any of which meet the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and
regulations thereunder, to act for the Custodian on behalf of any
16
<PAGE>
one or more Funds as a subcustodian for purposes of holding Assets of
such Fund(s) and performing other functions of the Custodian within
the United States (a "Domestic Subcustodian"). Each Fund shall approve
in writing the appointment of the proposed Domestic Subcustodian; and
the Custodian's appointment of any such Domestic Subcustodian shall
not be effective without such prior written approval of the Fund(s).
Each such duly approved Domestic Subcustodian shall be listed on
Appendix A attached hereto, as it may be amended, from time to time.
(b) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on
behalf of a Fund, appoint one or more banks, trust companies or other
entities designated in such Special Instructions to act for the
Custodian on behalf of such Fund as a subcustodian for purposes of:
(i) effecting third-party repurchase transactions with banks, brokers,
dealers or other entities through the use of a common custodian or
subcustodian; (ii) providing depository and clearing agency services
with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to
dollar denominated Securities, and (iv) effecting any other
transactions designated by such Fund in such Special Instructions.
Each such designated subcustodian (hereinafter referred to as a
"Special Subcustodian") shall be listed on Appendix A attached hereto,
as it may be amended from time to time. In connection with the
appointment of any Special Subcustodian, the Custodian shall enter
into a subcustodian agreement with the Special Subcustodian in form
and substance approved by the appropriate Fund in Special
Instructions. The Custodian shall not amend any subcustodian agreement
entered into with a Special Subcustodian, or waive any rights under
such agreement, except upon prior approval pursuant to Special
Instructions.
(c) Supervision of Subcustodian.
The Custodian shall (i) cause each Domestic Subcustodian to, and
(ii) use its best efforts to cause each Special Subcustodian to,
perform all of its obligations in accordance with the terms and
conditions of the subcustodian agreement under which the Subcustodian
services.
(d) Termination of a Subcustodian.
The Custodian may, at any time in its discretion upon at least 60
days notice to the appropriate Fund(s), terminate any Subcustodian of
such Fund(s) in accordance with the termination provisions under the
applicable subcustodian agreement, and upon the receipt of Special
Instructions, the Custodian will terminate any Subcustodian in
accordance with the termination provisions under the applicable
subcustodian agreement.
17
<PAGE>
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall hold harmless and indemnify a Fund for all
losses, damages, liabilities and reasonable costs and expenses
suffered or incurred by such Fund resulting from the gross negligence
or willful misfeasance of the Custodian, its directors, officers,
employees, or agents; provided, however, in no event shall the
Custodian be liable for special, indirect or consequential damages
arising under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian
incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities System, Securities
Depository or Clearing Agency utilized by the Custodian or any such
Subcustodian, or any nominee of the Custodian or any Subcustodian
(individually, a person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement
provides shall be performed or omitted to be performed, by reason of:
(i) any provision of any present or future law or regulation or order
of the United States of America, or any state thereof, or of any
foreign country, or political subdivision thereof or of any court of
competent jurisdiction (and neither the Custodian nor any other Person
shall be obligated to take any action contrary thereto); or (ii) any
event beyond the control of the Custodian or other Person such as
armed conflict, riots, strikes, lockouts, labor disputes, equipment or
transmission failures (unless caused by the negligence or willful
misconduct of the Custodian), natural disasters, or failure of the
mails, transportation, communications or power supply (unless caused
by the negligence or willful misfeasance of the Custodian, its agents
or employees); or (iii) any "Sovereign Risk." A "Sovereign Risk" shall
mean nationalization, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action by
any governmental authority, de facto or de jure; or enactment,
promulgation, imposition or enforcement by any such governmental
authority of currency restrictions, exchange controls, taxes, levies
or other charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event
beyond the Custodian's or such other Person's control.
(c) Upon the occurrence of any event which causes or may cause any
loss, damage or expense to a Fund, (i) the Custodian shall cause any
applicable Domestic Subcustodian to, and (ii) the Custodian shall use
its best efforts to cause any Special Subcustodian to, use all
commercially reasonable efforts and take all reasonable steps under
the circumstances to mitigate the effects of such event and to avoid
continuing harm to the Funds.
18
<PAGE>
(d) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have
any liability in respect of any loss, damage or expense suffered by a
Fund, insofar as such loss, damage or expense arises from the
performance of the Custodian or any Domestic Subcustodian in reliance
upon records that were maintained for such Fund by entities other than
the Custodian or any Domestic Subcustodian prior to the Custodian's
employment hereunder.
(e) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing and
acceptable to the Funds on all matters. The Custodian and all Domestic
Subcustodians shall be without liability for any actions reasonably
taken or omitted in good faith pursuant to the advice of such counsel.
(f) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the
advice of any Fund and upon statements of such Fund's accountants and
other persons believed by it in good faith to be expert in matters
upon which they are consulted, and neither the Custodian nor any
Domestic Subcustodian shall be liable for any actions taken or
omitted, in good faith, pursuant to such advice or statements.
(g) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully
protected and indemnified in acting as a custodian hereunder upon any
Resolutions of the Trustees, Instructions, Special Instructions,
advice, notice, request, consent, certificate, instrument or paper
appearing to it to be genuine and to have been properly executed and
shall, unless otherwise specifically provided herein, be entitled to
receive as conclusive proof of any fact or matter required to be
ascertained from any Fund hereunder a certificate signed by any
officer of such Fund authorized to countersign or confirm Special
Instructions.
(h) Exceptions from Liability.
Without limiting the generality of any other provisions hereof,
neither the Custodian nor any Domestic Subcustodian shall be under any
duty or obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or
for any Fund, the legality of the purchase thereof or
evidence of ownership
19
<PAGE>
required to be received by any such Fund, or the propriety
of the decision to purchase of amount paid therefore;
(ii) the legality of the sale of any Securities by or for any
Fund, or the propriety of the amount for which the same were
sold; or
(iii) any other expenditures, encumbrances of Securities,
borrowings or similar actions with respect to any Fund's
Assets;
and may, until notified to the contrary, presume that all Instructions
or Special Instructions received by it are not in conflict with or in
any way contrary to any provisions of the Trust's Declaration of Trust
or By-Laws or votes or proceedings of the shareholders of a Fund or
the Trustees of the Trust, or the Trust's currently effective
Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians.
The Custodian shall be liable for the acts or omissions of any
Domestic Subcustodian to the same extent as if such actions or
omissions were performed by the Custodian itself.
(b) Securities Systems, Special Subcustodians, Securities
Depositories and Clearing Agencies.
The Custodian shall not be liable to any Fund for any loss,
damage or expense suffered or incurred by such Fund resulting from or
occasioned by the actions or omissions of a Securities System, Special
Subcustodian, or Securities Depository and Clearing Agency unless such
loss, damage or expense is caused by, or results from, the negligence
or willful misfeasance of the Custodian, its employees or agents, or
any affiliate of the Custodian which provides services to the Funds at
the direction of the Custodian, for whose actions the Custodian will
be liable to the same extent as if the Custodian had provided such
services directly.
(c) Defaults of Insolvencies of Brokers, Banks, Etc.
The Custodian shall not be liable for any loss, damage or expense
suffered or incurred by any Fund resulting from or occasioned by the
actions, omissions, neglects, defaults or insolvency of any broker,
bank, trust company or any other person with whom the Custodian may
deal (other than any of such entities acting as a Subcustodian,
Securities System or Securities Depository and Clearing Agency, for
whose actions the liability of the Custodian is set out elsewhere in
this Agreement, or any affiliate of the Custodian which provides
services to the Funds at the direction
20
<PAGE>
of the Custodian, for whose actions the Custodian will be liable to
the same extent as if the Custodian had provided such services
directly), unless such loss, damage or expense is caused by, or
results from, the negligence or willful misfeasance of the Custodian.
(d) Reimbursement of Expenses.
The Fund's Administrator agrees to reimburse the Custodian for
all reasonable out-of-pocket expenses incurred by the Custodian in
connection with this Agreement, but excluding salaries and usual
overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each Fund
agrees to indemnify and hold harmless the Custodian and its nominees
from all losses, damages and expenses (including reasonable attorneys'
fees) suffered or incurred by the Custodian or its nominee caused by
or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this
Agreement, including, but not limited to, any indemnification
obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall
not apply to the extent the Custodian is liable under Sections 6 or 7
hereof.
If any Fund requires the Custodian to take any action with
respect to Securities, which action involves the payment of money or
which may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to such Fund being liable for the payment of
money, such Fund, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and
form satisfactory to it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in
addition to the obligations provided in Sections 6 and 7, the
Custodian agrees to indemnify and hold harmless each Fund and its
nominee from all losses, damages and expenses (including reasonable
attorneys' fees) suffered or incurred by such Fund or its nominee
caused by the negligence or willful misfeasance of the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing
Agency acting either directly or
21
<PAGE>
indirectly under agreement with the Custodian (each of which for purposes
of this Section 9 shall be referred to as "Custodian"), makes any payment
or transfer of funds on behalf of any Fund as to which there would be, at
the close of business on the date of such payment or transfer, insufficient
funds held by the Custodian on behalf of any such Fund, the Custodian may,
in its discretion without further Instructions, provide an advance
("Advance") to any such Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer
of funds is to be made. In addition, in the event the custodian is directed
by Instructions to make any payment or transfer of funds on behalf of any
Fund as to which it is subsequently determined that such Fund has overdrawn
its cash account with the Custodian as of the close of business on the date
of such payment or transfer, said overdraft shall constitute an Advance.
Any Advance shall be payable by the Fund on behalf of which the Advance was
made on demand by Custodian, unless otherwise agreed by such Fund and the
Custodian, and shall accrue interest from the date of the Advance to the
date of payment by such Fund to the Custodian at a rate agreed upon in
writing from time to time by the custodian and such Fund. It is understood
that any transaction in respect of which the Custodian shall have made an
Advance, including but not limited to a foreign exchange contract or
transaction in respect of which the custodian is not acting as a principal,
is for the account of and at the risk of the fund on behalf of which the
Advance was made, and not, by reason of such Advance, deemed to be a
transaction undertaken by the custodian for its own account and risk. The
Custodian and each of the Funds acknowledge that the purpose of Advances is
to finance temporarily the purchase or sale of Securities for prompt
delivery in accordance with the settlement terms of such transactions or to
meet emergency expenses not reasonably foreseeable by a Fund. The Custodian
shall promptly notify the appropriate Fund of any Advance. Such
notification shall be sent by facsimile transmission or in such other
manner as such Fund and the Custodian may agree.
10. SECURITY FOR OBLIGATIONS TO CUSTODIAN.
If the Custodian or any Subcustodian, Securities System, or Securities
Depository or Clearing Agency acting either directly or indirectly under
agreement with the Custodian, or any nominee of any of the foregoing, shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement
(collectively "Liability"), except such as may arise from its or its
nominee's breach of the relevant standard of care set forth in this
Agreement, or if the Custodian, or any such Subcustodian, Securities
System, or Securities Depository or Clearing Agency or the nominee of any
of the foregoing, shall make any Advance to any fund, then in such event
property of the Fund on behalf of which the Advance was made equal in value
to not more than 110% of such Advance and accrued interest thereon or the
anticipated amount of such Liability shall be held as security for such
Liability or for such Advance and the interest thereon.
The appropriate Fund shall reimburse the Custodian promptly for any
Liability and shall pay any Advances on demand after notice from the
Custodian to the Fund of the
22
<PAGE>
existence of the Advance. If, after notification, such Fund shall fail to
promptly pay such Advance or interest when due or shall fail to reimburse
the Custodian promptly in respect of a Liability, the Custodian or any such
Subcustodian, Securities System, or Securities Depository or Clearing
Agency shall be entitled to utilize available cash or dispose of such
Fund's Assets to the extent, and only to the extent, necessary to obtain
repayment or reimbursement.
11. COMPENSATION.
The Custodian agrees that it shall not look to the Funds of the Trust
for compensation for its services provided under this Agreement. The
Custodian shall be compensated entirely by Janus Capital Corporation, the
Funds' Administrator, pursuant to the Administration Agreement between
Janus Capital Corporation and the Trust dated December 9, 1994, a copy of
which is attached hereto as Appendix C and incorporated herein by
reference. Such compensation shall be in amounts as agreed to, in writing,
by the Custodian and Janus Capital Corporation from time to time. The
provisions contained in this Section 11 shall not affect the obligation of
each Fund to repay Advances and Liabilities as set forth in Sections 9 and
10.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary
or desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return
receipt requested) to the other not less than 60 days prior to the date
upon which such termination shall take effect. Upon termination of this
Agreement, the custodian shall pay such fees as may be due the Custodian
hereunder in accordance with Section 11 of this Agreement, as well as its
reimbursable disbursements, costs and expenses paid or incurred. Upon
termination of this Agreement, the custodian shall deliver, at the
terminating party's expense, all Assets held by it hereunder to the
appropriate Fund or as otherwise designated by such Fund by Special
Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the later of
the effective date of termination, or the date upon which the Custodian
completes the delivery of all Assets held by it hereunder to the
appropriate Fund or as otherwise directed by such Fund.
23
<PAGE>
This Agreement may not be assigned by the Custodian or any Fund
without the respective consent of the other, duly authorized by a
resolution by its Board of Directors or Trustees.
14. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement after
the date hereof by an instrument in writing to such effect signed by the
Trust and the custodian. If this Agreement is terminated as to one or more
of the Funds (but less than all of the Funds) or if an additional Fund or
Funds shall become a party to this Agreement, there shall be delivered to
each party an Appendix B or an amended Appendix B, signed on behalf of the
additional Funds (if any) and each of the remaining Funds by the Trust as
well as the Custodian, deleting or adding such Fund or Funds, as the case
may be. The termination of this Agreement as to less than all of the Funds
shall not affect the obligations of the Custodian and the remaining Funds
hereunder as set forth on the signature page hereto and in Appendix B as
revised from time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other writings
delivered to Janus Aspen Series, 100 Fillmore Street, Suite 300, Denver, CO
80206-4923, postage prepaid, or to such other address as the Trust shall
from time to time designate to the custodian in writing, shall be deemed to
have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration Department of the Custodian at its office at 928
Grand Avenue, Kansas City, Missouri, or mailed postage prepaid, to the
Custodian's Securities Administration Department, Post Office Box 226,
Kansas City, Missouri 64141, or to such other addresses as the Custodian
may have designated to each Fund in writing, shall be deemed to have been
properly delivered or given to the Custodian hereunder; provided, however,
that procedures for the delivery of Instructions and Special Instructions
shall be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the
respective successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or
waived, in any manner except in writing, properly executed by both
parties hereto; provided,
24
<PAGE>
however, Appendix A may be amended from time to time as Domestic
Subcustodians, Special Subcustodians, and Securities Depositories and
Clearing Agencies are approved or terminated according to the terms of
this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution
hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following
sections of the Agreement:
Term Section
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Instruction 2
Interest Bearing Deposit 4(1)
Liability 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
25
<PAGE>
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of
competent jurisdiction, the remaining portion or portions shall be
considered severable and shall not be affected, and the rights and
obligations of the parties shall be construed and enforced as if this
Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof, and
accordingly supersedes, as of the effective date of this Agreement,
any custodian agreement heretofore in effect between the Fund and the
Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement
to be executed by their respective duly authorized officers.
JANUS ASPEN SERIES,
on behalf of Money Market Portfolio
ATTEST: By:_____________________________________
Name:___________________________________
__________________________________ Title:__________________________________
UMB BANK, N.A.
ATTEST: By:_____________________________________
Name:___________________________________
__________________________________ Title:__________________________________
26
<PAGE>
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
Bank of New York
Nations Bank of North Carolina
Chemical Bank
Bankers Trust
JANUS ASPEN SERIES, UMB BANK, N.A.
on behalf of Money Market Portfolio
By:_______________________________ By:_____________________________________
Name:_____________________________ Name:___________________________________
Title:____________________________ Title:__________________________________
Date:_____________________________
27
<PAGE>
APPENDIX A
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds"), each of
which is a separate series of Janus Aspen Series, are hereby made parties to the
Custody Agreement dated _______________________, 199_, with UMB Bank, N.A.
("Custodian"), and agree to be bound by all the terms and conditions contained
in said Agreement as of this ______ day of _____________, 1995.
Money Market Portfolio
JANUS ASPEN SERIES
ATTEST: By:_____________________________________
Name:___________________________________
__________________________________ Title:__________________________________
UMB BANK, N.A.
ATTEST: By:_____________________________________
Name:___________________________________
__________________________________ Title:__________________________________
28
<PAGE>
APPENDIX C
ADMINISTRATION AGREEMENT
29
EXHIBIT 9(a)
TRANSFER AGENCY AGREEMENT
This Agreement is made as of _____________________, 1993, by and between
Janus Aspen Series, a Delaware business trust (the "Fund"), and Janus Service
Corporation, a Colorado corporation ("JSC").
The Fund desires to appoint JSC as its transfer agent and JSC desires to
accept such appointment.
1. Appointment. Subject to the conditions set forth in this Agreement, the
Fund hereby appoints JSC as its transfer agent and JSC hereby accepts such
appointment.
2. Services. JSC agrees that it will perform all of the customary services
of a transfer agent of an investment company in accordance with the policies and
practices of the Fund as disclosed in its registration materials or otherwise
communicated to JSC from time to time, including, without limitation, the
following: recording the ownership, transfer, conversion, and cancellation of
ownership of shares of the Fund on the books of the Fund; establishing and
maintaining shareholder accounts; preparing shareholder meeting lists, mailing
proxies, receiving and tabulating proxies; mailing shareholder reports and
prospectuses; recording reinvestments of dividends and distributions in Fund
shares; preparing and mailing confirmation forms to shareholders and dealers for
purchases and redemptions of Fund shares and other transactions for which
confirmations are required; and cooperating with insurance companies,
broker-dealers and financial intermediaries who represent shareholders of the
Fund.
3. Records. JSC shall maintain such books and records relating to
transactions effected by JSC pursuant to this Agreement as are required by the
Investment Company Act of 1940 (the "1940 Act"), or by rules or regulations
thereunder, to be maintained by the Fund or its transfer agent with respect to
such transactions. JSC shall preserve, or cause to be preserved, any such books
and records for the period and in the manner prescribed by any such law, rule,
or regulation, and shall furnish the Fund such information as to such
transactions and at such times as may be reasonably required by it to comply
with applicable laws and regulations. To the extent required by the 1940 Act and
the rules and regulations thereunder, JSC agrees that all records maintained by
JSC relating to the services performed by JSC pursuant to this Agreement are the
property of the Fund and will be preserved and will be surrendered promptly to
the Fund upon request.
4. Share Registration. All requisite steps will be taken by the Fund from
time to time when and as necessary to register the Fund's shares for sale with
the SEC and in all states in which the Fund's shares shall at the time be
offered for sale and require registration.
<PAGE>
5. Compensation and Expenses. JSC shall not be compensated for services
rendered under this Agreement; provided, however, that the Fund shall reimburse
JSC for out-of-pocket expenses incurred by JSC in connection with its
performance of such services. JSC shall bill the Fund as soon as practicable
after the end of each calendar month for the expenses for that month. The Fund
shall promptly pay to JSC the amount of such billing.
6. Indemnification.
a. JSC shall not be responsible for, and the Fund shall hold harmless
and indemnify JSC from and against, any loss by or liability to the Fund or a
third party (including reasonable attorney's fees and costs) in connection with
any claim or suit asserting any such liability arising out of or attributable to
actions taken or omitted by JSC pursuant to this Agreement, unless JSC's actions
constitute gross negligence or willful misconduct. The Fund will be responsible
for, and will have the right to conduct or control the defense of, any
litigation asserting liability against which JSC is indemnified hereunder. JSC
will not be under any obligation to prosecute or defend any action or suit with
respect to the agency relationship hereunder, which, in its opinion, may involve
it in expense or liability for which it is indemnified hereunder, unless the
Fund will, as often as requested, furnish JSC with reasonable, satisfactory
security and indemnity against such expense or liability.
b. JSC will hold harmless and indemnify the Fund from and against any
loss or liability (including reasonable attorney's fees and costs) arising out
of any failure by JSC to comply with the terms of this Agreement due to JSC's
gross negligence or willful misconduct.
7. Termination of Agreement.
a. This Agreement may be terminated by either party upon receipt of
sixty (60) days' written notice from the other party.
b. The Fund, in addition to any other rights and remedies, shall have
the right to terminate this Agreement immediately upon the occurrence at any
time of any of the following events:
(1) Any interruption or cessation of operations of JSC or its
assigns that materially interferes with the business operation of the Fund;
(2) The bankruptcy of JSC or its assigns or the appointment of a
receiver for JSC or its assigns;
(3) Any merger, consolidation, or sale of substantially all the
assets of JSC or its assigns;
<PAGE>
(4) Failure by JSC or its assigns to perform its duties in
accordance with this Agreement, which failure materially adversely affects the
business operations of the Fund and which failure continues for ten (10) days
after receipt of written notice from JSC.
c. In the event of termination, the Fund will promptly pay JSC all
amounts due to JSC hereunder.
d. In the event of termination, JSC will use its best efforts to
transfer the books and records of the Fund to the designated successor agent and
to provide other information relating to its services provided hereunder for
reasonable compensation therefore.
8. Assignment.
a. Neither this Agreement not any rights or obligations hereunder may
be assigned by either party without the written consent of the other; provided,
however, that any such assignment shall be subject to the prior written approval
of the Fund and no such assignment will relieve JSC of any of its obligations
hereunder. JSC may, however, employ agents to assist it in performing its duties
hereunder.
b. This Agreement will inure to the benefit of and be binding upon the
parties and their respective successors and assigns.
9. Governing Law. This Agreement shall be governed by the laws of the State
of Colorado.
10. Amendments. No provisions of this Agreement may be amended or modified
in any manner, except by a written agreement properly authorized and executed by
both parties hereto.
11. Limitation of Personal Liability. The parties to this Agreement
acknowledge and agree that all liabilities of the Fund arising, directly or
indirectly, under this Agreement, of any and every nature whatsoever, shall be
satisfied solely out of the assets of the Fund and that no Trustee, officer or
holder of shares of beneficial interest of the Fund shall be
<PAGE>
personally liable for any of such liabilities. The Fund's Trust Instrument, as
amended from time to time, is on file in the Office of the Secretary of State of
the State of Delaware, and describes in detail the respective responsibilities
and limitations on liability of the Trustees, officers and holders of shares of
beneficial interest of the Fund.
JANUS ASPEN SERIES
By:_____________________________________
Name:___________________________________
Title:__________________________________
JANUS SERVICE CORPORATION
By:_____________________________________
Jack R. Thompson
President
EXHIBIT 9(c)
JANUS ASPEN SERIES
FORM OF MODEL
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this ____ day of _____________, 1993, between JANUS
ASPEN SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), and _____________________, a life insurance
company organized under the laws of the State of ____________________ (the
"Company"), on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A, as may be amended from time to time (the
"Accounts").
WITNESSETH:
WHEREAS, the Trust has filed a registration statement with the Securities
and Exchange Commission to register itself as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and to register the offer and sale of its shares under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has applied for an order from the Securities and
Exchange Commission granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Trust Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable life
insurance policies and/or variable annuity contracts under the 1933 Act (the
"Contracts"); and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
<PAGE>
WHEREAS, the Company desires to utilize shares of one or more Portfolios as
an investment vehicle of the Accounts;
NOW THEREFORE; in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
Sale of Trust Shares
1.1. The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.2. The Trust will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3. For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the close of the regular trading session of the New York Stock Exchange and ii)
the Trust receives notice of such orders by 10:00 a.m. New York time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.4. Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for on the same Business Day that the Trust receives
notice of the order. Payments shall be made in federal funds transmitted by
wire.
1.5. The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on the Trust's shares. The
Company hereby elects to
2
<PAGE>
receive all such income dividends and capital gain distributions as are payable
on a Portfolio's shares in additional shares of that Portfolio. The Trust shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.6. The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6 p.m. New York time.
1.7. The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Shared Trust Exemptive
Order. No shares of any Portfolio will be sold directly to the general public.
The Company agrees that Trust shares will be used only for the purposes of
funding the Contracts and Accounts listed in Schedule A, as amended from time to
time.
1.8. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in section 2.8 and Article IV of
this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and statements
of additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares, preparation and filing of the
documents listed in this section 2.1. and all taxes to which an issuer is
subject on the issuance and transfer of its shares.
2.2. At the option of the Company, the Trust shall either (a) provide the
Company (at the Company's expense) with as many copies of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
as the Company shall reasonably request; or (b) provide the Company with a
camera ready copy of such documents in a form suitable for printing. The Trust
shall provide the Company with a copy of its statement of additional information
in a form suitable for duplication by the Company. The Trust (at its expense)
shall provide the Company with copies of any Trust-sponsored proxy materials in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
2.3. The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder
3
<PAGE>
communications to owners of and applicants for policies for which the Trust is
serving or is to serve as an investment vehicle. The Company shall bear the
costs of distributing proxy materials (or similar materials such as voting
solicitation instructions) to Contract owners. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract owners
in accordance with applicable federal and state securities laws.
2.4. The Company agrees and acknowledges that the Trust's adviser, Janus
Capital Corporation ("Janus Capital"), is sole owner of the name and mark
"Janus" and that all use of any designation comprised in whole or part of Janus
(a "Janus Mark") under this Agreement shall inure to the benefit of Janus
Capital. Except as provided in section 2.5, the Company shall not use any Janus
Mark on its own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or other materials
relating to the Accounts or Contracts without the prior written consent of Janus
Capital. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Janus Mark(s) as soon as reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust or
its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment adviser is named prior to the
filing of such document with the Securities and Exchange Commission. The Company
shall furnish, or shall cause to be furnished, to the Trust or its designee,
each piece of sales literature or other promotional material in which the Trust
or its investment adviser is named, at lease fifteen Business Days prior to its
use. No such material shall be used if the Trust or its designee reasonably
objects to such use within fifteen Business Days after receipt of such material.
2.6. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or its investment
adviser in connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as required
by legal process or regulatory authorities or with the written permission of the
Trust or its designee.
2.7. The Trust shall not give any information or make any representations
or statements on behalf of the Company of concerning the Company, the Accounts
or the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company.
4
<PAGE>
2.8. So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from policyowners are received as well as shares it
owns that are held by that Account, in the same proportion as those shares for
which voting instructions are received. The Company and its agents will in no
way recommend or oppose or interfere with the solicitation of proxies for Trust
shares held by Contract owners without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of
_________________ and that it has legally and validly established each Account
as a segregated asset account under such law on the date set forth in Schedule
A.
3.2. The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act prior to any issuance or sale of the Contracts;
the Contracts will be issued and sold in compliance in all material respects
with all applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5. The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to any issuance or sale of
such shares. The Trust shall amend its registration statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
5
<PAGE>
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.
ARTICLE IV. Potential Conflicts
4.1. The parties acknowledge that the Trust's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Trust Exemptive
Order by providing the Trustees with all information reasonably necessary for
the Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3. If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
6
<PAGE>
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonable request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Trust
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Trust Exemptive Order) on terms and conditions
materially different from those contained in the Shared Trust Exemptive Order,
then the Trust and/or the Participating Insurance Companies,
7
<PAGE>
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable.
ARTICLE V. Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Trust and each of its Trustees, officers, employees and agents
and each person, if any, who controls the Trust within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves or
in sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and was accurately derived from written information furnished to the
Company by or on behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the Contracts or Trust
shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in
Section 5.2(a) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
8
<PAGE>
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
5.2. Indemnification By the Trust. The Trust agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this Article
V), or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this indemnity
shall not apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Trust by or on
behalf of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of the Trust;
or
(d) arise out of or result from any failure by the Trust to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Trust.
9
<PAGE>
5.3. Neither the Company nor the Trust shall be liable under the
indemnification provisions of sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions of sections 5.1. or 5.2., as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim or
shall not relieve that party from any liability which it may have to the
Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI. Termination
6.1. This Agreement may be terminated by either party for any reason by
ninety (90) days advance written notice delivered to the other party.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of the
Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement, provided that the Company continues to pay the costs set forth in
section 2.3.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with section 6.2.
ARTICLE VII. Notices
10
<PAGE>
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Attention: David C. Tucker, Esq.
If to the Company:
______________________________________
______________________________________
______________________________________
Attention:____________________________
ARTICLE VII. Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of Colorado.
8.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
11
<PAGE>
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
(Insurance Company)
By:_____________________________________
Name:___________________________________
Title:__________________________________
JANUS ASPEN SERIES
By:_____________________________________
Name:___________________________________
Title:__________________________________
12
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
13
EXHIBIT 10(a)
August 31, 1993
Janus Aspen Series
100 Fillmore Street, Suite 300
Denver, CO 80206
RE: Public Offering of Janus Aspen Series Shares (Growth Portfolio;
Aggressive Growth Portfolio; Worldwide Growth Portfolio; Balanced
Portfolio; Flexible Income Portfolio and Short-Term Bond Portfolio)
Gentlemen:
I have acted as counsel for Janus Aspen Series, A Delaware business trust
(the "Trust") in connection with the filing with the Securities and Exchange
Commission of a registration statement with respect to the proposed sale of
shares of beneficial interest, $0.001 par value (the "Shares"), of the above
referenced series of the Trust.
I have examined the Trust Instrument and Bylaws, as amended, the
proceedings of its trustees relating to the authorization, issuance and proposed
sale of the Shares, and such other records and documents as I have deemed
relevant. Based upon such examination, it is my opinion that upon the issuance
and sale of the Shares in the manner contemplated by the aforesaid registration
statement, such Shares will be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the above
referenced registration statement. This opinion is for the exclusive use of the
Janus Aspen Series in connection with the filing of such registration statement
with the Securities and Exchange Commission and is not to be used, circulated,
quoted, relied upon or otherwise referred to by any other person or for any
other purpose. This opinion is given as of the date hereof and I render no
opinion and disclaim any obligation to revise or supplement this opinion based
upon any change in applicable law or any factual matter that occurs or comes to
my attention after the date hereof.
Very truly yours,
Deborah E. Bielicke
EXHIBIT 10(b)
February 2, 1994
Janus Aspen Series
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Re: Public Offering of Janus Aspen Series Shares
(International Growth Portfolio)
Gentlemen:
I have acted as counsel for Janus Aspen Series, a Delaware business trust
(the "Trust"), in connection with the filing with the Securities and Exchange
Commission of a registration statement with respect to the proposed sale of
shares of beneficial interest, $0.001 par value (the "Shares"), of the
above-referenced series of the Trust.
I have examined the Trust Instrument and Bylaws, as amended, the
proceedings of its trustees relating to the authorization, issuance and proposed
sale of the Shares, and such other records and documents as I have deemed
relevant. Based upon such examination, it is my opinion that upon the issuance
and sale of the Shares in the manner contemplated by the aforesaid registration
statement, such Shares will be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
above-referenced registration statement. This opinion is for the exclusive use
of the Janus Aspen Series in connection with the filing of such registration
statement with the Securities and Exchange Commission and is not to be used,
circulated, quoted, relied upon or otherwise referred to by any other person or
for any other purpose. This opinion is given as of the date hereof and I render
no opinion and disclaim any obligation to revise or supplement this opinion
based upon any change in applicable law or any factual matter that occurs or
comes to my attention after the date hereof.
Very truly yours,
/s/ Deborah E. Bielicke
Deborah E. Bielicke
DEB:el
Enc.
EXHIBIT 10(c)
February 13, 1995
Janus Aspen Series
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Re: Public Offering of Janus Aspen Series Shares
(Money Market Portfolio)
Gentlemen:
I have acted as counsel for Janus Aspen Series, a Delaware business trust
(the "Trust"), in connection with the filing with the Securities and Exchange
Commission of a registration statement with respect to the proposed sale of
shares of beneficial interest, $0.001 par value (the "Shares"), of the
above-referenced series of the Trust.
I have examined the Trust Instrument and Bylaws, as amended, the
proceedings of its trustees relating to the authorization, issuance and proposed
sale of the Shares, and such other records and documents as I have deemed
relevant. Based upon such examination, it is my opinion that upon the issuance
and sale of the Shares in the manner contemplated by the aforesaid registration
statement, such Shares will be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
above-referenced registration statement. This opinion is for the exclusive use
of the Janus Aspen Series in connection with the filing of such registration
statement with the Securities and Exchange Commission and is not to be used,
circulated, quoted, relied upon or otherwise referred to by any other person or
for any other purpose. This opinion is given as of the date hereof and I render
no opinion and disclaim any obligation to revise or supplement this opinion
based upon any change in applicable law or any factual matter that occurs or
comes to my attention after the date hereof.
Very truly yours,
/s/ David C. Tucker
David C. Tucker
DCT/dat
Enclosure
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 11 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 29, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report to Shareholders of Janus Aspen Series, which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Independent Accountants" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
April 29, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from financial
statements dated December 31, 1996 included in the Fund's Annual Report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> JANUS ASPEN GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 282,312
<INVESTMENTS-AT-VALUE> 317,498
<RECEIVABLES> 5,270
<ASSETS-OTHER> 3,831
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 326,599
<PAYABLE-FOR-SECURITIES> 505
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 305
<TOTAL-LIABILITIES> 810
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 280,430
<SHARES-COMMON-STOCK> 21,003
<SHARES-COMMON-PRIOR> 9,436
<ACCUMULATED-NII-CURRENT> 123
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,937
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,299
<NET-ASSETS> 325,789
<DIVIDEND-INCOME> 2,076
<INTEREST-INCOME> 2,408
<OTHER-INCOME> 0
<EXPENSES-NET> 1,488
<NET-INVESTMENT-INCOME> 2,996
<REALIZED-GAINS-CURRENT> 10,156
<APPREC-INCREASE-CURRENT> 20,898
<NET-CHANGE-FROM-OPS> 34,050
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,002)
<DISTRIBUTIONS-OF-GAINS> (3,331)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,447
<NUMBER-OF-SHARES-REDEEMED> (1,306)
<SHARES-REINVESTED> 426
<NET-CHANGE-IN-ASSETS> 198,878
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,241
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,393
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,498
<AVERAGE-NET-ASSETS> 216,125
<PER-SHARE-NAV-BEGIN> 13.450
<PER-SHARE-NII> 0.170
<PER-SHARE-GAIN-APPREC> 2.290
<PER-SHARE-DIVIDEND> (0.170)
<PER-SHARE-DISTRIBUTIONS> (0.230)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.510
<EXPENSE-RATIO> 0.690
<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 December 31, 1996 included in the Fund's Annual Report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 002
<NAME> Janus Aspen Aggressive Growth Portfolio
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 336,129
<INVESTMENTS-AT-VALUE> 393,897
<RECEIVABLES> 4,135
<ASSETS-OTHER> 207
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 398,239
<PAYABLE-FOR-SECURITIES> 14,136
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 410
<TOTAL-LIABILITIES> 14,546
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 337,407
<SHARES-COMMON-STOCK> 21,040
<SHARES-COMMON-PRIOR> 10,885
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,580)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 56,864
<NET-ASSETS> 383,693
<DIVIDEND-INCOME> 536
<INTEREST-INCOME> 882
<OTHER-INCOME> 0
<EXPENSES-NET> 2,207
<NET-INVESTMENT-INCOME> (789)
<REALIZED-GAINS-CURRENT> (12,093)
<APPREC-INCREASE-CURRENT> 27,841
<NET-CHANGE-FROM-OPS> 14,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3,020)
<DISTRIBUTIONS-OTHER> (220)
<NUMBER-OF-SHARES-SOLD> 11,507
<NUMBER-OF-SHARES-REDEEMED> (1,528)
<SHARES-REINVESTED> 176
<NET-CHANGE-IN-ASSETS> 197,782
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,829
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,066
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,219
<AVERAGE-NET-ASSETS> 290,629
<PER-SHARE-NAV-BEGIN> 17.080
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 1.360
<PER-SHARE-DIVIDEND> (0.190)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.010)
<PER-SHARE-NAV-END> 18.240
<EXPENSE-RATIO> 0.760
<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 December31, 1996 included in the Fund's Annual Report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 003
<NAME> JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 506,601
<INVESTMENTS-AT-VALUE> 572,931
<RECEIVABLES> 10,129
<ASSETS-OTHER> 2,063
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 585,123
<PAYABLE-FOR-SECURITIES> 1,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,346
<TOTAL-LIABILITIES> 2,520
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 504,741
<SHARES-COMMON-STOCK> 29,968
<SHARES-COMMON-PRIOR> 7,090
<ACCUMULATED-NII-CURRENT> 1,586
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,886
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68,390
<NET-ASSETS> 582,603
<DIVIDEND-INCOME> 3,121
<INTEREST-INCOME> 1,827
<OTHER-INCOME> 0
<EXPENSES-NET> 2,427
<NET-INVESTMENT-INCOME> 2,521
<REALIZED-GAINS-CURRENT> 11,302
<APPREC-INCREASE-CURRENT> 54,851
<NET-CHANGE-FROM-OPS> 68,674
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,109)
<DISTRIBUTIONS-OF-GAINS> (2,028)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,029
<NUMBER-OF-SHARES-REDEEMED> (1,479)
<SHARES-REINVESTED> 328
<NET-CHANGE-IN-ASSETS> 474,040
<ACCUMULATED-NII-PRIOR> 445
<ACCUMULATED-GAINS-PRIOR> 1,341
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,014
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,440
<AVERAGE-NET-ASSETS> 304,111
<PER-SHARE-NAV-BEGIN> 15.310
<PER-SHARE-NII> 0.160
<PER-SHARE-GAIN-APPREC> 4.270
<PER-SHARE-DIVIDEND> (0.170)
<PER-SHARE-DISTRIBUTIONS> (0.130)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.440
<EXPENSE-RATIO> 1.000
<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 December 31, 1996 included in the Fund's Annual Report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Janus Aspen Balanced Portfolio
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 82,670
<INVESTMENTS-AT-VALUE> 87,207
<RECEIVABLES> 1,782
<ASSETS-OTHER> 40
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 89,029
<PAYABLE-FOR-SECURITIES> 3,347
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 202
<TOTAL-LIABILITIES> 3,549
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,031
<SHARES-COMMON-STOCK> 5,789
<SHARES-COMMON-PRIOR> 1,076
<ACCUMULATED-NII-CURRENT> 114
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,758
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,577
<NET-ASSETS> 85,480
<DIVIDEND-INCOME> 348
<INTEREST-INCOME> 1,323
<OTHER-INCOME> 0
<EXPENSES-NET> 401
<NET-INVESTMENT-INCOME> 1,270
<REALIZED-GAINS-CURRENT> 1,768
<APPREC-INCREASE-CURRENT> 3,680
<NET-CHANGE-FROM-OPS> 6,718
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,165)
<DISTRIBUTIONS-OF-GAINS> (278)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,179
<NUMBER-OF-SHARES-REDEEMED> (567)
<SHARES-REINVESTED> 101
<NET-CHANGE-IN-ASSETS> 71,459
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 277
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 345
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 406
<AVERAGE-NET-ASSETS> 43,414
<PER-SHARE-NAV-BEGIN> 13.030
<PER-SHARE-NII> 0.320
<PER-SHARE-GAIN-APPREC> 1.810
<PER-SHARE-DIVIDEND> (0.300)
<PER-SHARE-DISTRIBUTIONS> (0.090)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.770
<EXPENSE-RATIO> 0.940
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from financial
statements dated December 31, 1996 included in the Fund's Annual Report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 005
<NAME> JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 24,047
<INVESTMENTS-AT-VALUE> 24,698
<RECEIVABLES> 545
<ASSETS-OTHER> 96
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,339
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24
<TOTAL-LIABILITIES> 24
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,297
<SHARES-COMMON-STOCK> 2,252
<SHARES-COMMON-PRIOR> 975
<ACCUMULATED-NII-CURRENT> 46
<OVERDISTRIBUTION-NII>
<ACCUMULATED-NET-GAINS> 322
<OVERDISTRIBUTION-GAINS>
<ACCUM-APPREC-OR-DEPREC> 650
<NET-ASSETS> 25,315
<DIVIDEND-INCOME> 9
<INTEREST-INCOME> 1,446
<OTHER-INCOME>
<EXPENSES-NET> 148
<NET-INVESTMENT-INCOME> 1,307
<REALIZED-GAINS-CURRENT> 324
<APPREC-INCREASE-CURRENT> 277
<NET-CHANGE-FROM-OPS> 1,908
<EQUALIZATION>
<DISTRIBUTIONS-OF-INCOME> (1,255)
<DISTRIBUTIONS-OF-GAINS> (272)
<DISTRIBUTIONS-OTHER>
<NUMBER-OF-SHARES-SOLD> 1,853
<NUMBER-OF-SHARES-REDEEMED> (715)
<SHARES-REINVESTED> 139
<NET-CHANGE-IN-ASSETS> 14,484
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 265
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 114
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 150
<AVERAGE-NET-ASSETS> 17,889
<PER-SHARE-NAV-BEGIN> 11.11
<PER-SHARE-NII> 0.74
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> (0.72)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.24
<EXPENSE-RATIO> 0.840
<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 December 31, 1996 included in the Fund's Semiannual Report and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 006
<NAME> JANUS ASPEN SHORT TERM BOND PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 11,710
<INVESTMENTS-AT-VALUE> 11,705
<RECEIVABLES> 120
<ASSETS-OTHER> 102
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,927
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 26
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,866
<SHARES-COMMON-STOCK> 1,193
<SHARES-COMMON-PRIOR> 318
<ACCUMULATED-NII-CURRENT> 36
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4)
<NET-ASSETS> 11,901
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 436
<OTHER-INCOME> 0
<EXPENSES-NET> 47
<NET-INVESTMENT-INCOME> 389
<REALIZED-GAINS-CURRENT> 4
<APPREC-INCREASE-CURRENT> (28)
<NET-CHANGE-FROM-OPS> 365
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (370)
<DISTRIBUTIONS-OF-GAINS> (6)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,398
<NUMBER-OF-SHARES-REDEEMED> (561)
<SHARES-REINVESTED> 38
<NET-CHANGE-IN-ASSETS> 8,714
<ACCUMULATED-NII-PRIOR> 16
<ACCUMULATED-GAINS-PRIOR> 5
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 61
<AVERAGE-NET-ASSETS> 7,168
<PER-SHARE-NAV-BEGIN> 10.030
<PER-SHARE-NII> 0.420
<PER-SHARE-GAIN-APPREC> (0.030)
<PER-SHARE-DIVIDEND> (0.440)
<PER-SHARE-DISTRIBUTIONS> (0.010)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.970
<EXPENSE-RATIO> 0.660
<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 December 31, 1996 included in the Fund's Semiannual Report and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 007
<NAME> JANUS ASPEN INTERNATIONAL PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 24,727
<INVESTMENTS-AT-VALUE> 26,678
<RECEIVABLES> 406
<ASSETS-OTHER> 190
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,274
<PAYABLE-FOR-SECURITIES> 45
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37
<TOTAL-LIABILITIES> 82
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,992
<SHARES-COMMON-STOCK> 1,730
<SHARES-COMMON-PRIOR> 135
<ACCUMULATED-NII-CURRENT> 12
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 207
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,981
<NET-ASSETS> 27,192
<DIVIDEND-INCOME> 46
<INTEREST-INCOME> 93
<OTHER-INCOME> 0
<EXPENSES-NET> 93
<NET-INVESTMENT-INCOME> 46
<REALIZED-GAINS-CURRENT> 261
<APPREC-INCREASE-CURRENT> 1,663
<NET-CHANGE-FROM-OPS> 1,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (76)
<DISTRIBUTIONS-OF-GAINS> (83)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,817
<NUMBER-OF-SHARES-REDEEMED> (233)
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 25,584
<ACCUMULATED-NII-PRIOR> 9
<ACCUMULATED-GAINS-PRIOR> 62
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 55
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 145
<AVERAGE-NET-ASSETS> 7,437
<PER-SHARE-NAV-BEGIN> 11.950
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 4.060
<PER-SHARE-DIVIDEND> (0.110)
<PER-SHARE-DISTRIBUTIONS> (0.230)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.720
<EXPENSE-RATIO> 1.260
<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 December 31, 1996 included in the Fund's Annual Report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 008
<NAME> Janus Aspen Money Market Portfolio
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 6,109
<INVESTMENTS-AT-VALUE> 6,109
<RECEIVABLES> 3
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,115
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,106
<SHARES-COMMON-STOCK> 6,106
<SHARES-COMMON-PRIOR> 1,735
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,106
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 202
<OTHER-INCOME> 0
<EXPENSES-NET> 19
<NET-INVESTMENT-INCOME> 183
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 183
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (183)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,902
<NUMBER-OF-SHARES-REDEEMED> (24,715)
<SHARES-REINVESTED> 184
<NET-CHANGE-IN-ASSETS> 4,371
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29
<AVERAGE-NET-ASSETS> 3,715
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.050)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.500
<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 December 31, 1996, and is included in the Fund's Annual Report
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 009
<NAME> JANUS ASPEN HIGH-YIELD PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<INVESTMENTS-AT-COST> 738
<INVESTMENTS-AT-VALUE> 764
<RECEIVABLES> 32
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 807
<PAYABLE-FOR-SECURITIES> 15
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 24
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 749
<SHARES-COMMON-STOCK> 72
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26
<NET-ASSETS> 783
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29
<OTHER-INCOME> 0
<EXPENSES-NET> 3
<NET-INVESTMENT-INCOME> 26
<REALIZED-GAINS-CURRENT> 6
<APPREC-INCREASE-CURRENT> 26
<NET-CHANGE-FROM-OPS> 58
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 140
<NUMBER-OF-SHARES-REDEEMED> (70)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 783
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19
<AVERAGE-NET-ASSETS> 459
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.430
<PER-SHARE-GAIN-APPREC> 0.800
<PER-SHARE-DIVIDEND> (0.400)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.830
<EXPENSE-RATIO> 1.010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
