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. 10 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 /__/
Amendment No. 12 /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.
___ on October 24, 1996, 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.
X 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 will file a Rule
24f-2 Notice on or before February 28, 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
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APPENDIX A
Glossary of Investment Terms .................................................25
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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.
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.
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.
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 overall
risk 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. 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 in the future.
[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).
*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(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
The information below is for fiscal periods ending on December 31 of each year,
and has been audited by the accounting firm of Price Waterhouse LLP. Their
report is included in the Portfolios' Annual Report, which is incorporated by
reference into the SAI. Expense and income ratios and portfolio turnover rates
have been annualized for periods of less than one year. Total returns for
periods of less than one year are not annualized. 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 $10.57 $10.32 $10.00 $13.62 $11.80 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations: [TO [TO
2. Net investment income BE .28 .09 .03 BE .24 .11 .01
3. Net gains or (losses) on securities FILED FILED
(both realized and unrealized) BY 2.90 .20 .32 BY 3.47 1.82 1.80
AMENDMENT] AMENDMENT]
- ------------------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations 3.18 .29 .35 3.71 1.93 1.81
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
5. Dividends (from net investment income) (.30) (.04) (.03) (.25) (.11) (.01)
6. Dividends (in excess of net investment income) -- -- -- -- -- --
7. Distributions (from capital gains) -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.30) (.04) (.03) (.25) (.11) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $13.45 $10.57 $10.32 $17.08 $13.62 $11.80
10. Total return* 30.17% 2.76% 3.50% 27.48% 16.33% 18.05%
11. Net assets, end of period
(in thousands) $126,911 $43,549 $7,482 $185,911 $41,289 $1,985
12. Ratio of gross expenses to average
net assets** 0.78%(4)(7) N/A N/A 0.86%(4)(7) N/A N/A
13. Ratio of net expenses to average
net assets** 0.76%(4) 0.88%(3)(6) 0.25%(5) 0.84%(4) 1.05%(3)(6) 0.25%(5)
14. Ratio of net investment income
to average net assets** 1.24% 1.45% 2.54% 0.58% 2.18% 0.34%
15. Portfolio turnover rate** 185% 169% 162% 155% 259% 31%
16. Average commission rate N/A N/A N/A N/A N/A N/A
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International Growth Portfolio Worldwide Growth Portfolio
1996 1995 1994(2) 1996 1995 1994 1993(1)
- ------------------------------------------------------------------------------------------------------------------------------------
1. Net asset value, beginning of period $9.72 $10.00 $12.07 $11.89 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations: [TO [TO
2. Net investment income BE .09 (.09) BE .11 .04 .02
3. Net gains or (losses) on securities FILED FILED
(both realized and unrealized) BY 2.16 (.19) BY 3.19 .14 1.89
- ------------------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations AMENDMENT] 2.25 (.28) AMENDMENT] 3.30 .18 1.91
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
5. Dividends (from net investment income) (.02) -- (.06) -- (.01)
6. Dividends (in excess of net investment income) -- -- -- -- (.01)
7. Distributions (from capital gains) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.02) -- (.06) -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $11.95 $9.72 $15.31 $12.07 $11.89
10. Total return* 23.15% (2.80%) 27.37% 1.53% 19.10%
11. Net assets, end of period (in thousands) $1,608 $1,353 $108,563 $37,728 $4,856
12. Ratio of gross expenses to average
net assets** 2.69%(4)(7) N/A 0.90%(4)(7) N/A N/A
13. Ratio of net expenses to average
net assets** 2.50%(4) 2.50%(6) 0.87%(4) 1.18%(3)(6) 0.25%(5)
14. Ratio of net investment income
to average net assets** (0.80%) (1.30%) 0.95% 0.50% 0.84%
15. Portfolio turnover rate** 211% 275% 113% 217% 57%
16. Average commission rate 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) 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 Portfolio's expenses may be reduced through the use of brokerage
commissions and uninvested cash balances earning interest with the
Portfolio's custodian. The gross expense ratio for the fiscal period ended
December 31, 1995, does not reflect expense reductions, while the net
expense ratio does reflect such reductions. For International Growth
Portfolio, the effect of directed brokerage was de minimis.
(5) 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.
(6) 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.
(7) 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.
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 $10.63 $10.64 $10.00 $9.48 $9.97 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .17 .15 .08 .53 .47 .11
3. Net gains or (losses) on securities
(both realized and unrealized) 2.45 (.06) .64 1.70 (.56) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations 2.62 .09 .72 2.23 (.09) .07
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions: [TO [TO
5. Dividends (from net investment income) BE (.22) (.10) (.08) BE (.60) (.40) (.10)
6. Dividends (in excess of net investment FILED -- -- -- FILED -- -- --
income) BY BY
7. Distributions (from capital gains) AMENDMENT] -- -- -- AMENDMENT] -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.22) (.10) (.08) (.60) (.40) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $13.03 $10.63 $10.64 $11.11 $9.48 $9.97
10. Total return* 24.79% 0.84% 7.20% 23.86% (0.91%) 0.70%
11. Net assets, end of period
(in thousands) $14,021 $3,153 $537 $10,831 $1,924 $538
12. Ratio of gross expenses to
average net assets** 1.37%(3)(6) N/A N/A 1.07%(3)(6) N/A N/A
13. Ratio of net expenses to average
net assets** 1.30%(3) 1.57%(2)(5) 0.25%(4) 1.00%(3) 1.00%(5) 1.00%(4)
14. Ratio of net investment income
to average net assets** 2.41% 1.90% 2.69% 7.46% 5.49% 3.77%
15. Portfolio turnover rate** 149% 1 58% 126% 236% 234% 508%
16. Average commission rate 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 Portfolio's expenses may be reduced through the use of brokerage
commissions and uninvested cash balances earning interest with the
Portfolio's custodian. The gross expense ratio for the fiscal period ended
December 31, 1995, does not reflect expense reductions, while the net
expense ratio does reflect such reductions.
(4) The ratio was 7.92%, 5.27% and 5.33%, respectively, for the Balanced,
Flexible Income and Short-Term Bond 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 1.74%, 1.35% and 1.40%, respectively, for the Balanced,
Flexible Income and Short-Term Bond 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 1.55%, 1.07% and 1.37%, respectively, for the Balanced,
Flexible Income and Short-Term Bond 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
5
<PAGE>
<TABLE>
<CAPTION>
High-Yield Portfolio Short-Term Bond Portfolio
1996(7) 1996 1995 1994 1993(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Net asset value, beginning of period [TO [TO $9.72 $9.93 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations: BE BE
2. Net investment income FILED FILED .60 .35 .11
3. Net gains or (losses) on securities BY BY
both realized and unrealized) AMENDMENT] AMENDMENT] .31 (.26) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations .91 .09 .03
- ----------------------------------------------------------------------------------------------------------------------- ------------
Less distributions:
5. Dividends (from net investment income) (.60) (.30) (.10)
6. Dividends (in excess of net investment income) -- -- --
7. Distributions (from capital gains) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
8. Total distributions (.60) (.30) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Net asset value, end of period $10.03 $9.72 $9.93
10. Total return* 9.54% 0.92% 0.30%
11. Net assets, end of period (in thousands) $3,187 $2,902 $502
12. Ratio of gross expenses to average net assets** 0.70%(3)(6) N/A N/A
13. Ratio of net expenses to average net assets** 0.65%(3) 0.65%(5) 0.65%(4)
14. Ratio of net investment income to average net assets** 6.02% 5.00% 3.57%
15. Portfolio turnover rate** 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) 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 Portfolio's expenses may be reduced through the use of brokerage
commissions and uninvested cash balances earning interest with the
Portfolio's custodian. The gross expense ratio for the fiscal period ended
December 31, 1995, does not reflect expense reductions, while the net
expense ratio does reflect such reductions.
(4) The ratio was 7.92%, 5.27% and 5.33%, respectively, for the Balanced,
Flexible Income and Short-Term Bond 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 1.74%, 1.35% and 1.40%, respectively, for the Balanced,
Flexible Income and Short-Term Bond 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 1.55%, 1.07% and 1.37%, respectively, for the Balanced,
Flexible Income and Short-Term Bond 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) May 1, 1996 (inception) to December 31, 1996.
(8) The ratio was 6.29% before voluntary 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
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
2. Net investment income .04
3. Net gains or (losses) on securities (both realized and unrealized) --
- ------------------------------------------------------------------------------------------------------------------------------------
4. Total from investment operations [TO .04
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions: BE
5. Dividends (from net investment income) FILED (.04)
6. Distributions (from capital gains) BY --
- ------------------------------------------------------------------------------------------------------------------------------------
7. Total distributions AMENDMENT] (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
8. Net asset value, end of period $1.00
9. Total return* 3.63%
10. Net assets, end of period (in thousands) $1,735
11. Ratio of expenses to average net assets 0.50%(2)
12. Ratio of net investment income to average net assets** 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) he ratio was 1.07% before voluntary 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) is 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.
- --------------------------------------------------------------------------------
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 companies
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 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% 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.
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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.
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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 maturity of its portfolio
to reflect its portfolio manager's analysis of interest rate trends and other
factors. A Portfolio's average-weighted 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
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Flexible Income Portfolio Corporate Bonds High High
High-Yield Portfolio Corporate Bonds Highest Moderate
Short-Term Bond Portfolio Corporate Bonds Moderate Low
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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.
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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.
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WHAT IS A HIGH-YIELD/ HIGH-RISK SECURITY?
A high-yield/high-risk 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.
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WHAT RISKS DO HIGH-YIELD/ HIGH-RISK SECURITIES PRESENT?
High-yield/high-risk 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 net asset value.
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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,
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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.
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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,
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 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
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<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 to 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. Each 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
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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 to a lesser
degree in U.S. Government Securities and municipal securities.
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
having total assets in excess of ten billion dollars. The Portfolio may also
invest in
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
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<PAGE>
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 maturity of the underlying security and
the maturity of the instrument. Securities may cost more with demand features
than without them. Demand
JANUS ASPEN SERIES PROSPECTUS MAY 1, 1997
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<PAGE>
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
adjustable 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
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<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
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, 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 January 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. 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
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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 Intermediate
Government Securities Fund and 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.
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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 each of Janus Intermediate
Government Securities Fund, 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 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.
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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 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 accrued 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
International Growth Portfolio** Next $200 Million .70
Worldwide Growth Portfolio and Over $500 Million .65
Balanced Portfolio
---------------------------------------------------------------------------------------------------------------------------
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 ___%, ___%, ___%, ___%, and ___%,
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 incurs 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
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<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
Owners of variable insurance contracts and plan participants 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
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<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 compa nies (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 ___% ___%
AA ___% ___%
A ___% ___%
BBB ___% ___%
BB ___% ___%
B ___% ___%
CCC ___% ___%
CC ___% ___%
C ___% ___%
Preferred Stock ___% ___%
Cash and Options ___% ___%
----------------------------------------------------------------------------------------------------------------------
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.
27
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<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-3713
[LOGO] JANUS Funds distributed by Janus Distributors, Inc.
Member NASD.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 13,1997
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
_________, 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 sponsor 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 ________, 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(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 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 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 "diver- sified" 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 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, 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 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
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.
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
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 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.
JANUS ASPEN SERIES CAPITAL APPRECIATION PORTFOLIO PROSPECTUS
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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:
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. The market for lower quality securities is generally
less liquid than the market for higher quality bonds. 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.
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 PORTFOLIO PROSPECTUS
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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 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 PORTFOLIO PROSPECTUS
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BREAKDOWN OF MANAGEMENT EXPENSES
The Portfolio pays Janus Capital a management fee which is accrued 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 ____% 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.
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 Portfolio incurs 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 provided 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 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 PORTFOLIO PROSPECTUS
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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 to substitute shares of
another portfolio of the Trust. 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 invest- ing 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 PORTFOLIO PROSPECTUS
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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 PORTFOLIO PROSPECTUS
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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
Owners of variable insurance contracts and plan participants 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.
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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 gener- ally 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
JANUS ASPEN SERIES CAPITAL APPRECIATION PORTFOLIO PROSPECTUS
11
<PAGE>
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. govern- ment.
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 PORTFOLIO PROSPECTUS
12
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<PAGE>
[LOGO]
JANUS FUNDS
100 Fillmore Street
Denver, CO 80206-4923
1-800-525-3713
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 13,1997
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
______, 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 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 _____, 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 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(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 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO PROSPECTUS
3
<PAGE>
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.
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,
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 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
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO PROSPECTUS
4
<PAGE>
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:
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. The market for lower quality securities is generally
less liquid than the market for higher quality bonds. 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.
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 PROSPECTUS
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<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 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. The SAI further explains the selection of
broker-dealers.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO PROSPECTUS
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BREAKDOWN OF MANAGEMENT EXPENSES
The Portfolio pays Janus Capital a management fee which is accrued 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>
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_____% 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.
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 Portfolio incurs 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 provided 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 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 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 to substitute
shares of another portfolio of the Trust. 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 PORTFOLIO PROSPECTUS
8
<PAGE>
DISTRIBUTIONS AND TAXES
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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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 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 sep- arate 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
Owners of variable insurance contracts and plan participants 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 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 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 PORTFOLIO PROSPECTUS
12
<PAGE>
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<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-3713
[LOGO] Funds distributed by Janus Distributors, Inc.
Member NASD.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE.THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 13,1997
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
_____, 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
_____, 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 - RETIREMENT SHARES
1
<PAGE>
JANUS SPECTRUM
The spectrum below shows Janus Capital's assessment of the potential overall
risk 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 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. 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 IN THE FUTURE.
[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 - 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(1)
(expressed as a percentage of average net assets)
<TABLE>
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 - RetirementShares 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.
<TABLE>
1 Year 3 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------
</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.
FINANCIAL HIGHLIGHTS
No Financial Highlights are presented for the Shares because the Shares did not
commence operations until May 1, 1997.
JANUS ASPEN SERIES PROSPECTUS - 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 companies
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 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 - 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 - 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.
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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.
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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.
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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% 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.
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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.
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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.
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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 maturity of its portfolio to reflect its portfolio manager's
analysis of interest rate trends and other factors. A Portfolio's
average-weighted 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.
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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.
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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.
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WHAT RISKS DO HIGH-YIELD/HIGH-RISK SECURITIES PRESENT?
High-yield/high-risk 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 net asset value.
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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
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differ in terms of the type, credit quality and interest rate risk of the
securities in which they invest.
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
JANUS ASPEN SERIES PROSPECTUS - RETIREMENT SHARES
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is no assurance that such permission will be granted.
ADDITIONAL RISK FACTORS OF PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
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 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 fluctu-
JANUS ASPEN SERIES PROSPECTUS - RETIREMENT SHARES
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ation 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 rated
securities. Sovereign debt of foreign governments is generally rated by country.
Because these ratings to 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. Each 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.
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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 to a lesser
degree in U.S. Government Securities and municipal securities.
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 - RETIREMENT SHARES
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<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
JANUS ASPEN SERIES PROSPECTUS - RETIREMENT SHARES
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<PAGE>
of the instrument to pay for the securities at the time the instrument is
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
adjustable 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 - RETIREMENT SHARES
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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
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, 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 January 1997. He holds a Bachelor of Arts in
Economics from Yale University and is a Chartered Financial Analyst.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
Blaine P. Rollins is Executive Vice President and portfolio manager of Balanced
Portfolio, which he has managed since May 1996. 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 Intermediate
Government Securities Fund
JANUS ASPEN SERIES PROSPECTUS - RETIREMENT SHARES
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<PAGE>
and 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 each of Janus
Intermediate Government Securities Fund, 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 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 - RETIREMENT SHARES
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BREAKDOWN OF MANAGEMENT EXPENSES AND EXPENSE LIMITS
Each Portfolio pays Janus Capital a management fee which is accrued 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>
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
International Growth Portfolio*** Next $200 Million .70
Worldwide Growth Portfolio Over $500 Million .65
Balanced Portfolio
---------------------------------------------------------------------------------------------------------------------------
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 ___%, ___%, ___%, ___%, and ___%,
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 above, 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 of these services.
JANUS ASPEN SERIES PROSPECTUS - RETIREMENT SHARES
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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. 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
JANUS ASPEN SERIES PROSPECTUS - RETIREMENT SHARES
18
<PAGE>
costs will be materially reduced if this option is implemented.
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 - RETIREMENT SHARES
19
<PAGE>
DISTRIBUTIONS AND TAXES
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 - 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
Plan participants 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 - 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 compa nies (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 - 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 - 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
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>
Bonds - S&P Rating Flexible Income Portfolio High-Yield Portfolio
<S> <C> <C>
AAA ___% ___%
AA ___% ___%
A ___% ___%
BBB ___% ___%
BB ___% ___%
B ___% ___%
CCC ___% ___%
CC ___% ___%
C ___% ___%
Preferred Stock ___% ___%
Cash and Options ___% ___%
----------------------------------------------------------------------------------------------------------------------
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 - RETIREMENT SHARES
24
<PAGE>
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<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-3713
[LOGO] Funds distributed by Janus Distributors, Inc.
Member NASD.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 13,1997
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
RETIREMENT SHARES
Prospectus
________, 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 _______,
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(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 PORTFOLIO PROSPECTUS -
RETIREMENT SHARES
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<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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 PORTFOLIO PROSPECTUS -
RETIREMENT SHARES
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<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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 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
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.
FOREIGN SECURITIES
INVESTMENTS IN FOREIGN SECURITIES, INCLUDING THOSE OF FOREIGN GOVERNMENTS,
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 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.
JANUS ASPEN SERIES CAPITAL APPRECIATION PORTFOLIO PROSPECTUS -
RETIREMENT SHARES
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<PAGE>
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:
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. The market for lower quality securities is generally
less liquid than the market for higher quality bonds. 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.
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 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 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 PORTFOLIO PROSPECTUS -
RETIREMENT SHARES
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<PAGE>
BREAKDOWN OF MANAGEMENT EXPENSES
The Portfolio pays Janus Capital a management fee which is accrued 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>
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
----------------------------------------------------------------------------------------------------------------------------
*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 ____% 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.
</TABLE>
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 on this page, 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 of 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 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. 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 invest- ing 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 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. SHARES 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 PERFOR MANCE. 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 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
Plan participants 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 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 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. govern- ment.
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 obli- gate 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 PORTFOLIO PROSPECTUS -
RETIREMENT SHARES
12
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<PAGE>
[LOGO]
Janus Funds
100 Fillmore Street
Denver, CO 80206-4923
1-800-525-3713
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 13,1997
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
- --------------------------------------------------------------------------------
APPENDIX B
Explanation of Rating Categories .............................................13
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
RETIREMENT SHARES
Prospectus
_______, 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 _____, 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(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 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
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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,
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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.
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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.
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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
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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.
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,
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 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
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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:
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. The market for lower quality securities is generally
less liquid than the market for higher quality bonds. 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.
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.
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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 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.
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BREAKDOWN OF MANAGEMENT EXPENSES
The Portfolio pays Janus Capital a management fee which is accrued 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>
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 ______% 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 on page 7, 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 of 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.
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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
share holder, 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. 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.
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DISTRIBUTIONS AND TAXES
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 59 1/2, 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.
oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
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 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
Plan participants 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 PROSPECTUS -
RETIREMENT SHARES
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<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 compa nies (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 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 PROSPECTUS -
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<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
CCC, CC, C capacity to meet required interest and principal
payments. BB - lowest degree of speculation; C - the
highest degree of speculation. Quality and protective
characteristics outweighed by large uncertainties or
major risk exposure to adverse conditions.
D In default.
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable
investment attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate
for the present but certain protective elements may be
lacking or may be unreliable over any great length of
time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of
interest and principal payments not well safeguarded
during good and bad times.
B Lack characteristics of desirable investment;
potentially low assurance of timely interest and
principal payments or maintenance of other contract
terms over time.
Caa Poor standing, may be in default; elements of danger
with respect to principal or interest payments.
Ca Speculative in a high degree; could be in default or
have other marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless the
portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
JANUS ASPEN SERIES EQUITY INCOME PORTFOLIO PROSPECTUS -
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<PAGE>
100 Fillmore Street
Denver, Colorado 80206-4928
(800) 525-3713
[LOGO] 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
primarily in common stocks of issuers of any size. Generally, this Portfolio
emphasizes issuers with larger market capitalizations.
Aggressive Growth Portfolio is a nondiversified fund that seeks long-term
growth of capital 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.
[TO BE FILED BY
AMENDMENT]
Portfolio Name 1996 1995
---------------------------------------------------------------------
Growth Portfolio ___% 185%
Aggressive Growth Portfolio ___% 155%
International Growth Portfolio ___% 211%
Worldwide Growth Portfolio ___% 113%
Balanced Portfolio ___% 149%
Flexible Income Portfolio ___% 236%
High-Yield Portfolio ___%(1) N/A
Short-Term Bond Portfolio ___% 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
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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
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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 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.
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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.
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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.
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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
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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.
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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
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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
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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.
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A Portfolio may write options in connection with buy-and-write
transactions. In other words, a Portfolio may buy a security and then write a
call option against that security. The exercise price of such call will depend
upon the expected price movement of the underlying security. The exercise price
of a call option may be below ("in-the-money"), equal to ("at-the-money") or
above ("out-of-the-money") the current value of the underlying security at the
time the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, a Portfolio's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between that Portfolio's purchase price of the security and the
exercise price. If the options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset by the amount of
premium received.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and a Portfolio's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, a Portfolio may elect to close the
position or take delivery of the security at the exercise price and that
Portfolio's return will be the premium received from the put options minus the
amount by which the market price of the security is below the exercise price.
A Portfolio may buy put options to hedge against a decline in the value of
its portfolio. By using put options in this way, a Portfolio will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.
A Portfolio may buy call options to hedge against an increase in the price
of securities that it may buy in the future. The premium paid for the call
option plus any transaction costs will reduce the benefit, if any, realized by
such Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to that
Portfolio.
Eurodollar Instruments. A Portfolio may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. A Portfolio may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with a Portfolio receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of a Portfolio's obligations over its entitlement with respect to each
interest rate swap will be calculated on a daily basis and an amount of cash or
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.
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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
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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 ___%, ___%, ___%, ___% and ___%, 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>
[TO BE FILED BY AMENDMENT]
1996 1995 1994
Portfolio Name Advisory Fees Waivers(3) Advisory Fees Waivers(3) Advisory Fees Waivers(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $505,442 -- $173,369 --
Aggressive Growth Portfolio 809,493 -- 109,603 --
International Growth Portfolio 15,182 $12,920 9,008 (2) $ 9,008 (1,2)
Worldwide Growth Portfolio 402,832 -- 157,194 --
Balanced Portfolio 46,900 -- 19,489 --
Flexible Income Portfolio 36,114 160 10,635 5,688
High-Yield Portfolio (4) (4) -- -- -- --
Short-Term Bond Portfolio 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 $______ $_________
Aggressive Growth Portfolio $______ $_________
International Growth Portfolio $______ $_________
Worldwide Growth Portfolio $______ $_________
Balanced Portfolio $______ $_________
Flexible Income Portfolio $______ $_________
High-Yield Portfolio(1) $______ $_________
- --------------------------------------------------------------------------------
(1) May 1, 1996 (inception) to December 31, 1996.
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>
[TO BE FILED BY
AMENDMENT]
Portfolio Name 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio $_______ $355,523 $85,851
Aggressive Growth Portfolio $_______ $574,631 $86,296
International Growth Portfolio $_______ $ 14,394 $ 987(1)
Worldwide Growth Portfolio $_______ $345,216 $33,299
Balanced Portfolio $_______ $ 18,745 $ 4,171
Flexible Income Portfolio $_______ N/A N/A
High-Yield Portfolio $_______(2) N/A N/A
Short-Term Bond Portfolio $_______ 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>
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 $_____ $_____ ___% ___%
Aggressive Growth Portfolio $_____ $_____ ___% ___%
International Growth Portfolio $_____ $_____ ___% ___%
Worldwide Growth Portfolio $_____ $_____ ___% ___%
Balanced Portfolio $_____ $_____ ___% ___%
Flexible Income Portfolio $_____ $_____ ___% ___%
High-Yield Portfolio(1) $_____ $_____ ___% ___%
Short-Term Bond Portfolio $_____ $_____ ___% ___%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) May 1, 1996 (inception) to December 31, 1996.
* 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>
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:
Portfolio Name Name of Broker-Dealer Value of Securities Owned
- --------------------------------------------------------------------------------
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.
Aggregate Compensation Total Compensation
from the Portfolios for from the Janus Funds
fiscal year ended calendar year ended
Name of Person, Position December 31, 1996 December 31, 1996**
- --------------------------------------------------------------------------------
Thomas H. Bailey, Chairman* -- --
James P. Craig, III* -- --
John W. Shepardson, Trustee+ $___ $______
William D. Stewart, Trustee $___ $______
Gary O. Loo, Trustee $___ $______
Dennis B. Mullen, Trustee $___ $______
Martin H. Waldinger, Trustee $___ $______
James T. Rothe, Trustee++ $0 $0
- --------------------------------------------------------------------------------
* 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
__, 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>
Record Owners as of April __, 1997
- ---------------------------------------------------------------------------------------------------------------------------
Life of Lincoln TransAmerica Western
Portfolio Name Aetna Kemper Virginia Benefit Occidental Life Reserve [other]
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio ___% ___% ___% ___% ___% ___%
Aggressive Growth Portfolio ___% ___% ___% ___% ___% ___%
International Growth Portfolio ___% ___% ___% ___% ___% ___%
Worldwide Growth Portfolio ___% ___% ___% ___% ___% ___%
Balanced Portfolio ___% ___% ___% ___% ___% ___%
Flexible Income Portfolio ___% ___% ___% ___% ___% ___%
High-Yield Portfolio ___% ___% ___% ___% ___% ___%
Short-Term Bond Portfolio ___% ___% ___% ___% ___% ___%
- ---------------------------------------------------------------------------------------------------------------------------
*Owned less than 5%.
</TABLE>
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>
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
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%
25
<PAGE>
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
CCC, CC, 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
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 13,1997
Janus Aspen Series
- --------------------------------------------------------------------------------
Statement of Additional Information
_____, 1997
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
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 _____, 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.
<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 .....................7
High-Yield/High-Risk Securities ..................................7
Futures, Options and Other Derivative Instruments ................8
Investment Adviser ...................................................15
Custodian, Transfer Agent and Certain Affiliations ...................16
Portfolio Transactions and Brokerage .................................17
Officers and Trustees ................................................18
Shares of the Trust ..................................................20
Net Asset Value Determination .....................................20
Purchases .........................................................20
Redemptions .......................................................20
Income Dividends, Capital Gains Distributions and Tax Status .........21
Miscellaneous Information ............................................21
Shares of the Trust ...............................................21
Voting Rights .....................................................21
Independent Accountants ...........................................22
Registration Statement ............................................22
Performance Information ..............................................22
Appendix A ...........................................................24
Explanation of Rating Categories ..................................24
- --------------------------------------------------------------------------------
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.
3
<PAGE>
(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.
(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.
4
<PAGE>
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 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
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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.
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.
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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 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.
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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 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.
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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.
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
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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
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
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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.
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
curren-
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cies, 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.
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.
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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.
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
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<PAGE>
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.
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The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
INVESTMENT ADVISER
As stated in the Prospectus, the Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928.
The Advisory Agreement provides that Janus Capital will furnish continuous
advice and recommendations concerning the Portfolio's investments, provide
office space for the Portfolio 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 ____% 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
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the Portfolio's Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, and by either a majority of the
outstanding voting shares of the Portfolio or the Trustees. The Advisory
Agreement i) may be terminated without the payment of any penalty by the
Portfolio or Janus Capital on 60 days' written notice; ii) terminates
automatically in the event of its assignment; and iii) generally, may not be
amended without the approval by vote of a majority of the Trustees, including
the Trustees who are not interested persons of the Portfolio or Janus Capital
and, to the extent required by the 1940 Act, the vote of a majority of the
outstanding voting securities of the Portfolio.
Janus Capital also performs investment advisory services for other mutual
funds, and for individual, charitable, corporate and retirement accounts.
Investment decisions for each account managed by Janus Capital, including the
Portfolio, are made independently from those for any other account that is or
may in the future become managed by Janus Capital or its affiliates. If,
however, a number of accounts managed by Janus Capital are contemporaneously
engaged in the purchase or sale of the same security, the orders may be
aggregated and/or the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect the
price paid or received by an account or the size of the position obtained or
liquidated for an account. Pursuant to an exemptive order granted by the SEC,
the Portfolio and other portfolios advised by Janus Capital may also transfer
daily uninvested cash balances into one or more joint trading accounts. Assets
in the joint trading accounts are invested in money market instruments and the
proceeds are allocated to the participating portfolios on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
policies and is managed accordingly by a particular portfolio manager or team of
portfolio managers. As a result, from time to time two or more different managed
accounts may pursue divergent investment strategies with respect to investments
or categories of investments.
As indicated in the Prospectus, Janus Capital does not permit 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).
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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 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.
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<PAGE>
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.
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).
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Executive Committee.
+Includes comparable office with various Janus funds that were reorganized into
Janus Investment Fund on August 7, 1992.
18
<PAGE>
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.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Executive Committee.
+Includes comparable office with various Janus funds that were reorganized into
Janus Investment Fund on August 7, 1992.
The Trustees are responsible for major decisions relating to the
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolio by their officers and review the investment decisions
of the officers although they do not actively participate on a regular basis in
making such decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Trust Instrument, Delaware law or
the 1940 Act.
The following table shows the aggregate compensation paid to each Trustee
by the Portfolio described in this SAI and all funds advised and sponsored by
Janus Capital (collectively, the "Janus Funds") for the periods indicated. None
of the Trustees receive any pension or retirement from the Portfolio or the
Janus Funds.
<TABLE>
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* -- --
James P. Craig, Trustee* -- --
John W. Shepardson, Trustee+ N/A $
William D. Stewart, Trustee N/A $
Gary O. Loo, Trustee N/A $
Dennis B. Mullen, Trustee N/A $
Martin H. Waldinger, Trustee N/A $
James T. Rothe, Trustee++ N/A $0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
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* 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 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
20
<PAGE>
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, 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
21
<PAGE>
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.
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
22
<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.
23
<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.
Noninvestment 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.
Noninvestment 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 are treated as noninvestment grade securities unless the
portfolio manager determines that such securities are the equivalent of
investment grade. 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.
24
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 13,1997
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
Statement of Additional Information
_______, 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 ______, 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.
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(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
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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.
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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 agree-
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ment, 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")). 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,
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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.
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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
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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.
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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.
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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.
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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
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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 ____% 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.
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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.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Executive Committee.
+Includes comparable office with various Janus Funds that were reorganized into
Janus Investment Fund on August 7, 1992.
The Trustees are responsible for major decisions relating to the
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolio by their officers and review the investment decisions
of the officers although they do not actively participate on a regular basis in
making such decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Trust Instrument, Delaware law or
the 1940 Act.
The following table shows the aggregate compensation paid to each Trustee
by the Portfolio described in this SAI and all funds advised and sponsored by
Janus Capital (collectively, the "Janus Funds") for the periods indicated. None
of the Trustees receive any pension or retirement from the Portfolio or the
Janus Funds.
<TABLE>
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* -- --
James P. Craig, Trustee* -- --
John W. Shepardson, Trustee+ N/A $
William D. Stewart, Trustee N/A $
Gary O. Loo, Trustee N/A $
Dennis B. Mullen, Trustee N/A $
Martin H. Waldinger, Trustee N/A $
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
CCC, CC, C capacity to meet required interest and principal payments.
BB - lowest degree of speculation; C - the highest degree of
speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to
adverse conditions.
D In default.
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate for
the present but certain protective elements may be lacking
or may be unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of
interest and principal payments not well safeguarded during
good and bad times.
B Lack characteristics of desirable investment; potentially
low assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with
respect to principal or interest payments.
Ca Speculative in a high degree; could be in default or have
other marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
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Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
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JANUS ASPEN SERIES
MONEY MARKET PORTFOLIO
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Statement of Additional Information
May 1, 1997
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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
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MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
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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.............................................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
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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:
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(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
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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.
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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.
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.
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.
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.
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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
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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 $___ 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, the total brokerage
commissions paid by the Portfolio to brokers and dealers in transactions
identified for execution primarily on the basis of research and other services
provided to the Portfolio are summarized below:
Portfolio Name Commissions Transactions
--------------------------------------------------------------------------
Money Market Portfolio $ $
For the fiscal period from the commencement of the Portfolio's operations
(May 1, 1995) to December 31, 1995 and the fiscal year ended December 31,
1996, the total brokerage commissions paid by the Portfolio are summarized
below:
Portfolio Name 1996 1995
--------------------------------------------------------------------------
Money Market Portfolio $ $
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. Portfolio
Manager of Janus Fund.
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).
- --------------------------------------------------------------------------------
*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>
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.
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.
- --------------------------------------------------------------------------------
*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 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,
Waldinger, and ________ monitors the compliance with policies and procedures
adopted particularly for money market funds.
The following table shows the aggregate compensation 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>
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* -- --
James P. Craig, III, Trustee* -- --
John W. Shepardson, Trustee+ *** $_____
William D. Stewart, Trustee *** $_____
Gary O. Loo, Trustee *** $_____
Dennis B. Mullen, Trustee *** $_____
Martin H. Waldinger, Trustee *** $_____
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.
** 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.
12
<PAGE>
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.
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 - ___%
[other]
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.
13
<PAGE>
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.
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
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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.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 13,1997
Janus Aspen Series
- --------------------------------------------------------------------------------
Statement of Additional Information
_____, 1997
- --------------------------------------------------------------------------------
GROWTH PORTFOLIO BALANCED PORTFOLIO
AGGRESSIVE GROWTH PORTFOLIO FLEXIBLE INCOME PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO HIGH-YIELD PORTFOLIO
WORLDWIDE GROWTH PORTFOLIO SHORT-TERM BOND PORTFOLIO
RETIREMENT SHARES
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 _____, 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.
<PAGE>
JANUS ASPEN SERIES
RETIREMENT SHARES
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
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Investment Policies, Restrictions and Techniques..................... 3
Investment Objectives............................................. 3
Portfolio Policies................................................ 3
Investment Restrictions 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..............6
Pass-Through Securities..........................................6
Investment Company Securities ...................................7
Depositary Receipts .............................................7
Municipal Obligations............................................7
Other Income-Producing Securities................................8
Repurchase and Reverse Repurchase Agreements.....................8
High-Yield/High-Risk Securities..................................8
Futures, Options and Other Derivative Instruments................9
Investment Adviser....................................................16
Custodian, Transfer Agent and Certain Affiliations....................18
Portfolio Transactions and Brokerage..................................19
Officers and Trustees.................................................21
Shares of the Trust...................................................24
Net Asset Value Determination......................................24
Purchases..........................................................24
Distribution Plan..................................................25
Redemptions........................................................25
Income Dividends, Capital Gains Distributions and Tax Status..........25
Miscellaneous Information.............................................26
Shares of the Trust................................................26
Voting Rights......................................................26
Independent Accountants............................................26
Registration Statement.............................................26
Performance Information...............................................27
Financial Statements .................................................28
Appendix A ...........................................................29
Explanation of Ratings Categories .................................29
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INVESTMENT POLICIES, RESTRICTIONS AND TECHNIQUES
Each Portfolio's investment objective is discussed in the Prospectus and
summarized below. There is no assurance that the Portfolios will achieve their
respective objectives. The investment objectives of the Portfolios are not
fundamental and may be changed by the Trustees without shareholder approval.
INVESTMENT OBJECTIVES
Growth Portfolio is a diversified fund that seeks long-term growth of
capital in a manner consistent with the preservation of capital by investing
primarily in common stocks of issuers of any size. Generally, this Portfolio
emphasizes issuers with larger market capitalizations.
Aggressive Growth Portfolio is a nondiversified fund that seeks long-term
growth of capital 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.
[TO BE FILED BY AMENDMENT]
Portfolio Name 1996 1995
---------------------------------------------------------------------------
Growth Portfolio % 185%
Aggressive Growth Portfolio % 155%
International Growth Portfolio % 211%
Worldwide Growth Portfolio % 113%
Balanced Portfolio % 149%
Flexible Income Portfolio % 236%
High-Yield Portfolio %(1) N/A
Short-Term Bond Portfolio % 417%
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(1) May 1, 1996 (inception) to December 31, 1996, annualized.
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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.
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(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 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
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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 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
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a pro rata share of all interest and principal payments made and owned on the
underlying pool. This type of security is guaranteed by FNMA as to timely
payment of principal and interest but it is not guaranteed by the full faith and
credit of the U.S. government.
Except for GMCs, each of the mortgage-backed securities described above is
characterized by monthly payments to the holder, reflecting the monthly payments
made by the borrowers who received the underlying mortgage loans. The payments
to the security holders (such as the Portfolios), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as 20 or 30 years, the
borrowers can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. A portfolio manager will consider
estimated prepayment rates in calculating the average-weighted maturity of a
Portfolio. A borrower is more likely to prepay a mortgage that bears a
relatively high rate of interest. This means that in times of declining interest
rates, higher yielding mortgage-backed securities held by a Portfolio might be
converted to cash and that Portfolio will be forced to accept lower interest
rates when that cash is used to purchase additional securities in the
mortgage-backed securities sector or in other investment sectors. Additionally,
prepayments during such periods will limit a Portfolio's ability to participate
in as large a market gain as may be experienced with a comparable security not
subject to prepayment.
Asset-backed securities represent interests in pools of consumer loans and
are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obligor nor guarantor of the security and
interest and principal payments ultimately depend upon payment of the underlying
loans by individuals. Tax-exempt asset-backed securities include units of
beneficial interests in pools of purchase contracts, financing leases, and sales
agreements that may be created when a municipality enters into an installment
purchase contract or lease with a vendor. Such securities may be secured by the
assets purchased or leased by the municipality; however, if the municipality
stops making payments, there generally will be no recourse against the vendor.
The market for tax-exempt asset-backed securities is still relatively new. These
obligations are likely to involve unscheduled prepayments of principal.
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.
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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.
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
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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
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.
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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 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
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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.
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.
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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
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
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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 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
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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.
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-
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<PAGE>
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
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<PAGE>
markets, the risk of loss with respect to interest rate swaps is limited to the
net amount of the payments that a Portfolio is contractually obligated to make.
If the other party to an interest rate swap that is not collateralized defaults,
a Portfolio would risk the loss of the net amount of the payments that it
contractually is entitled to receive. A Portfolio may buy and sell (i.e., write)
caps and floors without limitation, subject to the segregation requirement
described above.
Additional Risks of Options on Foreign Currencies, Forward Contracts and
Foreign Instruments. Unlike transactions entered into by the Portfolios in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain Exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
Exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, an option writer and a buyer or
seller of futures or forward contracts could lose amounts substantially in
excess of any premium received or initial margin or collateral posted due to the
potential additional margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting a Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
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.
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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 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 ___%, ___%, ___%, ___% and ___%, 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 on page 18, 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
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>
[TO BE FILED BY AMENDMENT]
1996 1995 1994
Portfolio Name Advisory Fees Waivers(3) Advisory Fees Waivers(3) Advisory Fees Waivers(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $505,442 -- $173,369 --
Aggressive Growth Portfolio 809,493 -- 109,603 --
International Growth Portfolio 15,182 $12,920 9,008 (2) $ 9,008(1,2)
Worldwide Growth Portfolio 402,832 -- 157,194 --
Balanced Portfolio 46,900 -- 19,489 --
Flexible Income Portfolio 36,114 160 10,635 5,688
High-Yield Portfolio (4) (4) N/A N/A N/A N/A
Short-Term Bond Portfolio 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.
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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 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
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<PAGE>
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."
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.
19
<PAGE>
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 $ $
Aggressive Growth Portfolio $ $
International Growth Portfolio $ $
Worldwide Growth Portfolio $ $
Balanced Portfolio $ $
Flexible Income Portfolio $ $
High-Yield Portfolio(1,2) $ $
Short-Term Bond Portfolio $ $
- --------------------------------------------------------------------------------
(1) Most of the securities transactions for this Fund involved dealers acting
as principal.
(2) May 1, 1996 (inception) to December 31, 1996.
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.
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>
[TO BE FILED BY AMENDMENT]
Portfolio Name 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio $ $355,523 $85,851
Aggressive Growth Portfolio $ $574,631 $86,296
International Growth Portfolio $ $ 14,394 $ 987(1)
Worldwide Growth Portfolio $ $345,216 $33,299
Balanced Portfolio $ $ 18,745 $ 4,171
Flexible Income Portfolio $ N/A N/A
High-Yield Portfolio $ (2) N/A N/A
Short-Term Bond Portfolio $ 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.
20
<PAGE>
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>
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 $ $ % %
Aggressive Growth Portfolio $ $ % %
International Growth Portfolio $ $ % %
Worldwide Growth Portfolio $ $ % %
Balanced Portfolio $ $ % %
Flexible Income Portfolio $ $ % %
High-Yield Portfolio $(1) $ % %
Short-Term Bond Portfolio $ $ % %
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) May 1, 1996 (inception) to December 31,1996.
* 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>
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 indi-
cated 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:
Portfolio Name Name of Broker-Dealer Value of Securities Owned
- --------------------------------------------------------------------------------
$
$
$
$
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
+ Includes comparable office with various Janus funds that were reorganized into
Janus Investment Fund on August 7, 1992.
21
<PAGE>
James P. 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.
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.
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
+ Includes comparable office with various Janus funds that were reorganized into
Janus Investment Fund on August 7, 1992.
22
<PAGE>
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.
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.
23
<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>
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* -- --
James P. Craig, III* -- --
John W. Shepardson, Trustee+ $ $
William D. Stewart, Trustee $ $
Gary O. Loo, Trustee $ $
Dennis B. Mullen, Trustee $ $
Martin H. Waldinger, Trustee $ $
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.
** 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.
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
24
<PAGE>
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.
25
<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.
26
<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>
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,
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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, 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.
Copies of such reports accompany 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.
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APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although 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.
Noninvestment 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.
Noninvestment 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 securites are treated as noninvestment grade securities unless the
portfolio manager determines that such securities are the equivalent of
investment grade. 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.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
[LOGO] PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 13,1997
Janus Aspen Series
- --------------------------------------------------------------------------------
Statement of Additional Information
______, 1997
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION PORTFOLIO
RETIREMENT SHARES
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 _____, 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.
<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 .....................7
High-Yield/High-Risk Securities ..................................7
Futures, Options and Other Derivative Instruments ................8
Investment Adviser ...................................................15
Custodian, Transfer Agent and Certain Affiliations ...................16
Portfolio Transactions and Brokerage .................................17
Officers and Trustees ................................................18
Shares of the Trust ..................................................20
Net Asset Value Determination .....................................20
Purchases .........................................................20
Distribution Plan .................................................21
Redemptions .......................................................21
Income Dividends, Capital Gains Distributions and Tax Status .........21
Miscellaneous Information ............................................22
Shares of the Trust ...............................................22
Voting Rights .....................................................22
Independent Accountants ...........................................23
Registration Statement ............................................23
Performance Information ..............................................23
Appendix A ...........................................................24
Explanation of Rating Categories ..................................24
- --------------------------------------------------------------------------------
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INVESTMENT POLICIES, RESTRICTIONS AND TECHNIQUES
INVESTMENT OBJECTIVE
As stated in the Prospectus, the Portfolio's investment objective is
long-term growth of capital. There can be no assurance that the Portfolio will
achieve its objective. The investment objective of the Portfolio is not
fundamental and may be changed by the Trustees without shareholder approval.
PORTFOLIO POLICIES
The Prospectus discusses the types of securities in which the Portfolio
will invest, portfolio policies of the Portfolio and the investment techniques
of the Portfolio. The Prospectus includes a discussion of portfolio turnover
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.
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(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.
(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.
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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 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
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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.
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.
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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 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.
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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 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
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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.
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
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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
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
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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.
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
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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.
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
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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.
13
<PAGE>
The Portfolio may buy put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the Portfolio will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.
The Portfolio may buy call options to hedge against an increase in the
price of securities that it may buy in the future. The premium paid for the call
option plus any transaction costs will reduce the benefit, if any, realized by
the Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Portfolio.
Eurodollar Instruments. The Portfolio may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of portfolios and sellers to obtain a fixed rate for
borrowings. The Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. The Portfolio may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with the Portfolio receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of the Portfolio's obligations over its entitlement with respect to each
interest rate swap will be calculated on a daily basis and an amount of cash or
other liquid assets having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Portfolio's
custodian. If the Portfolio enters into an interest rate swap on other than a
net basis, it would maintain a segregated account in the full amount accrued on
a daily basis of its obligations with respect to the swap. The Portfolio will
not enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party thereto is
rated in one of the three highest rating categories of at least one NRSRO at the
time of entering into such transaction. Janus Capital will monitor the
creditworthiness of all counterparties on an ongoing basis. If there is a
default by the other party to such a transaction, the Portfolio will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Janus Capital has determined that, as
a result, the swap market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent the
Portfolio sells (i.e., writes) caps and floors, it will segregate cash or other
liquid assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Portfolio
or its counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
The Portfolio may buy and sell (i.e., write) caps and floors without limitation,
subject to the segregation requirement described above.
Additional Risks of Options on Foreign Currencies, Forward Contracts and
Foreign Instruments. Unlike transactions entered into by the Portfolio in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain Exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
Exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, an option writer and a buyer or
seller of futures or forward contracts could lose amounts substantially in
excess of any premium received or initial margin or collateral posted due to the
potential additional margin and collateral requirements associated with such
positions.
14
<PAGE>
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting the Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
INVESTMENT ADVISER
As stated in the Prospectus, the Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928.
The Advisory Agreement provides that Janus Capital will furnish continuous
advice and recommendations concerning the Portfolio's investments, provide
office space for the Portfolio and pay the salaries, fees and expenses of all
Portfolio officers and of those Trustees who are affiliated with Janus Capital.
Janus Capital also may make payments to selected broker-dealer firms or
institutions which were instrumental in the acquisition of shareholders for the
Portfolio or other Janus Funds or which performed recordkeeping or other
services with respect to shareholder accounts. The minimum aggregate size
required for eligibility for such payments, and the factors in selecting the
broker-dealer firms and institutions to which they will be made, are determined
from time to time by Janus Capital. Janus Capital is also authorized to perform
the management and administrative services necessary for the operation of the
Portfolio.
The Portfolio pays custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in connection with
the execution of portfolio transactions, legal and accounting expenses, interest
and taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not affiliated with Janus
Capital, and other costs of complying with applicable laws regulating the sale
of Portfolio shares. Pursuant to the Advisory Agreement, Janus Capital furnishes
certain other services, including net asset value determination, portfolio
accounting and recordkeeping, for which the Portfolio may reimburse Janus
Capital for its costs.
The Portfolio has 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 ____% for the
quarter ended March 31, 1997.
15
<PAGE>
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 on page 16,
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.
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.
16
<PAGE>
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."
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
17
<PAGE>
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.
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.
- --------------------------------------------------------------------------------
* 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.
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<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
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.
- --------------------------------------------------------------------------------
* 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.
19
<PAGE>
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>
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* -- --
James P. Craig, Trustee* -- --
John W. Shepardson, Trustee+ N/A $
William D. Stewart, Trustee N/A $
Gary O. Loo, Trustee N/A $
Dennis B. Mullen, Trustee N/A $
Martin H. Waldinger, Trustee N/A $
James T. Rothe, Trustee++ N/A $
- ---------------------------------------------------------------------------------------------------------------------------
</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, 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.
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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.
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.
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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.
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.
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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, 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.
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APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although 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.
Noninvestment 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.
Noninvestment 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 are treated as noninvestment grade securities unless the
portfolio manager determines that such securities are the equivalent of
investment grade. 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.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 13,1997
JANUS ASPEN SERIES
EQUITY INCOME PORTFOLIO
RETIREMENT SHARES
- --------------------------------------------------------------------------------
Statement of Additional Information
______, 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 _____, 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
- --------------------------------------------------------------------------------
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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.
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(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
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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.
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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
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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 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
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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.
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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
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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.
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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.
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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.
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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
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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 ____% 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 on page 15,
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.
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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."
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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>
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* -- --
James P. Craig, Trustee* -- --
John W. Shepardson, Trustee+ N/A $
William D. Stewart, Trustee N/A $
Gary O. Loo, Trustee N/A $
Dennis B. Mullen, Trustee N/A $
Martin H. Waldinger, Trustee N/A $
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 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 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
CCC, CC, C capacity to meet required interest and principal payments.
BB - lowest degree of speculation; C - the highest degree of
speculation. Quality and protective characteristics
outweighed by large uncertainties or major risk exposure to
adverse conditions.
D In default.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor
poorly secured. Interest and principal appear adequate for
the present but certain protective elements may be lacking
or may be unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of
interest and principal payments not well safeguarded during
good and bad times.
B Lack characteristics of desirable investment; potentially
low assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with
respect to principal or interest payments.
Ca Speculative in a high degree; could be in default or have
other marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless
the portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
23
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE.THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 13, 1997
Janus Aspen Series
Money Market Portfolio
Retirement Shares
- --------------------------------------------------------------------------------
Statement of Additional Information
_____, 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 _____, 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...................................8
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...........................................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:
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(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.
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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
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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.
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.
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.
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
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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.
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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 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 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 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 $___, 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.
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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.
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
9
<PAGE>
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.
Brokerage commissions are not normally charged on the purchase and sale of
money market instruments.
For the fiscal year ended December 31, 1996, the total brokerage
commissions paid by the Portfolio to brokers and dealers in transactions
identified for execution primarily on the basis of research and other services
provided to the Portfolio are summarized below:
Portfolio Name Commissions Transactions
- --------------------------------------------------------------------------------
Money Market Portfolio $ $
For the fiscal period from the commencement of the Portfolio's operations
(May 1, 1995) to December 31, 1995 and the fiscal year ended December 31, 1996,
the total brokerage commissions paid by the Portfolio are summarized below:
Portfolio Name 1996 1995
- --------------------------------------------------------------------------------
Money Market Portfolio $ $
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. Portfolio
Manager of Janus Fund.
- --------------------------------------------------------------------------------
*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>
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.
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
- --------------------------------------------------------------------------------
*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.
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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,
Waldinger and ______, 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.
The following table shows the aggregate compensation 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>
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* -- --
James P. Craig, III, Trustee*, -- --
John W. Shepardson, Trustee+ *** --
William D. Stewart, Trustee *** --
Gary O. Loo, Trustee *** --
Dennis B. Mullen, Trustee *** --
Martin H. Waldinger, Trustee *** --
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.
**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
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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.
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.
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<PAGE>
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 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.
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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.
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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.
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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
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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.
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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) will be filed
by amendment on or before the effective date of this amendment.
(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) will be
included in the Annual Report dated December 31, 1996, and will
be incorporated by reference into the respective Statements of
Additional Information by amendment which will be filed on or
before the effective date of this amendment.
(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 filed herein as
Exhibit 1(c).
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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.
Exhibit 3 Not Applicable
Exhibit 4 Not Applicable
Exhibit 5 (a) Form of Investment Advisory Agreement 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) Form of Investment Advisory Agreement
for International Growth Portfolio is
incorporated herein by reference to
Exhibit 5(b) to Post-Effective Amendment
No. 1.
(c) Form of Investment Advisory Agreement
for Money Market Portfolio is
incorporated herein by reference to
Exhibit 5(c) to Post-Effective Amendment
No. 5.
(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 herein filed as
Exhibit 5(e).
(f) Investment Advisory Agreement for
Capital Appreciation Portfolio is herein
filed as Exhibit 5(f).
Exhibit 6 (a) Distribution Agreement for Retirement
Shares is filed herein as Exhibit 6(a).
(b) Form of Distribution and Shareholder
Servicing Agreement for Retirement
Shares is filed herein as Exhibit 6(b).
Exhibit 7 Not Applicable
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Exhibit 8 (a) Form of Custody Agreement between Janus
Aspen Series and Investors Fiduciary
Trust Company is incorporated herein by
reference to Exhibit 8(a) to
Pre-Effective Amendment No. 2.
(b) Form of Custodian Contract between Janus
Aspen Series and State Street Bank and
Trust Company is incorporated herein by
reference to Exhibit 8(b) to
Pre-Effective Amendment No. 2.
(c) Letter Agreement dated April 4, 1994
regarding State Street Custodian
Agreement is incorporated herein by
reference to Exhibit 8(c) to
Post-Effective Amendment No. 4.
(d) Form of Custodian Agreement between
Janus Aspen Series and United Missouri
Bank, N.A. is incorporated herein by
reference to Exhibit 8(d) to
Post-Effective Amendment No. 5.
(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 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) Transfer Agency Agreement as amended May
1, 1997 is herein filed as Exhibit 9(b).
(c) Form of Model Participation Agreement is
incorporated herein by reference to
Exhibit 9(c) to Pre-Effective Amendment
No. 2.
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Exhibit 10 (a) Opinion and Consent of Fund Counsel with
respect to shares of Growth Portfolio,
Aggressive Growth Portfolio, Worldwide
Growth Portfolio, Balanced Portfolio,
Flexible Income Portfolio and Short-Term
Bond Portfolio is incorporated herein by
reference to Exhibit 10 to Pre-
Effective Amendment No. 2.
(b) Opinion and Consent of Fund Counsel with
respect to shares of International
Growth Portfolio is incorporated herein
by reference to Exhibit 10(b) to
Post-Effective Amendment No. 1.
(c) Opinion and Consent of Fund Counsel with
respect to shares of Money Market
Portfolio is incorporated herein by
reference to Exhibit 10(c) to
Post-Effective Amendment No. 5.
(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 filed
herein as Exhibit 10(e).
(f) Opinion and Consent of Fund Counsel with
respect to the Retirement Shares of all
the Portfolios is filed herein as
Exhibit 10(f).
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 filed herein as Exhibit 15.
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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 filed herein as Exhibit 17(b).
Exhibit 18 Rule 18f-3 Plan dated December 10, 1996
is filed herein as Exhibit 18.
Exhibit 27 Financial Data Schedules for
Institutional Shares of all of the
Portfolios (except Equity Income and
Capital Appreciation Portfolios) to be
filed by amendment on or before the
effective date of this amendment.
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 January
17, 1997, was as follows:
Number of
Title of Class Record Holders
Growth Portfolio - Institutional Shares 11
Aggressive Growth Portfolio - Institutional Shares 9
Worldwide Growth Portfolio - Institutional Shares 10
Balanced Portfolio - Institutional Shares 8
Flexible Income Portfolio - Institutional Shares 4
Short-Term Bond Portfolio - Institutional Shares 5
International Growth Portfolio - Institutional Shares 5
Money Market Portfolio - Institutional Shares 2
High-Yield Portfolio - Institutional Shares 2
The number of record holders reflects the number of insurance
companies investing in each Portfolio. Janus Capital Corporation is
also included as a
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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 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.
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Mr. Thomas A. McDonnell, a director of Janus Capital Corporation, is President,
Chief Executive Officer and a Director of DST Systems, Inc., 1055 Broadway, 9th
Floor, Kansas City, Missouri 64105, provider of data processing and
recordkeeping services for various mutual funds, and is Executive Vice President
and a director of Kansas City Southern Industries, Inc., 114 W. 11th Street,
Kansas City, Missouri 64105, a publicly traded holding company whose primary
subsidiaries are engaged in transportation and financial services. Mr. Landon H.
Rowland, a director of Janus Capital Corporation, is President and Chief
Executive Officer of Kansas City Southern Industries, Inc.
ITEM 29. Principal Underwriters
(a) Janus Distributors, Inc. ("Janus Distributors") serves as
principal underwriter for Janus Investment Fund and the
Retirement Shares of the Registrant only.
(b) The principal business address, positions with Janus
Distributors and positions with Registrant of 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 Dana
R. Cunningham, President and Jennifer A. Davis, Secretary.
Mr. Cunningham and Ms. Davis do 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
80206-4923 and by State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts 02101 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.
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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
13th day of February, 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 February 13, 1997
Thomas H. Bailey (Principal Executive
Officer) and Trustee
/s/ Steven R. Goodbarn Vice President and February 13, 1997
Steven R. Goodbarn Chief Financial Officer
(Principal Financial Officer)
/s/ Glenn P. O'Flaherty Treasurer and Chief February 13, 1997
Glenn P. O'Flaherty Accounting Officer
(Principal Accounting Officer)
/s/ James P. Craig, III Trustee February 13, 1997
James P. Craig, III
<PAGE>
Gary O. Loo* Trustee February 13, 1997
Gary O. Loo
Dennis B. Mullen* Trustee February 13, 1997
Dennis B. Mullen
James T. Rothe* Trustee February 13, 1997
James T. Rothe
John W. Shepardson* Trustee February 13, 1997
John W. Shepardson
William D. Stewart* Trustee February 13, 1997
William D. Stewart
Martin H. Waldinger* Trustee February 13, 1997
Martin H. Waldinger
/s/ Steven R. Goodbarn
*By Steven R. Goodbarn
Attorney-in-Fact
<PAGE>
INDEX OF EXHIBITS
Exhibit Number Exhibit Title
Exhibit 1(c) Amendment to Trust Instrument
Exhibit 5(e) Investment Advisory Agreement for Equity
Income Portfolio
Exhibit 5(f) Investment Advisory Agreement for Capital
Appreciation Portfolio
Exhibit 6(a) Distribution Agreement
Exhibit 6(b) Form of Distribution and Shareholder
Servicing Agreement
Exhibit 9(b) Transfer Agency Agreement
Exhibit 10(e) Opinion and Consent of Fund Counsel for
Equity Income Portfolio and Capital
Appreciation Portfolio
Exhibit 10(f) Opinion and Consent of Fund Counsel for
Retirement Shares of all Portfolios
Exhibit 11 Consent of Price Waterhouse LLP
Exhibit 15 Form of Distribution and Shareholder
Servicing Plan
Exhibit 17(b) Power of Attorney
Exhibit 18 Rule 18f-3 Plan
EXHIBIT 1(c)
FIFTH AMENDMENT DATED DECEMBER 10, 1996
TO JANUS ASPEN SERIES TRUST INSTRUMENT DATED MAY 19, 1993
Pursuant to authority granted by the Trustees, Schedule A of the Trust
Instrument is amended as follows to reflect (i) the designation and
establishment of Capital Appreciation Portfolio, Equity Income Portfolio and
Growth and Income Portfolio as separate series of Janus Aspen Series (the
"Trust"), (ii) the designation of shares of existing series of the Trust as
"Institutional Shares," and (iii) the designation and establishment of a second
class of shares of each Series of the Trust ("Retirement Shares"):
SCHEDULE A
SERIES OF THE TRUST AVAILABLE CLASSES
Aggressive Growth Portfolio Institutional Shares
Retirement Shares
Balanced Portfolio Institutional Shares
Retirement Shares
Capital Appreciation Portfolio Institutional Shares
Retirement Shares
Equity Income Portfolio Institutional Shares
Retirement Shares
Flexible Income Portfolio Institutional Shares
Retirement Shares
Growth Portfolio Institutional Shares
Retirement Shares
Growth and Income Portfolio Institutional Shares
Retirement Shares
High-Yield Portfolio Institutional Shares
Retirement Shares
International Growth Portfolio Institutional Shares
Retirement Shares
Money Market Portfolio Institutional Shares
Retirement Shares
Short-Term Bond Portfolio Institutional Shares
Retirement Shares
Worldwide Growth Portfolio Institutional Shares
Retirement Shares
[SEAL]
EXHIBIT 5(e)
JANUS ASPEN SERIES
INVESTMENT ADVISORY AGREEMENT
EQUITY INCOME PORTFOLIO
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is made this 10th day
of December, 1996, 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 Equity Income 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.
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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 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.
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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; and
(b) Rental of offices of the Trust.
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 investment policies. However, the Trustees may delegate to
the appropriate officers of the
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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, 1997,
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
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responsibilities and limitations on liability of the Trustees, officers and
holders of shares of beneficial interest of the Trust.
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 14,
"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: /s/Steven R. Goodbarn
Steven R. Goodbarn, Vice President
JANUS ASPEN SERIES
By: /s/Thomas H. Bailey
Thomas H. Bailey, President
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EXHIBIT 5(f)
JANUS ASPEN SERIES
INVESTMENT ADVISORY AGREEMENT
CAPITAL APPRECIATION PORTFOLIO
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is made this 10th day
of December, 1996, 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 Capital Appreciation 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.
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<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 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 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.
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<PAGE>
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; and
(b) Rental of offices of the Trust.
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 investment policies. However, the Trustees may delegate to
the appropriate officers of the
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<PAGE>
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, 1997,
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
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<PAGE>
responsibilities and limitations on liability of the Trustees, officers and
holders of shares of beneficial interest of the Trust.
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 14,
"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: /s/Steven R. Goodbarn
Steven R. Goodbarn, Vice President
JANUS ASPEN SERIES
By: /s/Thomas H. Bailey
Thomas H. Bailey, President
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EXHIBIT 6(a)
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "Agreement"), made as of the 1st day of
May, 1997 by and between Janus Aspen Series, a business trust organized and
existing under the laws of the State of Delaware, (hereinafter called "JAS") on
behalf of the Retirement Shares of each of its portfolios, whether now existing
or hereafter created, (each a "Portfolio"), and Janus Distributors, Inc., a
corporation organized and existing under the laws of the State of Colorado
(hereinafter called the "Distributor" or "JDI"). This Agreement applies
separately to the Retirement Shares of each Portfolio of JAS whether now
existing or hereafter created.
WITNESSETH:
WHEREAS, JAS is engaged in business as an open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the laws of
each state or jurisdiction in which the Distributor engages in business to the
extent such law requires, and is a member of the National Association of
Securities Dealers, Inc. (the "NASD") (such registrations and membership are
referred to collectively as the "Registrations");
WHEREAS, JAS has adopted on behalf of the Retirement Shares of each
Portfolio, a Distribution and Shareholder Servicing Plan pursuant to Rule 12b-1
under the 1940 Act; and
WHEREAS, JAS desires the Distributor to act as the underwriter for the
public offering of the Retirement Shares of each Portfolio.
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Appointment. JAS appoints JDI to act as distributor of the Retirement
Shares.
2. Delivery of Portfolio Documents. JAS has furnished the Distributor with
properly certified or authenticated copies of each of the following in effect on
the date hereof and shall furnish the Distributor from time to time properly
certified or authenticated copies of all amendments or supplements thereto:
(a) Trust Instrument;
(b) By-Laws; and
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(c) Resolutions of the Trustees (hereinafter referred to as the
"Trustees") selecting the Distributor as distributor and approving
this form of agreement and authorizing its execution.
JAS shall furnish the Distributor promptly withcopies of any registration
statements filed by it with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended, (the "1933 Act") or the 1940 Act,
together with any financial statements and exhibits included therein, and all
amendments or supplements thereto hereafter filed.
JAS shall also furnish the Distributor with such other certificates or
documents as the Distributor may from time to time, in its discretion,
reasonably deem necessary or appropriate in order to properly perform its duties
under this Agreement.
3. Solicitation of Orders for Purchase of Shares.
(a) Subject to the provisions of Paragraphs 4 and 7 hereof, and to such
minimum purchase requirements as may from time to time be indicated in the
Prospectus or Statement of Additional Information of the Retirement Shares of
each Portfolio, the Distributor is authorized to solicit, as agent on behalf of
JAS, unconditional orders for purchases of each Portfolio's Retirement Shares
authorized for issuance and registered under the 1933 Act, provided that:
(1) The Distributor shall act solely as a disclosed agent on behalf of and
for the account of JAS;
(2) The Distributor shall confirm or arrange with the transfer agent for
the Retirement Shares to confirm all purchases of the Retirement
Shares. Such confirmation shall conform to the requirements of Rule
10b-10 under the 1934 Act and shall clearly state that the Distributor
is acting as agent in the transaction;
(3) The Distributor shall have no liability for payment for purchases of
Retirement Shares it sells as agent;
(4) Each order to purchase Retirement Shares of a Portfolio received by
the Distributor shall be subject to acceptance by an officer of JAS
and entry of the order on such Portfolio's records or shareholder
accounts and is not binding until so accepted and entered; and
(5) The Distributor may appoint sub-agents or distribute through dealers
(pursuant to a Distribution and Shareholder Servicing Agreement, a
form of which is attached hereto as Exhibit A), the Distributor's own
sales representatives or otherwise as the Distributor may determine
from time to time.
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The purchase price of a Portfolio's Retirement Shares to the public shall
be the public offering price described in Paragraph 6 hereof.
(b) In consideration of the rights granted to the Distributor under this
Agreement, the Distributor will use its best efforts (but only in states and
jurisdictions in which the Distributor may lawfully do so) to solicit from
investors unconditional orders to purchase Retirement Shares of each Portfolio.
JAS shall make available to the Distributor without cost to the Distributor the
currently effective Prospectus and Statement of Additional Information for the
Retirement Shares of each Portfolio and all information, financial statements
and other papers that the Distributor requires for use in connection with the
distribution of Retirement Shares. JAS shall provide such materials in the form
of camera ready copies, computer diskettes, or other form reasonably requested
by Distributor, to enable Distributor to provide one copy or diskette to each
shareholder of record (it being understood that the shareholders of record shall
be responsible for providing copies of such materials to the beneficial owners
in accordance with applicable law).
4. Solicitation of Orders to Purchase Retirement Shares by Portfolio. The
rights granted to the Distributor shall be non-exclusive in that JAS reserves
the right to otherwise solicit purchases from, and sell Retirement Shares to,
investors, including without limitation the right to issue Retirement Shares in
connection with the merger or consolidation of any other investment company,
trust or personal holding company with a Portfolio, or a Portfolio's
acquisition, by the purchase or otherwise, of all or substantially all of the
assets of an investment company, trust or personal holding company, or
substantially all of the outstanding shares or interests of any such entity.
5. Compensation and Expenses. JAS shall pay all charges of its transfer,
shareholder recordkeeping, dividend disbursing and redemption agents, if any;
all expenses of preparation, printing and mailing of confirmations; all expenses
of preparation and printing of annual or more frequent revisions of each
Portfolio's Prospectus and Statement of Additional Information and of supplying
copies thereof to shareholders; all expenses of registering and maintaining the
Registrations of JAS under the 1940 Act and the sale of JAS' Retirement Shares
under the 1933 Act; all expenses of qualifying and maintaining qualifications of
each Portfolio and of the Retirement Shares for sale under securities laws of
various states or other jurisdictions and of registration and qualification of
each Portfolio under all laws applicable to JAS or its business activities. The
Distributor may receive from JAS any amounts authorized for payment to the
Distributor out of the Distribution and Shareholder Servicing Plan for the
Retirement Shares. The Distributor may use such payments, in its discretion, to
compensate dealers or other entities who provide distribution-related services
to the extent permitted by the Distribution Plan.
6. Public Offering Price. All solicitations by the Distributor pursuant to
this Agreement shall be for orders to purchase Retirement Shares of a Portfolio
at the public offering price. The public offering price for each accepted
subscription for a Portfolio's Retirement Shares will be the net asset value per
share next determined by JAS after it accepts such subscription. The net asset
value per share of the Retirement Shares shall be determined in the
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manner provided in JAS' Trust Instrument as now in effect or as it may be
amended, and as reflected in the then current Prospectus and Statement of
Additional Information covering the Retirement Shares.
7. Suspension of Sales. If and whenever the determination of a Portfolio's
net asset value is suspended and until such suspension is terminated, no further
orders for Retirement Shares shall be accepted by JAS except such unconditional
orders placed with JAS and accepted by it before the suspension. In addition,
JAS reserves the right to suspend sales of Retirement Shares of a Portfolio if,
in the judgement of the Trustees, it is in the best interest of the Portfolio to
do so, such suspension to continue for such period as may be determined by the
Trustees; and in that event, (i) at the direction of JAS, the Distributor shall
suspend its solicitation of orders to purchase Retirement Shares of such
Portfolio until otherwise instructed by JAS and (ii) no orders to purchase
Retirement Shares of such Portfolio shall be accepted by JAS while such
suspension remains in effect unless otherwise directed by its Trustees.
8. Authorized Representations. The Distributor is not authorized by JAS to
give on behalf of any Portfolio any information or to make any representations
in connection with the sale of Retirement Shares other than the information and
representations contained in such Portfolio's registration statement filed with
the SEC under the 1933 Act and/or the 1940 Act, covering Retirement Shares, as
such registration statement or such Portfolio's Prospectus or Statement of
Additional Information may be amended or supplemented from time to time, or
contained in shareholder reports or other material that may be prepared by or on
behalf of such Portfolio or approved by such Portfolio for the Distributor's
use.
9. Registration of Additional Shares. JAS hereby agrees to register an
indefinite number of Retirement Shares pursuant to Rule 24f-2 under the 1940
Act. JAS will, in cooperation with the Distributor, take such action as may be
necessary from time to time to qualify the Retirement Shares of each Portfolio
(so registered or otherwise qualified for sale under the 1933 Act), in any state
or jurisdiction mutually agreeable to the Distributor and JAS, and to maintain
such qualification; provided, however, that nothing herein shall be deemed to
prevent JAS from registering the Retirement Shares without approval of the
Distributor in any state it deems appropriate.
10. Conformity With Law. The Distributor agrees that in soliciting orders
to purchase Retirement Shares it shall duly conform in all respects with
applicable federal and state laws and with the rules and regulations of the
NASD. The Distributor will use its best efforts to maintain its Registrations in
good standing during the term of this Agreement and will promptly notify JAS in
the event of the suspension or termination of any of the Registrations.
11. Independent Contractor. The Distributor shall be an independent
contractor and neither the Distributor, nor any of its officers, directors,
employees, or representatives is or shall be an employee of JAS in the
performance of the Distributor's duties hereunder. The Distributor shall be
responsible for its own conduct and the employment, control, and conduct of its
agents and employees and for injury to such agents or employees or to others
through its agents and
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employees and agrees to pay or to insure that persons other than JAS will pay
all employee taxes due with respect to the activities of its agents and
employees.
12. Indemnification. The Distributor agrees to indemnify and hold harmless
JAS and each of the Trustees and its officers, employees and representatives and
each person, if any, who controls JAS within the meaning of Section 15 of the
1933 Act against any and all losses, liabilities, damages, claims and expenses
(including the reasonable costs of investigating or defending any alleged loss,
liability, damage, claim or expense and reasonable legal counsel fees incurred
in connection therewith) to which JAS or such Trustees, officers, employees,
representatives, or controlling person or persons may become subject under the
1933 Act, under any other statute, at common law, or otherwise, arising out of
the acquisition of any Retirement Shares of any Portfolio by any person which
(i) may be based upon any wrongful act by the Distributor or any of the
Distributor's directors, officers, employees or representatives, or (ii) may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement, Prospectus, Statement of Additional
Information, shareholder report or other information covering Retirement Shares
of such Portfolio filed or made public by JAS or any amendment thereof or
supplement thereto 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
information furnished to such Portfolio by the Distributor in writing. In no
case (i) is the Distributor's indemnity in favor of JAS, or any person
indemnified, to be deemed to protect JAS or such indemnified person against any
liability to which JAS or such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its or
such person's duties or by reason of its or such person's reckless disregard of
its or such person's obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against JAS or any person indemnified
unless JAS or such person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons,
or other first written notification, giving information of the nature of the
claim served upon JAS or upon such person (or after JAS or such person shall
have received notice of such service on any designated agent). However, failure
to notify the Distributor of any such claim shall not relieve the Distributor
from any liability that the Distributor may have to JAS or any person against
whom such action is brought otherwise than on account of the Distributor's
indemnity agreement contained in this Paragraph.
The Distributor shall be entitled to participate, at its own expense, in
the defense, or, if Distributor so elects, to assume the defense of any suit
brought to enforce any such claim but, if the Distributor elects to assume the
defense, such defense shall be conducted by legal counsel chosen by the
Distributor and satisfactory to the persons indemnified who are defendants in
the suit. In the event that the Distributor elects to assume the defense of any
such suit and retain such legal counsel, persons indemnified who are defendants
in the suit shall bear the fees and expenses of any additional legal counsel
retained by them. If the Distributor does not elect to
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assume the defense of any such suit, the Distributor will reimburse persons
indemnified who are defendants in such suit for the reasonable fees of any legal
counsel retained by them in such litigation.
JAS agrees to indemnify and hold harmless the Distributor and each of its
directors, officers, employees, and representatives and each person, if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any and all losses, liabilities, damages, claims or expenses (including
the reasonable costs of investigating or defending any alleged loss, liability,
damage, claim or expenses and reasonable legal counsel fees incurred in
connection therewith) to which the Distributor or such of its directors,
officers, employees, representatives or controlling person or persons may become
subject under the 1933 Act, under any other statute, at common law, or otherwise
arising out of the acquisition of any Retirement Shares by any person which (i)
may be based upon any wrongful act by JAS or any of the Trustees, or JAS'
officers, employees or representatives other than the Distributor, or (ii) may
be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement, Prospectus, Statement of Additional
Information, shareholder report or other information covering Retirement Shares
filed or made public by JAS or any amendment thereof or supplement thereto, 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 unless
such statement or omission was made in reliance upon information furnished by
the Distributor to JAS. In no case (i) is JAS' indemnity in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor or
such indemnified person against any liability to which the Distributor or such
indemnified person would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance of its or such person's duties
or by reason of its or such person's reckless disregard of its or such person's
obligations and duties under this Agreement, or (ii) is JAS to be liable under
its indemnity agreement contained in this Paragraph with respect to any claim
made against the Distributor or any person indemnified unless the Distributor,
or such person, as the case may be, shall have notified JAS in writing of the
claim within a reasonable time after the summons, or other first written
notification, giving information of the nature of the claim served upon the
Distributor or upon such person (or after the Distributor or such person shall
have received notice of such service on any designated agent). However, failure
to notify JAS of any such claim shall not relieve JAS from any liability which
JAS may have to the Distributor or any person against whom such action is
brought otherwise than on account of JAS' indemnity agreement contained in this
Paragraph.
JAS shall be entitled to participate, at its own expense, in the defense
or, if JAS so elects, to assume the defense of any suit brought to enforce such
claim but, if JAS elects to assume the defense, such defense shall be conducted
by legal counsel chosen by JAS and satisfactory to the persons indemnified who
are defendants in the suit. In the event that JAS elects to assume the defense
of any such suit and retain such legal counsel, the persons indemnified who are
defendants in the suit shall bear the fees and expenses of any additional legal
counsel retained by them. If JAS does not elect to assume the defense of any
such suit, JAS will reimburse the persons indemnified who are defendants in such
suit for the reasonable fees and expenses of any legal counsel retained by them
in such litigation.
6
<PAGE>
13. Duration and Termination of this Agreement. With respect to each
Portfolio and the Distributor, this Agreement shall become effective as of the
date first written above and unless terminated as provided herein, shall remain
in effect through June 16, 1998 and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually (a) by a
vote of a majority of the Trustees who are not interested persons of the
Distributor or of the Portfolio, voting in person at a meeting called for the
purpose of voting on such approval, and (b) by the vote of either the Trustees
or a majority of the outstanding shares of the Portfolio. If the continuance of
this Agreement is not approved as to a Portfolio, the Distributor may continue
to render to that Portfolio the services described herein in the manner and to
the extent permitted by the 1940 Act and the rules and regulations thereunder,
and this Agreement shall continue with respect to those Portfolios that have
approved its continuance. This Agreement may be terminated by and between an
individual Portfolio and the Distributor at any time, without the payment of any
penalty (a) on 60 days' written notice, by the Trustees or by a vote of a
majority of the outstanding Retirement Shares of such Portfolio, or by the
Distributor, or (b) immediately, on written notice by the Trustees, in the event
of termination or suspension of any of the Registrations. This Agreement will
automatically terminate in the event of its assignment.
In interpreting the provisions of this Paragraph 13, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"interested person", "assignment", and "majority of the outstanding shares")
shall be applied.
14. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by each party against which enforcement of the change, waiver,
discharge, or termination is sought. If JAS should at any time deem it necessary
or advisable in the best interests of a Portfolio that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or any other governmental authority or to obtain any advantage under
state or Federal or tax laws and notifies the Distributor of the form of such
amendment, and the reasons therefore, and if the Distributor should decline to
assent to such amendment, JAS may terminate this Agreement as to that Portfolio
forthwith. If the Distributor should at any time request that a change be made
in JAS' Trust Instrument or By-Laws or in its methods of doing business, or in
the registration statement, the Prospectus or the Statement of Additional
Information of any Portfolio, in order to comply with any requirements of
Federal or state law or regulations of the SEC, or of a national securities
association of which the Distributor is or may be a member, relating to the sale
of Retirement Shares, and JAS should not make such necessary changes within a
reasonable time, the Distributor may terminate this Agreement as to that
Portfolio forthwith.
15. Limitation of Personal Liability. The parties to this Agreement
acknowledge and agree that all liabilities of JAS arising, directly or
indirectly, under this Agreement, of any and every nature whatsoever, shall be
satisfied solely out of the assets of JAS and that no Trustee, officer, employee
or agent, or holder of shares of beneficial interest of JAS, whether past,
present or future, shall be personally liable for any of such liabilities.
7
<PAGE>
16. Notification by JAS. JAS agrees to advise the Distributor immediately:
(a) of any request by the SEC for amendments to JAS' Registration
Statement insofar as it relates to the Retirement Shares of any of the
Portfolios, the Prospectus or the Statement of Additional Information or for
additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of JAS' Registration Statement insofar as it
relates to the Retirement Shares of any of the Portfolios, the Prospectus or the
Statement of Additional Information or the initiation of any proceeding for that
purpose;
(c) of the occurrence of any material event which makes untrue any
statement made in JAS' Registration Statement insofar as it relates to the
Retirement Shares of any of the Portfolios, the Prospectus or the Statement of
Additional Information or which requires the making of a change in order to make
the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendments to JAS'
Registration Statement insofar as they are related to the Retirement Shares of
any of the Portfolios, the Prospectus or the Statement of Additional Information
which may from time to time be filed with the SEC under the 1933 Act.
17. Miscellaneous. The captions in this Agreement are included for
convenience of reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
18. Notice. Any notice required or permitted to be given by a party to this
Agreement or to any other party hereunder shall be deemed sufficient if
delivered in person or sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to each such other party at the address
provided below or to the last address furnished by each such other party to the
party giving notice.
If to JAS: 100 Fillmore Street
Denver, Colorado 80206
Attn: Secretary
If to the Distributor: 100 Fillmore Street
Denver, Colorado 80206
Attn: Secretary
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
ATTEST: JANUS DISTRIBUTORS, INC.
________________________ By: /s/Dana R. Cunningham
Name: Dana R. Cunningham
Title: President
ATTEST: JANUS ASPEN SERIES
________________________ By: /s/Thomas H. Bailey
Name: Thomas H. Bailey
Title: President
9
EXHIBIT 6(b)
DISTRIBUTION AND SHAREHOLDER SERVICING AGREEMENT
Retirement Shares of Janus Aspen Series
This Agreement is entered into as of the ___ day of _______________, 19__,
between Janus Distributors, Inc. (the "Distributor"), a Colorado corporation,
and __________________ ("Service Organization"), a ______________ corporation .
WHEREAS, 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");
WHEREAS, Service Organization desires to provide certain distribution
and shareholder services to certain participants in participant directed
qualified pension or retirement plans ("Plan Participants") in connection
with their investment in the Retirement Shares of the series of the Trust
listed on Schedule A hereto (each a "Portfolio") and Distributor desires
Service Organization to provide such services, subject to the conditions of
this Agreement;
WHEREAS, pursuant to Rule 12b-1 under the 1940 Act, the Retirement
Shares of each Portfolio have adopted a Distribution and Shareholder
Servicing Plan (the "Plan") which, among other things, authorizes the
Distributor to enter into this Agreement with organizations such as Service
Organization and to compensate such organizations out of each Portfolio's
average daily net assets attributable to the Retirement Shares.
Accordingly, the parties hereto agree as follows:
1. Services of Service Organization
(a) The Service Organization 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 educational materials related to the
Retirement Shares to prospective and existing plan participants; providing
facilities to answer questions from prospective and existing Plan Participants
about the Portfolios; receiving and
<PAGE>
answering correspondence; complying with federal and state securities laws
pertaining to the sale of Retirement Shares; and assisting Plan Participants in
completing application forms and selecting dividend and other accounts options.
(b) The Service Organization 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
Organization for the account of any Plan Participant or Participants.
(d) Service Organization shall not offer or sell the Retirement Shares
except in compliance with federal and state securities law and subject to the
terms of the prospectus for the Retirement Shares. Service Organization 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 Organization 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. Maintenance of Records
(a) Each party shall maintain and preserve all records as required by
law to be maintained and preserved in connection with providing the services
described herein. Upon the
2
<PAGE>
reasonable request of Distributor or the Trust, Service Organization shall
provide Distributor, the Trust or the representative of either, copies of all
such records.
(b) Service Organization 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 reasonably requested by Distributor. Such information shall be
provided in a form mutually agreeable to Distributor and Service Organization.
3. Compliance with Laws. At all times, Service Organization shall comply
with all laws, rules and regulations applicable to it by virtue of entering into
this Agreement. At all times, Distributor shall comply with all laws, rules and
regulations applicable to it by virtue of entering into this Agreement.
4. Operations of the Portfolios. In no way shall the provisions of this
Agreement 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
3
<PAGE>
duties under applicable law, necessary in the best interests of the shareholders
of any Portfolio.
5. Relationship of Parties. It is understood and agreed that all services
performed hereunder by Service Organization shall be as an independent
contractor and not as an employee or agent of Distributor, the Trust or any of
the Portfolios, and neither of the parties shall hold itself out as an agent of
the other party with the authority to bind such party.
6. Approval of Information Materials. No person is authorized to make any
representations concerning the Trust, the Portfolios, the Retirement Shares, or
the 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 the Distributor or the Trust may subsequently
prepare. All materials for distribution to Plan Participants prepared by Service
Organization or any affiliate or agent that describe the Trust, the Portfolios,
the Retirement Shares, or Distributor shall be approved by Distributor or a
designee of Distributor prior to the use of such materials by Service
Organization or any affiliate or agent. Service Organization shall send all such
materials to Distributor for review at least 15 business days prior to filing
with any regulatory authority or general release.
7. Fees and Expenses
In consideration of Service Organization's performance of the services
described in this Agreement, the Distributor agrees to pay the Service
Organization a fee in accordance with, and in the manner set forth in, Schedule
B hereto. Such fee shall be computed by JDI and shall be payable within 15 days
following the end of each month. Except as otherwise provided
4
<PAGE>
herein, each party shall bear the expenses associated with performing its
obligations under this Agreement.
8. Representations, Warranties and Agreements
(a) Each party represents and warrants that it is free to enter into
this Agreement and that by doing so it will not breach or otherwise impair any
other agreement or understanding with any other person, corporation, or other
entity.
(b) Service Organization represents and warrants that:
(i) it is registered as a broker-dealer under the Securities
Exchange Act of 1934 ("1934 Act") and any applicable state securities laws, and
is a member in good standing of the National Association of Securities Dealers,
Inc. ("NASD"), or that its activities hereunder do not require it to register as
a broker-dealer or be a member of the NASD;
(ii) it has full power and authority under applicable law, and
has taken all action necessary, to enter into and perform this Agreement;
(iii) the arrangements provided for in this Agreement, including
the amount of the fee received by Service Organization, will be timely disclosed
to the Plan Participants to the extent required by applicable law; and
(iv) the performance of the duties and obligations and provision
of services by Service Organization as described in this Agreement and the
receipt of the fee as provided in this Agreement will not violate federal or
state banking law, the Employee 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.
(c) Distributor represents and warrants that:
5
<PAGE>
(i) it is registered as a broker-dealer under the 1934 Act and
any applicable state securities laws, and is a member in good standing of the
NASD;
(ii) it has full power and authority under applicable law, and
has taken all action necessary, to enter into and perform this Agreement;
(iii) the Trust is registered as an investment company under the
1940 Act and the Retirement Shares of the Portfolios are registered under the
Securities Act of 1933; and
(iv) the performance of the duties and obligations by Distributor
as described in this Agreement will not violate federal or state securities
laws, or any other applicable law.
9. Indemnification
(a) Service Organization agrees to indemnify Distributor and its
affiliates, and their directors, employees and agents for any loss (including
without limitation, litigation costs and expenses and attorneys' and experts'
fees and expenses) resulting from: (i) the negligent or willful act, omission or
error of Service Organization or its affiliates; (ii) any breach by Service
Organization of this Agreement; or (iii) the inaccuracy or breach of any
representation made by Service Organization in this Agreement.
(b) Distributor agrees to indemnify Service Organization and its
affiliates, and their directors, employees and agents for any loss (including
without limitation, litigation costs and expenses and attorneys' and experts'
fees and expenses) resulting from: (i) the negligent or willful act, omission or
error of Distributor or its affiliates; (ii) any breach by Distributor of this
6
<PAGE>
Agreement; or (iii) the inaccuracy or breach of any misrepresentation made by
Distributor in this Agreement.
10. Termination
(a) Unless sooner terminated with respect to any Fund, 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 such continuance 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 Plan relating to such
Portfolio or any agreement relating to such 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 [30] 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
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 [30] days' written notice.
7
<PAGE>
(c) Section 9 shall survive termination of this Agreement.
11. Assignment. This Agreement shall not be assigned by a party hereto
except with the written consent of the other parties.
12. Amendment. This Agreement, including Schedules A and B, may be amended,
and the terms of this Agreement, including Schedules A and B, may be waived,
only by a writing signed by each of the parties.
13. 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.
14. Notices. All notices and other communications to either the Service
Organization or the 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 the Distributor:
Janus Distributors, Inc.
100 Fillmore Street
Denver, Colorado 80206
Attn: David C. Tucker
If to the Service Organization:
8
<PAGE>
15. Counterparts. This Agreement may be executed in counterparts which
together shall constitute one instrument.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to agreements fully
executed and to be performed therein, exclusive of conflicts of laws.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of the date and year first written above.
JANUS DISTRIBUTORS, INC.
By: ___________________________________
Name: ________________________________
Title:__________________________________
[SERVICE ORGANIZATION]
By: ___________________________________
Name: ________________________________
Title:__________________________________
9
<PAGE>
Schedule A
PORTFOLIOS
A-1
<PAGE>
Schedule B
COMPENSATION
The Participating Organization shall receive a fee calculated at an
annual rate of ____%* of each Portfolio's average daily net assets attributable
to Retirement Shares beneficially owned by the Plan Participants.
*Fee shall not exceed .25%.
B-1
EXHIBIT 9(b)
TRANSFER AGENCY AGREEMENT
This Agreement is made as of May 25, 1993, and amended as of May 1, 1997,
by and between Janus Aspen Series, a Delaware business trust (the "Fund") which
offers each of its portfolios in two classes of shares, the Retirement Shares
and the Institutional Shares, 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 or arrange for the performance
by others of 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, qualified plans, 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.
5. Compensation and Expenses. The Fund shall reimburse JSC for
out-of-pocket expenses incurred by JSC in connection with its performance of
services rendered under this Agreement. 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. In
addition, JSC may receive from JAS a fee at an annual rate of up to .25% of the
average daily net
<PAGE>
assets of the Fund attributable to the Retirement Shares of each portfolio of
the Fund, to compensate JSC for providing, or arranging for the provision of
recordkeeping, subaccounting and administrative services to qualified plan
participants who invest in the Retirement Shares.
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 or any of its agents pursuant to this Agreement,
unless JSC's actions or omissions 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;
(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.
-2-
<PAGE>
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 nor 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 personally liable
for any of such liabilities.
JANUS ASPEN SERIES
By: /s/Thomas H. Bailey
Name: Thomas H. Bailey
Title: President
JANUS SERVICE CORPORATION
By: /s/Marjorie G. Hurd
Name: Marjorie G. Hurd
Title: President
-3-
EXHIBIT 10(e)
JANUS
100 FILLMORE STREET
DENVER, COLORADO 80206-4928
PH: 303-333-3863
http://www.JanusFunds.com
February 13, 1997
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206-4928
Re: Public Offering of Janus Aspen Series Equity Income Portfolio and
Capital Appreciation 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
Vice President and General Counsel
DCT/dat
Enclosure
EXHIBIT 10(f)
JANUS
100 FILLMORE STREET
DENVER, COLORADO 80206-4928
PH: 303-333-3863
http://www.JanusFunds.com
February 13, 1997
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206-4928
Re: Public Offering of Janus Aspen Series Retirement Shares Class of
Growth Portfolio, Aggressive Growth Portfolio, Worldwide Growth
Portfolio, Balanced Portfolio, Flexible Income Portfolio, Short-Term
Bond Portfolio, International Growth Portfolio, Money Market
Portfolio, High-Yield Portfolio, Equity Income Portfolio, and Capital
Appreciation 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 of the Retirement Shares (the
"Shares"), as separate class of 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
Vice President and General Counsel
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. 10 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 30, 1996, relating to the financial
statements and financial highlights appearing in the December 31, 1995 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
February 12, 1997
EXHIBIT 15
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
Retirement Shares of Janus Aspen Series
WHEREAS, Janus Aspen Series ("JAS") engages in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of JAS are currently divided into
multiple series ("Portfolios"), each with two classes of shares, one of which is
designated the "Retirement Shares";
WHEREAS, Janus Distributors, Inc. ("JDI") serves as the distributor of the
Retirement shares (the "Distributor") pursuant to a Distribution Agreement dated
May 1, 1997, between JDI and JAS; and
NOW, THEREFORE, the Company hereby adopts on behalf of JAS with respect to
the Retirement Shares of each Portfolio, and the Distributor hereby agrees to
the terms of, the Plan, in accordance with Rule 12b-1 under the Act on the
following terms and conditions:
1. JAS shall pay to the Distributor, as the distributor of the Retirement
Shares, a fee for distribution of the shares at the rate of up to 0.25% on an
annualized basis of the average daily net assets of the Retirement Shares,
provided that, at any time such payment is made, whether or not this Plan
continues in effect, the making thereof will not cause the limitation upon such
payments established by this Plan to be exceeded. Such fee shall be calculated
and accrued daily and paid at such intervals as the Trustees shall determine,
subject to any applicable restriction imposed by rules of the National
Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1 of this Plan shall be paid for the
Distributor's services as distributor of the Retirement Shares in connection
with any activities or expenses primarily intended to result in the sale of the
Retirement Shares, including, but not limited to, payment of compensation,
including incentive compensation, to securities dealers and other financial
institutions and organizations (collectively, the "Service Providers") to obtain
various distribution related and/or administrative services for the investors in
the Retirement Shares (plan participants in the case of qualified plans that
invest in the Retirement Shares). These services may include, but are not
limited to the following functions: printing and delivering prospectuses,
statements of additional information, shareholder reports, proxy statements and
marketing 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 assisting plan participants in completing application
forms and selecting dividend and other accounts options. The Distributor is also
authorized to engage directly in any activities relating to the purposes of this
plan. In addition, this Plan hereby authorizes payment by JAS of the cost of
preparing, printing and distributing prospectuses and statements of additional
information relating to the Retirement Shares to prospective investors
<PAGE>
and of implementing and operating the Plan. Payments under the Plan are not tied
exclusively to actual distribution and service expenses, and the payments may
exceed distribution and service expenses actually incurred.
3. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Trustees of
JAS and (b) those Trustees of JAS who are not "interested persons" of JAS (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the "Rule 12b-1
Trustees"), cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan and such related agreements.
4. After approval as set forth in paragraph 3, this Plan shall take effect
as of the date of execution. The Plan shall continue in full force and effect as
to the Retirement Shares of each Portfolio of JAS for so long as such
continuance is specifically approved at least annually in the manner provided
for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Trustees of JAS, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
6. This Plan may be terminated as to the Retirement Shares of any Portfolio
of JAS at any time, without payment of any penalty, by vote of the Trustees of
JAS, by vote of a majority of the Rule 12b-1 Trustees, or by a vote of a
majority of the outstanding voting securities of the Retirement Shares of JAS,
on not more than 60 days' written notice to any other party to the Plan.
7. This Plan may not be amended to increase materially the amount of
distribution fee provided for in paragraph 1 hereof for any Portfolio unless
such amendment is approved by a vote of a majority of the outstanding voting
securities (as defined in the Act) of the Retirement Shares of that Portfolio
and no material amendment to the Plan shall be made unless approved in the
manner provided for approval and annual renewal in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of Trustees
who are not "interested persons" (as defined in the Act) of JAS shall be
committed to the discretion of the Trustees who are not such interested persons.
9. JAS shall preserve copies of this Plan and any related agreements and
all reports made pursuant to paragraph 5 hereof, for a period of not less than
six years from the date of this Plan, any such agreement or any such report, as
the case may be, the first two years in an easily accessible place.
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<PAGE>
IN WITNESS WHEREOF, JAS, on behalf of the Retirement Shares of each
Portfolio, and the Distributor have executed this Distribution Plan as of the
1st day of May, 1997.
JANUS ASPEN SERIES
By: /s/Thomas H. Bailey
Name: Thomas H. Bailey
Title: President
JANUS DISTRIBUTORS, INC.
By: /s/Dana R. Cunningham
Name: Dana R. Cunningham
Title: President
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EXHIBIT 17(b)
JANUS ASPEN SERIES (the "Trust")
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby makes, constitutes
and appoints Thomas H. Bailey, Steven R. Goodbarn and David C. Tucker and each
of them, severally, his true and lawful attorneys and agents in his name, place
and stead on his behalf (a) to sign and cause to be filed amendments to the
registration statement of the Trust under the Securities Act of 1933, the
Investment Company Act of 1940 and the laws and regulations of the various
states, if applicable, and all consents and exhibits thereto; (b) to withdraw
such registration statement or any amendments or exhibits and make requests for
acceleration in connection therewith; (c) to take all other action of whatever
kind or nature in connection with such registration statement, and all
amendments thereto, which said attorneys may deem advisable; and (d) to make,
file, execute, amend and withdraw documents of every kind, and to take other
action of whatever kind they may elect, for the purpose of complying with all
laws relating to the sale of securities of the Trust, hereby ratifying and
confirming all actions of any of said attorneys hereunder, provided that this
Power of Attorney is ratified to be effective by the Trustees with respect to
each filing or withdrawal of such registration statement and all amendments,
consents, and exhibits thereto. Said attorneys may act jointly or severally, and
the action of one shall bind the undersigned as fully as if two or more had
acted together.
IN WITNESS WHEREOF, the undersigned has hereby set his hand as of this 2nd
day of January, 1997.
SIGNATURE TITLE DATE
/s/James T. Rothe Trustee January 2, 1997
James T. Rothe
EXHIBIT 18
December 10, 1996
RULE 18f-3 PLAN
Janus Aspen Series
This Rule 18f-3 Plan ("Plan") is adopted by Janus Aspen Series ("JAS") with
respect to Institutional Shares and Retirement Shares (each a "Class") of each
existing and future Portfolio (each a "Portfolio") of JAS in accordance with the
provisions of Rule 18f-3 under the Investment Company Act of 1940 (the "Act").
1. Features of the Classes. Each Portfolio may issue its shares of
beneficial interest in two classes: the "Institutional Shares" and the
"Retirement Shares." Institutional Shares may be sold only to insurance company
separate accounts and qualified plans. Retirement Shares may be sold only to
participant directed qualified plans that require a fee out of Portfolio assets
to procure distribution and administrative services to plan participants. Class
Expenses, as defined in Section 2 below relating to each Class are borne solely
by the Class to which they relate and within each Class are borne by each share
pro rata on the basis of its net asset value. Each Class shall have exclusive
voting rights on any matter submitted to shareholders that relates solely to its
service or distribution arrangement and each Class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
Class differ from the interests of any other Class. In addition, Institutional
Shares and Retirement Shares shall have the features described in Sections 2
through 5 below.
2. Class Expenses. Expenses incurred by JAS that are chargeable to a
specific Class ("Class Expenses") include expenses (not including advisory or
custodial fees or other expenses related to the management of a Portfolio's
assets) that are incurred in a different amount by that Class or are in
consideration of services provided to that Class of a different kind or to a
different degree than are provided to another Class. Class Expenses include: (i)
the Distribution Fee and
<PAGE>
Participant Administration Fee described in Section 3 applicable to the
Retirement Shares; (ii) expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxy statements to current
shareholders of record (i.e., insurance company separate accounts and qualified
plans, as omnibus accounts) of a specific Class; (iii) Blue Sky fees incurred
with respect to a specific Class; (iv) administrative, subaccounting and
transfer agency expenses in connection with the shareholders of record (omnibus
accounts) investing in a specific Class; (v) litigation or other legal expenses
relating to a specific Class; (vi) fees or expenses of the Trustees of JAS who
are not interested persons of Janus Capital Corporation ("Independent
Trustees"), and of counsel and consultants to the Independent Trustees, incurred
as a result of issues relating to a specific Class; (vii) auditing and
consulting expenses relating to a specific Class; and (viii) additional expenses
incurred with respect to a specific Class as identified and approved by the
Trustees of JAS and the Independent Trustees.
3. Distribution Fee and Participant Administration Fee.
(a) Retirement Shares. The Trust has adopted a Distribution and
Shareholder Servicing Plan pursuant to Rule 12b-1 with respect to the Retirement
Shares of each Portfolio. Under the terms of the Plan, JAS pays Janus
Distributors, Inc., as Distributor of the Retirement Shares, a "Distribution
Fee" out of the assets attributable to the Retirement Shares of each Portfolio,
in an amount up to 0.25% on an annual basis of the average daily net assets of
that class. JDI is permitted to use this fee to compensate financial
intermediaries that provide services in connection with any activities or
expenses primarily intended to result in the sale of Retirement Shares.
Under the terms of the Distribution and Shareholder Servicing Plan,
these services may include, but are not limited to, the following functions:
printing and delivering
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<PAGE>
prospectuses, statements of additional information, shareholder reports, proxy
statements and marketing 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 assisting plan participants in
completing application forms and selecting dividend and other account options.
JAS pays Janus Service Corporation ("JSC"), as Transfer Agent of JAS,
a "Participant Administration Fee," out of the assets attributable to the
Retirement Shares of each Portfolio, in an amount up to 0.25% on an annual basis
of the average daily net assets of that class. JSC is permitted to use this fee
to compensate service providers that provide recordkeeping, subaccounting and
other administrative services to qualified plan participants that invest in the
Retirement Shares. Such services may include, but are not limited to, the
following functions: furnishing participant subaccounting; maintaining separate
records for each plan reflecting purchase and redemption transactions;
processing purchase and redemption transactions; disbursing or crediting to the
plan and maintaining records of all proceeds of redemptions of shares and all
other distributions not reinvested in shares; preparing and transmitting to the
plans, plan participants, or the trustees of the plans periodic account
statements showing the total number of shares owned by each plan or participant
as of the statement closing date, purchases and redemptions of shares by the
plan or participant during the period covered by the statement, and the
dividends and other distributions paid to the plan or participant during the
statement period (whether paid in cash or reinvested in shares), and the
integration of such statements with those of other transactions and balances in
other accounts of
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<PAGE>
the plan or participant; transmitting to JAS or its agents periodic reports
necessary to enable JAS to comply with state Blue Sky requirements; issuing
confirmations of purchase orders and redemption requests placed by the plans;
maintaining all account balance information for the plans and daily and monthly
purchase summaries expressed in shares and dollar amounts; preparing, filing,
and transmitting all federal, state, and local government reports and returns as
required by law with respect to each account maintained on behalf of a plan;
maintaining account designations and addresses; and printing and delivering
prospectuses, statements of additional information, shareholder reports, and
proxy statements to existing plan participants.
(b) Institutional Shares. JAS does not pay a Distribution Fee or
Participant Administration Fee with respect to the Institutional Shares of each
Portfolio (although JAS does pay administrative, subaccounting and transfer
agency expenses necessary for each insurance company separate account or
qualified plan as an omnibus account to invest in the Institutional Shares as
discussed under "Class Expenses" above).
4. Differences in Class Expenses. The differences in the Class Expenses
payable by each Class pursuant to this Plan are due to the differing levels of
services provided or procured by JAS to beneficial owners (i.e., contract owners
and plan participants) eligible to purchase shares of each Class through omnibus
accounts (i.e., insurance company separate accounts and qualified plans) and to
the differing levels of expenses expected to be incurred with respect to each
Class. Institutional Shares may be sold to insurance company separate accounts
and qualified plans that do not require a fee out of Portfolio assets to procure
distribution and administrative services to plan participants. For the
Institutional Shares, the contract owners or plan participants are typically
charged a fee for such services directly at the contract or plan level (or the
qualified plan sponsor bears these fees). Retirement Shares will be sold to
participant
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<PAGE>
directed qualified plans whose service providers require a fee from Portfolio
assets for providing such services.
5. Exchange Privilege. The exchange privilege offered by each Portfolio
provides that shares of a Class may be exchanged only for shares of the same
Class of another Portfolio (provided that Portfolio is offered as an investment
option by the particular insurance company or qualified plan).
6. Effective Date. This Plan is adopted as of December 10, 1996, pursuant
to determinations made by the Trustees of JAS, including a majority of the
Independent Trustees, that the multiple class structure and the allocation of
expenses as set forth in the Plan are in the best interests of each of the
Institutional Shares and Retirement Shares individually and each Portfolio and
JAS as a whole. This Plan will continue in effect until terminated in accordance
with Section 8.
7. Amendment. Material amendments to the Plan may be made with respect to a
Class at any time with the approval of the Trustees of JAS, including a majority
of the Independent Trustees, upon finding that the Plan as proposed to be
amended, including the allocation of expenses, is in the best interests of each
Class individually and each Portfolio and JAS as a whole. Non-material
amendments to the Plan may be made by Janus Capital Corporation at any time.
8. Termination. This Plan may be terminated by the Trustees without penalty
at any time.
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