Janus Aspen Series
Growth Portfolio
Prospectus
[Logo] Janus
<PAGE>
Contents
- ---------------------------------------
THE PORTFOLIO AT A GLANCE
Brief description of the Portfolio .. 1
- ---------------------------------------
EXPENSE INFORMATION
The Portfolio's annual
operating expenses ............... 1
Financial Highlights -
a summary of financial data ...... 2
- ---------------------------------------
PERFORMANCE TERMS
An explanation of performance terms . 3
- ---------------------------------------
THE PORTFOLIO IN DETAIL
Investment Objective and Policies ... 4
General Portfolio Policies .......... 5
Additional Risk Factors ............. 6
- ---------------------------------------
MANAGEMENT OF THE PORTFOLIO
Investment Adviser and
Investment Personnel ............. 8
Management Expenses ................. 9
Portfolio Transactions .............. 9
Other Service Providers ............. 9
Other Information .................. 10
- ---------------------------------------
DISTRIBUTIONS AND TAXES
Distributions ...................... 11
Taxes .............................. 11
- ---------------------------------------
SHAREHOLDER'S GUIDE
Purchases .......................... 12
Redemptions ........................ 12
Shareholder Communications ......... 12
- ---------------------------------------
APPENDIX A
Glossary of Investment Terms ....... 13
Janus Aspen Series
Growth Portfolio
Prospectus
May 1, 1997
Growth Portfolio (the "Portfolio") is a diversified mutual fund that seeks
long-term growth of capital in a manner consistent with the preservation of
capital. The Portfolio pursues its objective by investing primarily in common
stocks with an emphasis on companies with larger market capitalizations.
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 ("SEC") as an open-end management investment company. The
Institutional Shares of the Portfolio (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. 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. 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 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 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.
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 objective and policies begins on page 4.
INVESTMENT OBJECTIVE:
The investment objective of the Portfolio is long-term growth of capital in a
manner consistent with the preservation of capital.
PRIMARY HOLDINGS:
A diversified portfolio that pursues its investment objective by investing
primarily in common stocks. The Portfolio will normally emphasize common stocks
of companies with larger market capitalizations.
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 common stocks.
The Portfolio is not designed as a short-term trading vehicle and should not be
relied upon for short-term financial needs.
FUND 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:
James P. Craig, III
ASSISTANT PORTFOLIO MANAGERS:
David Decker
Blaine Rollins
PORTFOLIO INCEPTION:
September 1993
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. 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
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 reductions)(1)
(expressed as a percentage of average net assets)
- --------------------------------------------------------------------------------
Management Fee 0.65%
Other Expenses 0.04%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.69%
- --------------------------------------------------------------------------------
(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 is net of fee reductions from Janus
Capital. Fee reductions reduce the management fee to the level of Janus
Fund. Without such reductions, the Management Fee, Other Expenses and Total
Operating Expenses for the Shares would have been 0.79%, 0.04%, and 0.83%,
respectively. Janus Capital may modify or terminate the reductions at any
time upon at least 90 days' notice to the Trustees.
EXAMPLE
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
You would indirectly pay the
following expenses on a $1,000
investment, assuming an expense
ratio as listed above and assuming
a 5% annual return with or without
redemption at the end of each period. $7 $22 $38 $86
- --------------------------------------------------------------------------------
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
1
<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 Portfolio's financial statements since its inception. Their report
is included in the Portfolio's Annual Report, which is incorporated by reference
into the SAI. A detailed explanation of the Financial Highlights can be found on
page 3.
<TABLE>
<CAPTION>
1996 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Net asset value, beginning of period $13.45 $10.57 $10.32 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .17 .28 .09 .03
3. Net gains or (losses) on securities (both realized and unrealized) 2.29 2.90 .20 .32
- ---------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations 2.46 3.18 .29 .35
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
5. Dividends (from net investment income) (.17) (.30) (.04) (.03)
6. Tax return of capital distributions -- -- -- --
7. Distributions (from capital gains) (.23) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.40) (.30) (.04) (.03)
- ---------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $15.51 $13.45 $10.57 $10.32
- ---------------------------------------------------------------------------------------------------------------------------
10. Total return* 18.45% 30.17% 2.76% 3.50%
- ---------------------------------------------------------------------------------------------------------------------------
11. Net assets, end of period (in thousands) $325,789 $126,911 $43,549 $7,482
12. Ratio of gross expenses to average net assets** 0.69%(6) 0.78%(5) N/A N/A
13. Ratio of net expenses to average net assets** 0.69% 0.76% 0.88%(2)(4) 0.25%(3)
14. Ratio of net investment income to average net assets** 1.39% 1.24% 1.45% 2.54%
15. Portfolio turnover rate** 87% 185% 169% 162%
16. Average commission rate $0.0466 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 2.16% before waiver of certain fees and/or voluntary
reduction of advisor's fees to the effective rate of Janus Fund.
(4) The ratio was 1.23% before waiver of certain fees and/or voluntary
reduction of advisor's fees to the effective rate of Janus Fund.
(5) The ratio was 0.98% before waiver of certain fees and/or voluntary
reduction of advisor's fees to the effective rate of Janus Fund.
(6) The ratio was 0.83% before waiver of certain fees and/or voluntary
reduction of advisor's fees to the effective rate of Janus Fund.
2
<PAGE>
Understanding the Financial Highlights
This section is designed to help you better understand the information
summarized in the Financial Highlights table. The table contains important
historical operating information that may be useful in making your investment
decision or understanding how your investment has performed. The Portfolio's
Annual Report contains additional information about the 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 the Portfolio. It is
computed by adding the value of all of the 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 table represents the change in value of a Share of the Portfolio over
the fiscal period, but not its total return.
Net investment income is the per share amount of dividends and interest income
earned on securities held by the Portfolio, less Portfolio expenses. Dividends
(from net investment income) are the per share amount that the Portfolio paid
from net investment income.
Net gains or (losses) on securities is the per share increase or decrease in
value of the securities the 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 the 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. THE PORTFOLIO'S TOTAL RETURN CANNOT BE COMPUTED DIRECTLY FROM
THE FINANCIAL HIGHLIGHTS TABLE.
Ratio of net expenses to average net assets is the total of the 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 the 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 the 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 the Portfolio's securities.
Average commission rate is the total of the 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 the 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 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. The Financial Highlights table shows total return for a
single fiscal 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. The Portfolio's total return figures include 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
shares, when redeemed, may be worth more or less than their original cost.
3
<PAGE>
The Portfolio in Detail
This section takes a closer look at the Portfolio's investment objective,
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. 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 investing in the Portfolio.
The Portfolio's investment objective and policies are similar to those of Janus
Fund, a retail fund managed by Janus Capital. Although it is anticipated that
the Portfolio and Janus 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 Janus 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 objective, 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 objective or policies, you should
consider whether the Portfolio remains an appropriate investment for your
variable insurance contract or qualified retirement plan.
- --------------------------------------------------------------------------------
The Portfolio is designed for long-term investors who seek growth of capital
only and who can tolerate the greater risks associated with common stock
investments.
GROWTH PORTFOLIO
Investment Objective:..........................................Growth of Capital
Primary Holdings:..................................................Common Stocks
Shareholder's Investment Horizon:......................................Long-Term
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is long-term growth of capital in a
manner consistent with the preservation of capital. It is a diversified
portfolio that pursues its investment objective by investing in common stocks of
issuers of any size. The Portfolio generally invests in larger, more established
issuers.
TYPES OF INVESTMENTS
The Portfolio invests primarily in common stocks of foreign and domestic
companies selected for their growth potential. The Portfolio may at times hold
substantial positions in cash equivalents or interest bearing securities. See
"General Portfolio Policies" on page 5. The 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 Portfolio purchases may be 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 ("PFICs"). 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 6 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 the Portfolio.
How are common stocks selected?
The Portfolio 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. The portfolio manager generally
takes a "bottom up" approach to building the Portfolio. In other words, he 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 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 6.
- --------------------------------------------------------------------------------
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
4
<PAGE>
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 6.
- --------------------------------------------------------------------------------
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, the Portfolio emphasizes common stocks of companies with larger
market capitalizations.
- --------------------------------------------------------------------------------
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 its 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 when investing directly in foreign markets. See "Additional
Risk Factors" on page 6. In addition, to the extent that the Portfolio holds a
larger cash position, it may not participate in market declines to the same
extent as if it remained more fully invested in common stocks.
GENERAL PORTFOLIO POLICIES
In investing its assets, the Portfolio will follow the general policies listed
below. 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 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 the portfolio manager has committed available assets to
desirable investment opportunities. A larger hedged position and/or larger cash
position 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
diversification 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 not invest 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, 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. 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, 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 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.
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 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 a security has been held for less than three months.
5
<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 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 percentage 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 many 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.
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
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 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
6
<PAGE>
purposes such as seeking to increase its 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 direction 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 believes the use of derivative instruments will benefit
the Portfolio, the Portfolio's performance could be worse than if the Portfolio
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 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, 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 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 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.
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.
7
<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 the investment portfolio and other business affairs of the
Portfolio.
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.
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.
INVESTMENT PERSONNEL
PORTFOLIO MANAGER
James P. Craig, III is Chief Investment Officer of Janus Capital. He is also
Executive Vice President and manager of the 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.
ASSISTANT PORTFOLIO MANAGERS
David Decker is an assistant portfolio manager of the 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.
- --------------------------------------------------------------------------------
Blaine Rollins is an assistant portfolio manager of the Portfolio. He is also
Executive Vice President and Portfolio Manager of Balanced Portfolio, which he
has managed since 1996. 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.
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.
8
<PAGE>
BREAKDOWN OF MANAGEMENT EXPENSES AND EXPENSE LIMITS
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
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 Fund. 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 Janus Fund as of the last day of each calendar quarter (expressed as an
annual rate). The effective rate of Janus Fund was .65% for the quarter
ended March 31, 1997.
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.
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. 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 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.
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.
9
<PAGE>
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 consists of eleven separate series, one of which is offered by this
Prospectus.
The 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 the 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 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 the 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 the class or
Portfolio only if a matter affects or requires the vote of only the 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 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
The 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
Portfolio (offered through a separate prospectus) are available to certain
participant directed qualified plans. Although the Portfolio currently does not
anticipate any disadvantages to policy owners arising out of the fact that it
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 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 investment in the Portfolio
or substitute shares of another portfolio of the Trust. 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 may suspend or terminate the offering of the Portfolio's
shares 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 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 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 existing Portfolio. The initial shareholder(s) of the 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
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 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 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 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.
10
<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 of the 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 the Portfolio declared a dividend in the
amount of $0.25 per share. If the price of the Portfolio's Share 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 Shares of 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 59 1/2,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 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.
11
<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 OF VARIABLE INSURANCE CONTRACTS AND ON HOW TO SELECT THE
PORTFOLIO AS AN INVESTMENT OPTION 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's
separate account or 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
determined 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 a 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 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 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 the market values thereof, as well as other
information about the Portfolio and its operations. The Trust's fiscal year ends
December 31.
12
<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 (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, 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 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.
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
13
<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 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 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 Portfolio 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. 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).
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 Portfolio may purchase and write put and call options on securities,
securities indices and foreign currencies.
14
<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-0020
[LOGO] JANUS Funds distributed by Janus Distributors, Inc.
Member NASD. Recycled Paper
