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[JANUS LOGO]
JANUS ASPEN SERIES
PROSPECTUS
GROWTH PORTFOLIO
AGGRESSIVE GROWTH PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
BALANCED PORTFOLIO
EQUITY INCOME PORTFOLIO
GROWTH AND INCOME PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
WORLDWIDE GROWTH PORTFOLIO
GLOBAL LIFE SCIENCES PORTFOLIO
GLOBAL TECHNOLOGY PORTFOLIO
FLEXIBLE INCOME PORTFOLIO
HIGH-YIELD PORTFOLIO
MONEY MARKET PORTFOLIO
MAY 1, 2000
The Securities and Exchange Commission has not
approved or disapproved of these securities or passed
on the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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This prospectus describes thirteen mutual funds (the
"Portfolios") with a variety of investment objectives, including
growth of capital, current income and a combination of growth and
income. Each Portfolio of Janus Aspen Series currently offers two
or three classes of shares. The Institutional Shares (the
"Shares") are sold under the name of "Janus Aspen Series" and 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 Aspen Series sells and redeems its Shares at net asset
value without sales charges, commissions or redemption fees. Each
variable insurance contract involves fees and expenses that are
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 that a prospective purchaser
of a variable insurance contract or plan participant should
consider in conjunction with the accompanying separate account
prospectus of the specific insurance company product before
allocating purchase payments or premiums to the Portfolios.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
RISK/RETURN SUMMARY
Equity Portfolios............................ 2
Fixed-Income Portfolios...................... 12
Money Market Portfolio....................... 15
Fees and expenses............................ 18
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
Equity Portfolios............................ 21
Fixed-Income Portfolios...................... 29
General portfolio policies for Portfolios
other than Money Market Portfolio.......... 31
Risks for Equity Portfolios.................. 35
Risks for Fixed-Income Portfolios............ 36
Risks common to all Non-Money Market
Portfolios................................... 37
Money Market Portfolio....................... 41
MANAGEMENT OF THE PORTFOLIOS
Investment adviser........................... 45
Management expenses and expense limits....... 46
Investment personnel......................... 47
OTHER INFORMATION............................... 55
DISTRIBUTIONS AND TAXES
Distributions................................ 57
Portfolios other than Money Market
Portfolio.................................... 57
Money Market Portfolio....................... 57
Taxes........................................ 58
SHAREHOLDER'S GUIDE
Pricing of portfolio shares.................. 59
Purchases.................................... 60
Redemptions.................................. 61
Frequent trading............................. 61
Shareholder communications................... 62
FINANCIAL HIGHLIGHTS............................ 63
GLOSSARY
Glossary of investment terms................. 75
RATING CATEGORIES
Explanation of rating categories............. 82
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Janus Aspen Series prospectus 1
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RISK RETURN SUMMARY
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EQUITY PORTFOLIOS
The Equity Portfolios are designed for long-term investors who
seek growth of capital and who can tolerate the greater risks
associated with common stock investments.
1. WHAT ARE THE INVESTMENT OBJECTIVES OF THE EQUITY PORTFOLIOS?
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DOMESTIC EQUITY PORTFOLIOS
- GROWTH PORTFOLIO seeks long-term growth of capital in a
manner consistent with the preservation of capital.
- AGGRESSIVE GROWTH PORTFOLIO AND CAPITAL APPRECIATION
PORTFOLIO seek long-term growth of capital.
- BALANCED PORTFOLIO seeks long-term capital growth,
consistent with preservation of capital and balanced by
current income.
- EQUITY INCOME PORTFOLIO seeks current income and long-term
growth of capital.
- GROWTH AND INCOME PORTFOLIO seeks long-term capital growth
and current income.
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
- INTERNATIONAL GROWTH PORTFOLIO, GLOBAL LIFE SCIENCES
PORTFOLIO AND GLOBAL TECHNOLOGY PORTFOLIO seek long-term
growth of capital.
- WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital
in a manner consistent with the preservation of capital.
The Portfolios' Trustees may change these objectives without a
shareholder vote and the Portfolios will notify you of any
changes that are material. If there is a material change to a
Portfolio's objective or policies, you should consider whether
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that Portfolio remains an appropriate investment for you.
There is no guarantee that a Portfolio will meet its
objective.
2. WHAT ARE THE MAIN INVESTMENT STRATEGIES OF THE EQUITY PORTFOLIOS?
The portfolio managers apply a "bottom up" approach in choosing
investments. In other words, they look for companies with
earnings growth potential one at a time. If a portfolio manager
is unable to find investments with earnings growth potential, a
significant portion of a Portfolio's assets may be in cash or
similar investments.
GROWTH PORTFOLIO invests primarily in common stocks selected for
their growth potential. Although the Portfolio can invest in
companies of any size, it generally invests in larger, more
established companies.
AGGRESSIVE GROWTH PORTFOLIO invests primarily in common stocks
selected for their growth potential, and normally invests at
least 50% of its equity assets in medium-sized companies.
CAPITAL APPRECIATION PORTFOLIO invests primarily in common stocks
selected for their growth potential. The Portfolio may invest in
companies of any size, from larger, well-established companies to
smaller, emerging growth companies.
BALANCED 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. The Portfolio will normally invest at least 25%
of its assets in fixed-income securities.
EQUITY INCOME PORTFOLIO normally emphasizes investments in common
stocks, and growth potential is a significant investment
consideration. Normally, it invests at least 65% of its assets in
income-producing equity securities.
GROWTH AND INCOME PORTFOLIO normally emphasizes investments in
common stocks. It will normally invest up to 75% of its assets in
equity securities selected primarily for their growth potential,
and
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at least 25% of its assets in securities the portfolio manager
believes have income potential. Equity securities may make up
part of this income component if they currently pay dividends or
the portfolio manager believes they have potential for increasing
or commencing dividend payments.
INTERNATIONAL GROWTH 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 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 invests primarily in common stocks of
companies of any size throughout the world. The 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.
GLOBAL LIFE SCIENCES PORTFOLIO invests primarily in equity
securities of U.S. and foreign companies selected for their
growth potential. Normally, it invests at least 65% of its total
assets in securities of companies that the portfolio manager
believes have a life science orientation. Generally speaking, the
"life sciences" relate to maintaining or improving quality of
life. So, for example, companies with a "life science
orientation" include companies engaged in research development,
production or distribution of products or services related to
health and personal care, medicine or pharmaceuticals. As a
fundamental policy, the Portfolio normally invests at least 25%
of its total assets, in the aggregate, in the following industry
groups: healthcare; pharmaceuticals; agriculture;
cosmetics/personal care; and biotechnology.
GLOBAL TECHNOLOGY PORTFOLIO invests primarily in equity
securities of U.S. and foreign companies selected for their
growth potential. Under normal circumstances, it invests at least
65% of its total assets in securities of companies that the
portfolio manager
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believes will benefit significantly from advances or improvements
in technology.
3. WHAT ARE THE MAIN RISKS OF INVESTING IN THE EQUITY PORTFOLIOS?
The biggest risk of investing in these Portfolios is that their
returns may vary, and you could lose money. If you are
considering investing in any of the Equity Portfolios, remember
that they are each designed for long-term investors who can
accept the risks of investing in a portfolio with significant
common stock holdings. Common stocks tend to be more volatile
than other investment choices.
The value of a Portfolio's holdings may decrease if the value of
an individual company in the portfolio decreases. The value of a
Portfolio's holdings could also decrease if the stock market goes
down. If the value of a Portfolio's holdings decreases, that
Portfolio's net asset value (NAV) will also decrease, which means
if you sell your shares in a Portfolio you would get back less
money.
The income component of BALANCED PORTFOLIO, EQUITY INCOME
PORTFOLIO AND GROWTH AND INCOME PORTFOLIO includes fixed-income
securities. A fundamental risk to the income component is that
the value of these securities will fall if interest rates rise.
Generally, the value of a fixed-income portfolio will decrease
when interest rates rise, which means the Portfolio's NAV may
likewise decrease. Another fundamental risk associated with
fixed-income securities is credit risk, which is the risk that an
issuer of a bond will be unable to make principal and interest
payments when due.
GLOBAL LIFE SCIENCES PORTFOLIO concentrates its investments in
related industry groups. Because of this, companies in its
portfolio may share common characteristics and react similarly to
market developments. For example, many companies with a life
science orientation are highly regulated and may be dependent
upon certain types of technology. As a result, changes in
government funding or subsidies, new or anticipated legislative
changes, or technological advances could affect the value of such
companies
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and, therefore, the Portfolio's NAV. The Portfolio's returns may
be more volatile than those of a less concentrated portfolio.
Although GLOBAL TECHNOLOGY PORTFOLIO does not concentrate its
investments in specific industries, it may invest in companies
related in such a way that they react similarly to certain market
pressures. For example, competition among technology companies
may result in increasingly aggressive pricing of their products
and services, which may affect the profitability of companies in
the portfolio. In addition, because of the rapid pace of
technological development, products or services developed by
companies in the Portfolio's portfolio may become rapidly
obsolete or have relatively short product cycles. As a result,
the Portfolio's returns may be considerably more volatile than
the returns of a fund that does not invest in similarly related
companies.
INTERNATIONAL GROWTH PORTFOLIO, WORLDWIDE GROWTH PORTFOLIO,
GLOBAL LIFE SCIENCES PORTFOLIO AND GLOBAL TECHNOLOGY PORTFOLIO
may have significant exposure to foreign markets. As a result,
their returns and NAV may be affected to a large degree by
fluctuations in currency exchange rates or political or economic
conditions in a particular country.
AGGRESSIVE GROWTH PORTFOLIO, CAPITAL APPRECIATION PORTFOLIO,
GLOBAL LIFE SCIENCES PORTFOLIO AND GLOBAL TECHNOLOGY PORTFOLIO
are nondiversified. In other words, they may hold larger
positions in a smaller number of securities than a diversified
fund. As a result, a single security's increase or decrease in
value may have a greater impact on a Portfolio's NAV and total
return.
An investment in these Portfolios is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
The following information provides some indication of the risks
of investing in the Equity Portfolios by showing how each of the
Equity Portfolios' performance has varied over time. The bar
charts depict the change in performance from year-to-year during
the period indicated, but do not include charges and expenses
6 Janus Aspen Series prospectus
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attributable to any insurance product which would lower the
performance illustrated. The Portfolios do not impose any sales
or other charges that would affect total return computations.
Total return figures include the effect of each Portfolio's
expenses. The tables compare the average annual returns for the
Shares of each Portfolio for the periods indicated to a
broad-based securities market index.
GROWTH PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
2.76% 30.17% 18.45% 22.75% 35.66% 43.98%
1994 1995 1996 1997 1998 1999
Best Quarter: 4th-1998 27.71% Worst Quarter: 3rd-1998 (10.92%)
Average annual total return for periods ended 12/31/99
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<CAPTION>
Since Inception
1 year 5 years (9/13/93)
<S> <C> <C> <C>
Growth Portfolio - Institutional Shares 43.98% 29.89% 24.28%
S&P 500 Index* 21.03% 28.54% 22.68%
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</TABLE>
* The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
Janus Aspen Series prospectus 7
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AGGRESSIVE GROWTH PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
16.33% 27.48% 7.95% 12.66% 34.26% 125.40%
1994 1995 1996 1997 1998 1999
Best Quarter: 4th-1999 59.34% Worst Quarter: 3rd-1998 (14.98%)
Average annual total return for periods ended 12/31/99
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<CAPTION>
Since Inception
1 year 5 years (9/13/93)
<S> <C> <C> <C>
Aggressive Growth
Portfolio - Institutional Shares 125.40% 36.23% 34.42%
S&P MidCap 400 Index* 14.72% 23.05% 18.08%
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</TABLE>
* The S&P MidCap 400 Index is an unmanaged group of 400 domestic
stocks chosen for their market size, liquidity and industry
group representation.
CAPITAL APPRECIATION PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
58.11% 67.00%
1998 1999
Best Quarter: 4th-1999 41.77% Worst Quarter: 3rd-1998 (9.98%)
Average annual total return for periods ended 12/31/99
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<CAPTION>
Since Inception
1 year (5/1/97)
<S> <C> <C>
Capital Appreciation Portfolio - Institutional Shares 67.00% 57.18%
S&P 500 Index* 21.03% 27.40%
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* The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
8 Janus Aspen Series prospectus
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BALANCED PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
0.84% 24.79% 16.18% 22.10% 34.28% 26.76%
1994 1995 1996 1997 1998 1999
Best Quarter: 4th-1998 20.32% Worst Quarter: 3rd-1998 (4.97%)
Average annual total return for periods ended 12/31/99
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<CAPTION>
Since Inception
1 year 5 years (9/13/93)
<S> <C> <C> <C>
Balanced Portfolio - Institutional Shares 26.76% 24.68% 20.62%
S&P 500 Index* 21.03% 28.54% 22.68%
Lehman Brothers Gov't/Corp Bond Index** (2.15%) 7.61% 5.40%
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</TABLE>
* The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
** Lehman Brothers Gov't/Corp Bond Index is composed of all bonds
that are of investment grade with at least one year until
maturity.
EQUITY INCOME PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
46.24% 41.58%
1998 1999
Best Quarter: 4th-1998 28.51% Worst Quarter: 3rd-1998 (7.18%)
Average annual total return for periods ended 12/31/99
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<CAPTION>
Since Inception
1 year (5/1/97)
<S> <C> <C>
Equity Income Portfolio - Institutional Shares 41.58% 46.87%
S&P 500 Index* 21.03% 27.40%
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</TABLE>
* The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
Janus Aspen Series prospectus 9
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GROWTH AND INCOME PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
74.04%
1999
Best Quarter: 4th-1999 38.39% Worst Quarter: 3rd-1999 4.30%
Average annual total return for periods ended 12/31/99
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<CAPTION>
Since Inception
1 year (5/1/98)
<S> <C> <C>
Growth and Income Portfolio -- Institutional Shares 74.04% 55.33%
S&P 500 Index* 21.03% 19.85%
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</TABLE>
* The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
INTERNATIONAL GROWTH PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
23.15% 34.71% 18.51% 17.23% 82.27%
1995 1996 1997 1998 1999
Best Quarter: 4th-1999 58.48% Worst Quarter: 3rd-1998 (17.76%)
Average annual total return for periods ended 12/31/99
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<CAPTION>
Since Inception
1 year 5 years (5/2/94)
<S> <C> <C> <C>
International Growth
Portfolio - Institutional Shares 82.27% 33.25% 28.19%
Morgan Stanley Capital International EAFE(R)
Index* 26.96% 12.83% 11.22%
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* The Morgan Stanley Capital International EAFE(R) Index is a
market capitalization weighted index composed of companies
representative of the market structure of 20 Developed Market
countries in Europe, Australasia and the Far East.
10 Janus Aspen Series prospectus
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WORLDWIDE GROWTH PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
1.53% 27.37% 29.04% 22.15% 28.92% 64.45%
1994 1995 1996 1997 1998 1999
Best Quarter: 4th-1999 42.24% Worst Quarter: 3rd-1998 (16.03%)
Average annual total return for periods ended 12/31/99
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<CAPTION>
Since Inception
1 year 5 years (9/13/93)
<S> <C> <C> <C>
Worldwide Growth Portfolio - Institutional
Shares 64.45% 33.60% 29.71%
Morgan Stanley Capital International World
Index* 24.93% 19.76% 16.41%
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</TABLE>
* The Morgan Stanley Capital International World Index is a
market capitalization weighted index composed of companies
representative of the market structure of 21 Developed Market
countries in North America, Europe and the Asia/Pacific
Region.
Since Global Life Sciences Portfolio and Global Technology
Portfolio did not commence operations until January 15, 2000,
there is no performance available as of the date of this
prospectus.
The Equity Portfolios' past performance does not necessarily
indicate how they will perform in the future.
Janus Aspen Series prospectus 11
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FIXED-INCOME PORTFOLIOS
The Fixed-Income Portfolios are designed for long-term investors
who primarily seek current income.
1. WHAT ARE THE INVESTMENT OBJECTIVES OF THE FIXED-INCOME PORTFOLIOS?
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- FLEXIBLE INCOME PORTFOLIO seeks to obtain maximum total
return, consistent with preservation of capital.
- HIGH-YIELD PORTFOLIO seeks to obtain high current income.
Capital appreciation is a secondary objective when
consistent with its primary objective.
The Trustees may change these objectives without a shareholder
vote and the Portfolios will notify you of any changes that are
material. If there is a material change to a Portfolio's
objective or policies, you should consider whether it remains an
appropriate investment for you. There is no guarantee that a
Portfolio will meet its objective.
2. WHAT ARE THE MAIN INVESTMENT STRATEGIES OF THE FIXED-INCOME PORTFOLIOS?
In addition to considering economic factors such as the effect of
interest rates on a Portfolio's investments, the portfolio
managers apply a "bottom up" approach in choosing investments. In
other words, they look mostly for income-producing securities
that meet their investment criteria one at a time. If a portfolio
manager is unable to find such investments, a Portfolio's assets
may be in cash or similar investments.
FLEXIBLE INCOME PORTFOLIO invests primarily in a wide variety of
income-producing securities such as corporate bonds and notes,
government securities and preferred stock. As a fundamental
policy, the Portfolio will invest at least 80% of its assets in
income-producing securities. The Portfolio may own an unlimited
amount of high-yield/high-risk bonds, and these securities may be
a big part of the portfolio.
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HIGH-YIELD PORTFOLIO normally invests at least 65% of its assets
in high-yield/high-risk fixed-income securities, and may at times
invest all of its assets in these securities.
3. WHAT ARE THE MAIN RISKS OF INVESTING IN THE FIXED-INCOME PORTFOLIOS?
Although the Fixed-Income Portfolios may be less volatile than
funds that invest most of their assets in common stocks, the
Portfolios' returns and yields will vary, and you could lose
money.
The Portfolios invest in a variety of fixed-income securities. A
fundamental risk is that the value of these securities will fall
if interest rates rise. Generally, the value of a fixed-income
portfolio will decrease when interest rates rise, which means the
Portfolio's NAV will likewise decrease. Another fundamental risk
associated with fixed-income funds is credit risk, which is the
risk that an issuer will be unable to make principal and interest
payments when due.
FLEXIBLE INCOME PORTFOLIO AND HIGH-YIELD PORTFOLIO may invest an
unlimited amount of their assets in high-yield/high-risk bonds,
also known as "junk" bonds which may be sensitive to economic
changes, political changes, or adverse developments specific to
the company that issued the bond. These bonds generally have a
greater credit risk than other types of fixed-income securities.
Because of these factors, the performance and NAV of the Fixed-
Income Portfolios may vary significantly, depending upon their
holdings of junk bonds.
An investment in these Portfolios is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
The following information provides some indication of the risks
of investing in the Fixed-Income Portfolios by showing how each
Fixed-Income Portfolio's performance has varied over time. The
bar charts depict the change in performance from year-to-year
during the period indicated, but do not include charges and
expenses attributable to any insurance product which would lower
Janus Aspen Series prospectus 13
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the performance illustrated. The Portfolios do not impose any
sales or other charges that would affect total return
computations. Total return figures include the effect of each
Portfolio's expenses. The tables compare the average annual
returns for the Shares of each Portfolio for the periods
indicated to a broad-based securities market index.
FLEXIBLE INCOME PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
(0.91%) 23.86% 9.19% 11.76% 9.11% 1.60%
1994 1995 1996 1997 1998 1999
Best Quarter: 2nd-1995 6.71% Worst Quarter: 2nd-1999 (1.21%)
Average annual total return for periods ended 12/31/99
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<TABLE>
<CAPTION>
Since Inception
1 year 5 years (9/13/93)
<S> <C> <C> <C>
Flexible Income Portfolio - Institutional
Shares 1.60% 10.88% 8.50%
Lehman Brothers Gov't/Corp Bond Index* (2.15%) 7.61% 5.40%
---------------------------------------
</TABLE>
* Lehman Brothers Gov't/Corp Bond Index is composed of all bonds
that are of investment grade with at least one year until
maturity.
14 Janus Aspen Series prospectus
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HIGH-YIELD PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
15.98% 1.26% 6.85%
1997 1998 1999
Best Quarter: 1st-1998 5.52% Worst Quarter: 3rd-1998 (6.07%)
Average annual total return for periods ended 12/31/99
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<TABLE>
<CAPTION>
Since Inception
1 year (5/1/96)
<S> <C> <C>
High-Yield Portfolio - Institutional Shares 6.85% 9.83%
Lehman Brothers High-Yield Bond Index* 2.39% 7.06%
-----------------------------
</TABLE>
* Lehman Brothers High-Yield Bond Index is composed of
fixed-rate, publicly issued, noninvestment grade debt.
The Fixed-Income Portfolios' past performance does not
necessarily indicate how they will perform in the future.
MONEY MARKET PORTFOLIO
Money Market Portfolio is designed for investors who seek current
income.
1. WHAT IS THE INVESTMENT OBJECTIVE OF MONEY MARKET PORTFOLIO?
- --------------------------------------------------------------------------------
- MONEY MARKET PORTFOLIO seeks maximum current income to the
extent consistent with stability of capital.
The Trustees may change this objective without a shareholder vote
and the Portfolio will notify you of any changes that are
material. If there is a material change in the Portfolio's
objective or policies, you should consider whether it remains an
appropriate investment for you. There is no guarantee that the
Portfolio will meet its objective.
Janus Aspen Series prospectus 15
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2. WHAT ARE THE MAIN INVESTMENT STRATEGIES OF MONEY MARKET PORTFOLIO?
MONEY MARKET PORTFOLIO will invest only in high-quality, short-
term money market instruments that present minimal credit risks,
as determined by Janus Capital. The Portfolio invests primarily
in high quality debt obligations and obligations of financial
institutions. Debt obligations may include commercial paper,
notes and bonds, and variable amount master demand notes.
Obligations of financial institutions include certificates of
deposit and time deposits.
3. WHAT ARE THE MAIN RISKS OF INVESTING IN MONEY MARKET PORTFOLIO?
The Portfolio's yields will vary as the short-term securities in
the portfolio mature and the proceeds are reinvested in
securities with different interest rates. Over time, the real
value of the Portfolio's yield may be eroded by inflation.
Although Money Market Portfolio invests only in high-quality,
short-term money market instruments, there is a risk that the
value of the securities it holds will fall as a result of changes
in interest rates, an issuer's actual or perceived
credit-worthiness or an issuer's ability to meet its obligations.
An investment in Money Market Portfolio is not a deposit of a
bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although
the Portfolio seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in
Money Market Portfolio.
The following information provides some indication of the risks
of investing in the Money Market Portfolio by showing how Money
Market Portfolio's performance has varied over time. The bar
chart depicts the change in performance from year to year, but
does not include charges and expenses attributable to any
insurance product which would lower the performance illustrated.
The Portfolio does not impose any sales or other charges that
would affect total return or yield computations. Total return and
yield figures include the effect of the Portfolio's expenses.
16 Janus Aspen Series prospectus
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MONEY MARKET PORTFOLIO - INSTITUTIONAL SHARES
Annual returns for periods ended 12/31
5.05% 5.17% 5.36% 4.98%
1996 1997 1998 1999
Best Quarter: 4th-1999 1.40% Worst Quarter: 1st-1999 1.09%
The 7-day yield for the Portfolio's Shares on December 31, 1999
was 5.70%. For the Portfolio's current yield, call the Janus
XpressLine(TM) at 1-888-979-7737.
Money Market Portfolio's past performance does not necessarily
indicate how it will perform in the future.
Janus Aspen Series prospectus 17
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FEES AND EXPENSES
SHAREHOLDER FEES, such as sales loads, redemption fees or
exchange fees, are charged directly to an investor's account. All
Janus funds are no-load investments, so you will not pay any
shareholder fees when you buy or sell shares of the Portfolios.
However, each variable insurance contract involves fees and
expenses not described in this prospectus. See the accompanying
contract prospectus for information regarding contract fees and
expenses and any restrictions on purchases or allocations.
ANNUAL FUND OPERATING EXPENSES are paid out of a Portfolio's
assets and include fees for portfolio management, maintenance of
shareholder accounts, shareholder servicing, accounting and other
services. You do not pay these fees directly but, as the example
on the next page shows, these costs are borne indirectly by all
shareholders.
18 Janus Aspen Series prospectus
<PAGE>
This table and example are designed to assist participants in qualified plans
that invest in the Shares of the Portfolios in understanding the fees and
expenses that you may pay 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 FEES AND EXPENSES, AS THE
TABLE AND EXAMPLE DO NOT REFLECT DEDUCTIONS AT THE SEPARATE ACCOUNT LEVEL OR
CONTRACT LEVEL FOR ANY CHARGES THAT MAY BE INCURRED UNDER A CONTRACT.
<TABLE>
<CAPTION>
Total Annual Fund Total Annual Fund
Management Other Operating Expenses Total Operating Expenses
Fee Expenses Without Waivers* Waivers With Waivers*
<S> <C> <C> <C> <C> <C>
Growth Portfolio 0.65% 0.02% 0.67% N/A 0.67%
Aggressive Growth Portfolio 0.65% 0.02% 0.67% N/A 0.67%
Capital Appreciation
Portfolio 0.65% 0.04% 0.69% N/A 0.69%
Balanced Portfolio 0.65% 0.02% 0.67% N/A 0.67%
Equity Income Portfolio 0.65% 0.63% 1.28% 0.03% 1.25%
Growth and Income Portfolio 0.65% 0.40% 1.05% N/A 1.05%
International Growth
Portfolio 0.65% 0.11% 0.76% N/A 0.76%
Worldwide Growth Portfolio 0.65% 0.05% 0.70% N/A 0.70%
Global Life Sciences
Portfolio 0.65% 0.19% 0.84% N/A 0.84%
Global Technology Portfolio 0.65% 0.13% 0.78% N/A 0.78%
Flexible Income Portfolio 0.65% 0.07% 0.72% N/A 0.72%
High-Yield Portfolio 0.75% 4.17% 4.92% 3.92% 1.00%
Money Market Portfolio 0.25% 0.18% 0.43% N/A 0.43%
</TABLE>
- --------------------------------------------------------------------------------
* Expenses (except for Global Technology and Global Life Sciences
Portfolios) are based upon expenses for the fiscal year ended December
31, 1999, restated to reflect a reduction in the management fee for
Growth, Aggressive Growth, Capital Appreciation, International Growth,
Worldwide Growth, Balanced, Equity Income and Growth and Income
Portfolios. Expenses for Global Technology and Global Life Sciences
Portfolios are based on the estimated expenses that those Portfolios
expect to incur in their initial fiscal year. Expenses are stated both
with and without contractual waivers by Janus Capital. Waivers, if
applicable, are first applied against the management fee and then
against other expenses, and will continue until at least the next annual
renewal of the advisory agreement. All expenses are shown without the
effect of any expense offset arrangements.
- --------------------------------------------------------------------------------
Janus Aspen Series prospectus 19
<PAGE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS BASED ON EXPENSES WITHOUT WAIVERS (IF ANY).
This example is intended to help you compare the cost of investing in
the Portfolios with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in each of the Portfolios for
the time periods indicated then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5%
return each year, and that the Portfolios' operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
---------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $ 68 $ 214 $ 373 $ 835
Aggressive Growth Portfolio $ 68 $ 214 $ 373 $ 835
Capital Appreciation Portfolio $ 70 $ 221 $ 384 $ 859
Balanced Portfolio $ 68 $ 214 $ 373 $ 835
Equity Income Portfolio $130 $ 406 $ 702 $1,545
Growth and Income Portfolio $107 $ 334 $ 579 $1,283
International Growth Portfolio $ 78 $ 243 $ 422 $ 942
Worldwide Growth Portfolio $ 72 $ 224 $ 390 $ 871
Global Life Sciences Portfolio $ 86 $ 268 N/A N/A
Global Technology Portfolio $ 80 $ 249 N/A N/A
Flexible Income Portfolio $ 74 $ 230 $ 401 $ 894
High-Yield Portfolio $492 $1,478 $2,465 $4,940
Money Market Portfolio $ 44 $ 138 $ 241 $ 542
</TABLE>
20 Janus Aspen Series prospectus
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENTS
STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
Each of the Portfolios has a similar investment objective and
similar principal investment strategies to a Janus retail fund:
<TABLE>
<S> <C>
Growth Portfolio Janus Fund
Aggressive Growth Portfolio Janus Enterprise Fund
Capital Appreciation Portfolio Janus Twenty Fund
Balanced Portfolio Janus Balanced Fund
Equity Income Portfolio Janus Equity Income Fund
Growth and Income Portfolio Janus Growth and Income Fund
International Growth Portfolio Janus Overseas Fund
Worldwide Growth Portfolio Janus Worldwide Fund
Global Life Sciences Portfolio Janus Global Life Sciences Fund
Global Technology Portfolio Janus Global Technology Fund
Flexible Income Portfolio Janus Flexible Income Fund
High-Yield Portfolio Janus High-Yield Fund
Money Market Portfolio Janus Money Market Fund
</TABLE>
Although it is anticipated that each Portfolio and its
corresponding retail fund will hold similar securities,
differences in asset size, cash flow needs and other factors may
result in differences in investment performance. The 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 fees and expenses.
EQUITY PORTFOLIOS
This section takes a closer look at the investment objectives of
each of the Equity Portfolios, their principal investment
strategies and certain risks of investing in the Equity
Portfolios. Strategies and policies that are noted as
"fundamental" cannot be changed without a shareholder vote.
Please carefully review the "Risks" section of this Prospectus on
pages 35-40 for a discussion of risks associated with certain
investment techniques. We've also included a Glossary with
descriptions of investment terms used throughout this Prospectus.
Janus Aspen Series prospectus 21
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
DOMESTIC EQUITY PORTFOLIOS
GROWTH PORTFOLIO
Growth Portfolio seeks long-term growth of capital in a manner
consistent with the preservation of capital. It pursues its
objective by investing primarily in common stocks selected for
their growth potential. Although the Portfolio can invest in
companies of any size, it generally invests in larger, more
established companies.
AGGRESSIVE GROWTH PORTFOLIO
Aggressive Growth Portfolio seeks long-term growth of capital. It
pursues its objective by investing primarily in common stocks
selected for their growth potential, and normally invests at
least 50% of its equity assets in medium-sized companies. Medium-
sized companies are those whose market capitalization falls
within the range of companies in the S&P MidCap 400 Index. Market
capitalization is a commonly used measure of the size and value
of a company. The market capitalizations within the Index will
vary, but as of December 31, 1999, they ranged from approximately
$170 million to $37 billion.
CAPITAL APPRECIATION PORTFOLIO
Capital Appreciation Portfolio seeks long-term growth of capital.
It pursues its objective by investing primarily in common stocks
selected for their growth potential. The Portfolio may invest in
companies of any size, from larger, well-established companies to
smaller, emerging growth companies.
BALANCED PORTFOLIO
Balanced Portfolio seeks long-term capital growth, consistent
with preservation of capital and balanced by current income. It
pursues its objective by normally 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
22 Janus Aspen Series prospectus
<PAGE>
potential. This Portfolio normally invests at least 25% of its
assets in fixed-income securities.
EQUITY INCOME PORTFOLIO
Equity Income Portfolio seeks current income and long-term growth
of capital. It pursues its objective by normally emphasizing
investments in common stock, and growth potential is a
significant investment consideration. The Portfolio tries to
provide a lower level of volatility than the S&P 500 Index.
Normally, it invests at least 65% of its assets in
income-producing equity securities including common and preferred
stocks, warrants and securities that are convertible to common or
preferred stocks.
GROWTH AND INCOME PORTFOLIO
Growth and Income Portfolio seeks long-term capital growth and
current income. It normally emphasizes investments in common
stocks. It will normally invest up to 75% of its assets in equity
securities selected primarily for their growth potential, and at
least 25% of its assets in securities the portfolio manager
believes have income potential. Because of this investment
strategy, the Portfolio is not designed for investors who need
consistent income.
GLOBAL/INTERNATIONAL EQUITY PORTFOLIOS
INTERNATIONAL GROWTH PORTFOLIO
International Growth Portfolio seeks long-term growth of capital.
Normally, the Portfolio pursues its objective by investing 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
Worldwide Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital. It pursues
its
Janus Aspen Series prospectus 23
<PAGE>
objective by investing primarily in common stocks of companies of
any size throughout the world. The 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.
GLOBAL LIFE SCIENCES PORTFOLIO
Global Life Sciences Portfolio seeks long-term growth of capital.
It pursues its objective by investing primarily in equity
securities of U.S. and foreign companies selected for their
growth potential. Normally, it invests at least 65% of its total
assets in securities of companies that the portfolio manager
believes have a life science orientation. As a fundamental
policy, the Portfolio normally invests at least 25% of its total
assets, in the aggregate, in the following industry groups:
health care; pharmaceuticals; agriculture; cosmetics/personal
care; and biotechnology.
GLOBAL TECHNOLOGY PORTFOLIO
Global Technology Portfolio seeks long-term growth of capital. It
pursues its objective by investing primarily in equity securities
of U.S. and foreign companies selected for their growth
potential. Normally, it invests at least 65% of its total assets
in securities of companies that the portfolio manager believes
will benefit significantly from advances or improvements in
technology. These companies generally fall into two categories:
a. Companies that the portfolio manager believes have or will
develop products, processes or services that will provide
significant technological advancements or improvements; and
b. Companies that the portfolio manager believes rely extensively
on technology in connection with their operations or services.
24 Janus Aspen Series prospectus
<PAGE>
The following questions and answers are designed to help you better understand
the Equity Portfolios' principal investment strategies.
1. HOW ARE COMMON STOCKS SELECTED?
Each of the Portfolios may invest substantially all of its assets
in common stocks if its portfolio manager believes that common
stocks will appreciate in value. The portfolio managers generally
take a "bottom up" approach to selecting companies. In other
words, they seek to identify individual companies with earnings
growth potential that may not be recognized by the market at
large. They make this assessment by looking at companies one at a
time, regardless of size, country of organization, place of
principal business activity, or other similar selection criteria.
Except for Balanced Portfolio, Equity Income Portfolio and Growth
and Income Portfolio, realization of income is not a significant
consideration when choosing investments for the Portfolios.
Income realized on the Portfolios' investments may be incidental
to their objectives. In the case of Balanced Portfolio, Equity
Income Portfolio and Growth and Income Portfolio, a portfolio
manager may consider dividend-paying characteristics to a greater
degree in selecting common stock.
2. ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. The portfolio managers seek companies that meet
their selection criteria, regardless of where a company is
located. 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. There are no limitations on the
countries in which the Portfolios may invest and the Portfolios
may at times have significant foreign exposure.
Janus Aspen Series prospectus 25
<PAGE>
3. WHAT DOES "MARKET CAPITALIZATION" MEAN?
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. Although the other Equity Portfolios
offered by this Prospectus do not emphasize companies of any
particular size, Portfolios with a larger asset base are more
likely to invest in larger, more established issuers.
4. HOW DO BALANCED PORTFOLIO, EQUITY INCOME PORTFOLIO AND GROWTH AND INCOME
PORTFOLIO DIFFER FROM EACH OTHER?
Growth and Income Portfolio places a greater emphasis on
aggressive growth stocks and may derive a greater portion of its
income from dividend-paying common stocks. Because of these
factors, its NAV can be expected to fluctuate more than Balanced
Portfolio or Equity Income Portfolio. Although Equity Income
Portfolio invests substantially all of its assets in common
stocks, it emphasizes investments in dividend-paying common
stocks and other equity securities characterized by relatively
greater price stability, and thus may be expected to be less
volatile than Growth and Income Portfolio, as discussed in more
detail below. Balanced Portfolio places a greater emphasis on the
income component of its portfolio and invests to a greater degree
in securities selected primarily for their income potential. As a
result it is expected to be less volatile than Equity Income
Portfolio and Growth and Income Portfolio.
5. HOW DOES EQUITY INCOME PORTFOLIO TRY TO LIMIT PORTFOLIO VOLATILITY?
Equity Income 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 this Portfolio is expected to
result primarily from investments in dividend-paying common
stocks and other equity securities characterized by relatively
greater price stability. The greater price stability sought by
Equity Income
26 Janus Aspen Series prospectus
<PAGE>
Portfolio may be characteristic of companies that generate above
average free cash flows. A company may use free 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 this Portfolio's securities and may hold securities
selected solely for their growth potential.
6. HOW ARE ASSETS ALLOCATED BETWEEN THE GROWTH AND INCOME COMPONENTS OF BALANCED
PORTFOLIO'S AND GROWTH AND INCOME PORTFOLIO'S HOLDINGS?
Balanced Portfolio and Growth and Income Portfolio shift assets
between the growth and income components of their holdings based
on the portfolio managers' analysis of relevant market, financial
and economic conditions. If a portfolio manager believes that
growth securities will provide better returns than the yields
then available or expected on income-producing securities, that
Portfolio will place a greater emphasis on the growth component.
7. WHAT TYPES OF SECURITIES MAKE UP THE GROWTH COMPONENT OF THE BALANCED
PORTFOLIO, EQUITY INCOME PORTFOLIO AND GROWTH AND INCOME PORTFOLIO?
The growth component of these portfolios is expected to consist
primarily of common stocks, but may also include warrants,
preferred stocks or convertible securities selected primarily for
their growth potential.
8. WHAT TYPES OF SECURITIES MAKE UP THE INCOME COMPONENT OF BALANCED PORTFOLIO'S
AND GROWTH AND INCOME PORTFOLIO'S HOLDINGS?
The income component of Balanced Portfolio and Growth and Income
Portfolio is expected to consist of securities that the portfolio
managers believe 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 a Portfolio if they currently pay dividends
or the portfolio manager believes they have the potential for
either increasing their dividends or commencing dividends, if
none are currently paid.
Janus Aspen Series prospectus 27
<PAGE>
9. WHAT DOES "LIFE SCIENCE ORIENTATION" MEAN IN RELATION TO GLOBAL LIFE SCIENCES
PORTFOLIO?
Generally speaking, the "life sciences" relate to maintaining or
improving quality of life. So, for example, companies with a
"life science orientation" include companies engaged in research,
development, production or distribution of products or services
related to health and personal care, medicine or pharmaceuticals.
Life science oriented companies also include companies that the
portfolio manager believes have growth potential primarily as a
result of particular products, technology, patents or other
market advantages in the life sciences. Life sciences encompass a
variety of industries, including health care, nutrition,
agriculture, medical diagnostics, nuclear and biochemical
research and development and health care facilities ownership and
operation.
10. HOW DOES GLOBAL TECHNOLOGY PORTFOLIO'S INDUSTRY POLICY DIFFER FROM THAT OF
GLOBAL LIFE SCIENCES PORTFOLIO?
Unlike Global Life Sciences Portfolio, Global Technology
Portfolio will not concentrate its investments in any particular
industry or group of related industries. As a result, its
portfolio manager may have more flexibility to find companies
that he believes will benefit from advances or improvements in
technology in a number of industries. Nevertheless, the Portfolio
may hold a significant portion of its assets in industries such
as: aerospace/defense; biotechnology; computers; office/business
equipment; semi-conductors; software; telecommunications; and
telecommunications equipment.
28 Janus Aspen Series prospectus
<PAGE>
FIXED-INCOME PORTFOLIOS
This section takes a closer look at the investment objectives of
each of the Fixed-Income Portfolios, their principal investment
strategies and certain risks of investing in the Fixed-Income
Portfolios. Strategies and policies that are noted as
"fundamental" cannot be changed without a shareholder vote.
Please carefully review the "Risks" section of this Prospectus on
pages 35-40 for a discussion of risks associated with certain
investment techniques. We've also included a Glossary with
descriptions of investment terms used throughout this Prospectus.
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
In addition to considering economic factors such as the effect of
interest rates on a Portfolio's investments, the portfolio
managers apply a "bottom up" approach in choosing investments. In
other words, they look mostly for income-producing securities
that meet their investment criteria one at a time. If a portfolio
manager is unable to find such investments, much of a Portfolio's
assets may be in cash or similar investments.
FLEXIBLE INCOME PORTFOLIO
Flexible Income Portfolio seeks to obtain maximum total return,
consistent with preservation of capital. It pursues its objective
by primarily investing in a wide variety of income-producing
securities such as corporate bonds and notes, government
securities and preferred stock. As a fundamental policy, the
Portfolio will invest at least 80% of its assets in
income-producing securities. The Portfolio may own an unlimited
amount of high-yield/high-risk bonds, and these may be a big part
of the portfolio. This Portfolio generates total return from a
combination of current income and capital appreciation, but
income is usually the dominant portion.
HIGH-YIELD PORTFOLIO
High-Yield Portfolio seeks to obtain high current income. Capital
appreciation is a secondary objective when consistent with its
Janus Aspen Series prospectus 29
<PAGE>
primary objective. It pursues its objectives by normally
investing 65% of its assets in high-yield/high-risk securities,
and may at times invest all of its assets in these securities.
The following questions and answers are designed to help you better understand
the Fixed-Income Portfolios' principal investment strategies.
1. HOW DO INTEREST RATES AFFECT THE VALUE OF MY INVESTMENT?
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. High-yield bond prices are generally less
directly responsive to interest rate changes than investment
grade issues and may not always follow this pattern. A bond
fund's average-weighted effective maturity and its duration are
measures of how the fund may react to interest rate changes.
2. HOW DO THE FIXED-INCOME PORTFOLIOS MANAGE INTEREST RATE RISK?
Each Fixed-Income Portfolio may vary the average-weighted
effective maturity of its assets to reflect its portfolio
manager's analysis of interest rate trends and other factors. A
Portfolio's average-weighted effective maturity will tend to be
shorter when the 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 risks.
3. 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. Some
types of bonds may also have an "effective maturity" that is
shorter than the stated date due to prepayment or call
provisions. 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
30 Janus Aspen Series prospectus
<PAGE>
held by a Portfolio with each effective maturity "weighted"
according to the percentage of net assets that it represents.
4. 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 portfolio is calculated by averaging the
duration of bonds held by a fund 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.
5. WHAT IS A HIGH-YIELD/HIGH-RISK BOND?
A high-yield/high-risk bond (also called a "junk" bond) is a bond
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.
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 Money Market Portfolio. The
percentage limitations included in these policies and elsewhere
in this Prospectus apply at the time of purchase of the security.
So, 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 manager believes that market conditions are
unfavorable for profitable investing, or when he or she is
otherwise unable to locate attractive investment opportunities,
the Portfolios' cash or similar investments may increase. In
other
Janus Aspen Series prospectus 31
<PAGE>
words, the Portfolios do not always stay fully invested in stocks
and bonds. Cash or similar investments generally are a residual -
they represent the assets that remain after a portfolio manager
has committed available assets to desirable investment
opportunities. However, a portfolio manager may also temporarily
increase a Portfolio's cash position to protect its assets or
maintain liquidity. Partly because the portfolio managers act
independently of each other, the cash positions of the Portfolios
may vary significantly.
When a Portfolio's investments in cash or similar investments
increase, it may not participate in market advances or declines
to the same extent that it would if the Portfolio remained more
fully invested in stocks or bonds.
OTHER TYPES OF INVESTMENTS
The Equity Portfolios invest primarily in domestic and foreign
equity securities, which may include preferred stocks, common
stocks, warrants and securities convertible into common or
preferred stocks. The Equity Portfolios also invest in domestic
and foreign equity securities with varying degrees of emphasis on
income. The Portfolios may also invest to a lesser degree in
other types of securities. These securities (which are described
in the Glossary) may include:
- debt securities
- indexed/structured securities
- high-yield/high-risk bonds (less than 35% of each Portfolio's
assets)
- options, futures, forwards, swaps and other types of
derivatives for hedging purposes or for non-hedging purposes
such as seeking to enhance return
- securities purchased on a when-issued, delayed delivery or
forward commitment basis
The Fixed-Income Portfolios invest primarily in fixed-income
securities which may include corporate bonds and notes, govern-
32 Janus Aspen Series prospectus
<PAGE>
ment securities, preferred stock, high-yield/high-risk
fixed-income securities and municipal obligations. The Portfolios
may also invest to a lesser degree in other types of securities.
These securities (which are described in the Glossary) may
include:
- common stocks
- mortgage- and asset-backed securities
- zero coupon, pay-in-kind and step coupon securities
- options, futures, forwards, swaps and other types of
derivatives for hedging purposes or for non-hedging purposes
such as seeking to enhance return
- securities purchased on a when-issued, delayed delivery or
forward commitment basis
ILLIQUID INVESTMENTS
Each Portfolio may invest up to 15% of its net assets in illiquid
investments. An illiquid investment is a security or other
position that cannot be disposed of quickly in the normal course
of business. For example, some securities are not registered
under U.S. securities laws and cannot be sold to the U.S. public
because of SEC regulations (these are known as "restricted
securities"). Under procedures adopted by the Portfolios'
Trustees, certain restricted securities may be deemed liquid, and
will not be counted toward this 15% limit.
FOREIGN SECURITIES
The Portfolios may 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.
Janus Aspen Series prospectus 33
<PAGE>
SPECIAL SITUATIONS
Each Portfolio may invest in special situations. 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. A Portfolio's performance could suffer if the
anticipated development in a "special situation" investment does
not occur or does not attract the expected attention.
PORTFOLIO TURNOVER
The Portfolios generally intend to purchase securities for
long-term investment although, to a limited extent, a Portfolio
may purchase securities in anticipation of relatively short-term
price gains. Short-term transactions may also 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 investment decision. 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. Changes are made in a
Portfolio's holdings whenever its portfolio manager believes such
changes are desirable. Portfolio turnover rates are generally not
a factor in making buy and sell decisions.
Global Technology Portfolio may invest in companies with
relatively short product cycles, for example, 6 to 9 months.
Consequently its portfolio turnover may be more frequent.
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. Higher costs
associated with increased portfolio turnover may offset gains in
a Portfolio's performance.
34 Janus Aspen Series prospectus
<PAGE>
RISKS FOR EQUITY PORTFOLIOS
Because the Portfolios may invest substantially all of their
assets in common stocks, the main risk is the risk that the value
of the stocks they hold might decrease in response to the
activities of an individual company or in response to general
market and/or economic conditions. If this occurs, a Portfolio's
share price may also decrease. A Portfolio's performance may also
be affected by risks specific to certain types of investments,
such as foreign securities, derivative investments,
non-investment grade debt securities, initial public offerings
(IPOs) or companies with relatively small market capitalizations.
IPOs and other investment techniques may have a magnified
performance impact on a portfolio with a small asset base. A
portfolio may not experience similar performance as its assets
grow. Global Life Sciences Portfolio's and Global Technology
Portfolio's performance may also be affected by industry risk.
The following questions and answers are designed to help you better understand
some of the risks of investing in the Equity Portfolios.
1. THE PORTFOLIOS MAY INVEST IN SMALLER OR NEWER COMPANIES. DOES THIS CREATE ANY
SPECIAL RISKS?
Many attractive investment opportunities may be smaller, start-up
companies offering emerging products or services. Smaller or
newer companies may suffer more significant losses as well as
realize more substantial growth than larger or more established
issuers because they may lack depth of management, be unable to
generate funds necessary for growth or potential development, or
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 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 wide price fluctuations. Investments in such
Janus Aspen Series prospectus 35
<PAGE>
companies tend to be more volatile and somewhat more speculative.
2. HOW DOES THE NONDIVERSIFIED STATUS OF AGGRESSIVE GROWTH PORTFOLIO, CAPITAL
APPRECIATION PORTFOLIO, GLOBAL LIFE SCIENCES PORTFOLIO AND GLOBAL TECHNOLOGY
PORTFOLIO AFFECT THEIR RISK?
Diversification is a way to reduce risk by investing 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. This fluctuation, if
significant, may affect the performance of a Portfolio.
RISKS FOR FIXED-INCOME PORTFOLIOS
Because the Portfolios invest substantially all of their assets
in fixed-income securities, they are subject to risks such as
credit or default risks, and decreased value due to interest rate
increases. A Portfolio's performance may also be affected by
risks to certain types of investments, such as foreign
securities, derivative instruments and initial public offerings
(IPOs). IPOs and other investment techniques may have a magnified
performance impact on a portfolio with a small asset base. A
portfolio may not experience similar performance as its assets
grow.
The following questions and answers are designed to help you better understand
some of the risks of investing in the Fixed-Income Portfolios.
1. HOW DO THE FIXED-INCOME PORTFOLIOS DIFFER FROM EACH OTHER IN TERMS OF PRIMARY
INVESTMENT TYPE, CREDIT RISK AND INTEREST RATE RISK?
Flexible Income Portfolio and High-Yield Portfolio invest
primarily in corporate bonds. High-Yield Portfolio's credit risk
is generally higher than Flexible Income Portfolio. Flexible
Income Portfolio's interest rate risk is generally higher than
High-Yield Portfolio.
36 Janus Aspen Series prospectus
<PAGE>
2. WHAT IS MEANT BY "CREDIT QUALITY" AND WHAT ARE THE RISKS ASSOCIATED WITH IT?
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.
3. HOW IS CREDIT QUALITY MEASURED?
Ratings published by nationally recognized statistical rating
agencies such as Standard & Poor's Ratings Service and Moody's
Investors Service, Inc. 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 "Explanation of Rating
Categories" on pages 82-84 for a description of rating
categories.
RISKS COMMON TO ALL NON-MONEY MARKET PORTFOLIOS
The following questions and answers discuss risks that apply to all Portfolios
other than Money Market Portfolio.
1. HOW COULD THE PORTFOLIOS' INVESTMENTS IN FOREIGN SECURITIES AFFECT THEIR
PERFORMANCE?
The Portfolios may invest without limit in foreign securities
either indirectly (e.g., depositary receipts) or directly in
foreign markets. Investments in foreign securities, including
those of foreign governments, may involve greater risks than
investing in domestic securities because the Portfolios'
performance may depend on issues other than the performance of a
particular company. These issues include:
Janus Aspen Series prospectus 37
<PAGE>
- CURRENCY RISK. As long as a Portfolio holds a foreign security,
its value will be affected by the value of the local currency
relative to the U.S. dollar. When a Portfolio sells a foreign
denominated security, its value may be worth less in U.S.
dollars even if the security increases in value in its home
country. U.S. dollar denominated securities of foreign issuers
may also be affected by currency risk.
- POLITICAL AND ECONOMIC RISK. Foreign investments may be subject
to heightened political and economic risks, particularly in
emerging markets which may have relatively unstable
governments, immature economic structures, national policies
restricting investments by foreigners, different legal systems,
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.
- REGULATORY RISK. There may be less government supervision of
foreign markets. As a result, foreign issuers may not be
subject to the uniform accounting, auditing and financial
reporting standards and practices applicable to domestic
issuers and there may be less publicly available information
about foreign issuers.
- MARKET RISK. Foreign securities markets, particularly those of
emerging market 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.
- TRANSACTION COSTS. Costs of buying, selling and holding foreign
securities, including brokerage, tax and custody costs, may be
higher than those involved in domestic transactions.
38 Janus Aspen Series prospectus
<PAGE>
2. ARE THERE SPECIAL RISKS ASSOCIATED WITH INVESTMENTS IN HIGH-YIELD/HIGH-RISK
BONDS?
High-yield/high-risk bonds (or "junk" bonds) are bonds rated
below investment grade by the primary rating agencies such as
Standard & Poor's and Moody's. The value of lower quality bonds
generally is more dependent on credit risk, or the ability of the
issuer to meet interest and principal payments, than investment
grade bonds. Issuers of high-yield bonds may not be as strong
financially as those issuing bonds with higher credit ratings and
are more vulnerable to real or perceived economic changes,
political changes or adverse developments specific to the issuer.
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 assets in
high-yield/high-risk bonds, investors should be willing to
tolerate a corresponding increase in the risk of significant and
sudden changes in NAV.
Please refer to "Explanation of Rating Categories" on pages 82-84
for a description of bond rating categories.
3. HOW DO THE PORTFOLIOS TRY TO REDUCE RISK?
The Portfolios may use futures, options, swaps and other
derivative instruments to "hedge" or protect their portfolios
from adverse movements in securities prices and interest rates.
The Portfolios may also use a variety of currency hedging
techniques, including forward currency contracts, to manage
exchange rate risk. The portfolio managers believe the use of
these instruments will benefit the Portfolios. However, a
Portfolio's performance could be worse than if the Portfolio had
not used such instruments if a portfolio manager's judgement
proves incorrect. Risks associated with the use of derivative
instruments are described in the SAI.
4. WHAT IS "INDUSTRY RISK"?
Industry risk is the possibility that a group of related stocks
will decline in price due to industry-specific developments.
Companies
Janus Aspen Series prospectus 39
<PAGE>
in the same or similar industries may share common
characteristics and are more likely to react similarly to
industry-specific market or economic developments. In the life
sciences, for example, many companies are subject to government
regulation and approval of their products and services, which may
affect their price or availability. In addition, the products and
services offered by these companies may quickly become obsolete
in the face of scientific or technological developments. The
economic outlook of such companies may fluctuate dramatically due
to changes in regulatory or competitive environments. In
technology-related industries, competitive pressures may have a
significant effect on the performance of companies in which
Global Technology Portfolio may invest. In addition, technology
and technology-related companies often progress at an accelerated
rate, and these companies may be subject to short product cycles
and aggressive pricing which may increase their volatility.
Global Life Sciences Portfolio invests in a concentrated
portfolio, which may result in greater exposure to related
industries. As a result, the Portfolio may be more volatile than
a less concentrated portfolio. Although Global Technology
Portfolio does not "concentrate" in a specific group of
industries, it may, at times, have significant exposure to
companies in a variety of technology-related industries.
40 Janus Aspen Series prospectus
<PAGE>
MONEY MARKET PORTFOLIO
This section takes a closer look at the investment objective of
Money Market Portfolio, its principal investment strategies and
certain risks of investing in the Portfolio. Strategies and
policies that are noted as "fundamental" cannot be changed
without a shareholder vote.
Money Market Portfolio is subject to certain specific SEC rule
requirements. Among other things, the Portfolio is limited to
investing in U.S. dollar-denominated instruments with a remaining
maturity of 397 days or less (as calculated pursuant to Rule 2a-7
under the 1940 Act).
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
Money Market Portfolio seeks maximum current income to the extent
consistent with stability of capital. It pursues its objective by
investing primarily in high quality debt obligations and
obligations of financial institutions. Debt obligations may
include commercial paper, notes and bonds, and variable amount
master demand notes. Obligations of financial institutions
include certificates of deposit and time deposits.
Money Market Portfolio will:
- invest in high quality, short-term money market instruments
that present minimal credit risks, as determined by Janus
Capital
- 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)
- maintain a dollar-weighted average portfolio maturity of 90
days or less
TYPES OF INVESTMENTS
Money Market Portfolio invests primarily in:
- high quality debt obligations
- obligations of financial institutions
Janus Aspen Series prospectus 41
<PAGE>
The Portfolio may also invest (to a lesser degree) in:
- U.S. Government Securities (securities issued or guaranteed by
the U.S. government, its agencies and instrumentalities)
- municipal securities
DEBT OBLIGATIONS
The Portfolio may invest in U.S. dollar denominated debt
obligations. Debt obligations include:
- commercial paper
- notes and bonds
- 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)
- privately issued commercial paper or other securities that are
restricted as to disposition under the federal securities laws
OBLIGATIONS OF FINANCIAL INSTITUTIONS
Examples of obligations of financial institutions include:
- negotiable certificates of deposit, bankers' acceptances, time
deposits and other obligations 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
- 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)
- other U.S. dollar-denominated obligations of foreign banks
having total assets in excess of ten billion dollars that Janus
42 Janus Aspen Series prospectus
<PAGE>
Capital believes are of an investment quality comparable to
obligations of U.S. banks in which the Portfolio may invest
Foreign, 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.
INVESTMENT TECHNIQUES
The following is a description of other investment techniques
that Money Market Portfolio may use:
PARTICIPATION INTERESTS
A participation interest gives Money Market Portfolio a
proportionate, undivided interest in underlying debt securities
and sometimes carries a demand feature.
DEMAND FEATURES
Demand features give Money Market Portfolio the right to resell
securities at specified periods prior to their maturity dates.
Demand features may shorten the life of a variable or floating
rate security, enhance the instrument's credit quality and
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 Money Market Portfolio's
investments may be dependent in part on the credit quality of the
banks supporting Money Market Portfolio's 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.
Janus Aspen Series prospectus 43
<PAGE>
VARIABLE AND FLOATING RATE SECURITIES
Money Market Portfolio may invest in securities which 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 an interest rate
index or market interest rate. Variable and floating rate
securities are subject to changes in value based on changes in
market interest rates or changes in the issuer's or guarantor's
creditworthiness.
MORTGAGE- AND ASSET-BACKED SECURITIES
Money Market Portfolio may purchase fixed or variable rate
mortgage-backed securities issued by the Government National
Mortgage Association, Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, or other governmental or
government-related entity. The Portfolio may purchase other
mortgage- and asset-backed securities including securities backed
by automobile loans, equipment leases or credit card receivables.
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
Money Market Portfolio may enter into collateralized repurchase
agreements. 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 repurchase price reflects a
market rate of interest and is collateralized by cash or
securities.
If the seller of the securities underlying a repurchase agreement
fails to pay the agreed resale price on the agreed delivery date,
Money Market Portfolio may incur costs in disposing of the
collateral and may experience losses if there is any delay in its
ability to do so.
44 Janus Aspen Series prospectus
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
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 began serving as investment adviser to Janus Fund
in 1970 and currently serves as investment adviser to all of the
Janus retail funds, acts as sub-adviser for a number of
private-label mutual funds and provides separate account advisory
services for institutional accounts.
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.
Janus Aspen Series prospectus 45
<PAGE>
MANAGEMENT EXPENSES AND EXPENSE LIMITS
Each Portfolio pays Janus Capital a management fee which is
calculated daily and paid monthly. 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). In addition, the Shares of each Portfolio incur expenses
not assumed by Janus Capital, including transfer agent and
custodian fees and expenses, legal and auditing fees, printing
and mailing costs of sending reports and other information to
existing shareholders, and independent Trustees' fees and
expenses.
<TABLE>
<CAPTION>
Average Daily
Net Assets Annual Rate Expense Limit
Fee Schedule of Portfolio Percentage (%) Percentage (%)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio All Asset Levels 0.65 N/A
Aggressive Growth Portfolio
Capital Appreciation Portfolio
Balanced Portfolio
Growth and Income Portfolio
International Growth Portfolio
Worldwide Growth Portfolio
-----------------------------------------------------------------------------------------
Global Life Sciences Portfolio All Asset Levels 0.65 1.25(1)
Global Technology Portfolio
-----------------------------------------------------------------------------------------
Equity Income Portfolio All Asset Levels 0.65 1.25(2)
-----------------------------------------------------------------------------------------
Flexible Income Portfolio First $300 Million 0.65 N/A
Over $300 Million 0.55
-----------------------------------------------------------------------------------------
High-Yield Portfolio First $300 Million 0.75 1.00(2)
Over $300 Million 0.65
-----------------------------------------------------------------------------------------
Money Market Portfolio All Asset Levels 0.25 N/A
-----------------------------------------------------------------------------------------
</TABLE>
(1) Janus Capital has agreed to limit the Portfolios' expenses as
indicated until at least the next annual renewal of the
advisory agreements. As noted in the fee table on page 19,
however, the Portfolios' expenses without waivers are not
expected to exceed the expense limit.
(2) Janus Capital has agreed to limit the Portfolios' expenses as
indicated until at least the next annual renewal of the
advisory contracts.
46 Janus Aspen Series prospectus
<PAGE>
For the fiscal year ended December 31, 1999, each Portfolio paid
Janus Capital the following management fees based upon each
Portfolio's average net assets: 0.67% for Growth Portfolio, 0.68%
for Aggressive Growth Portfolio, 0.75% for Capital Appreciation
Portfolio, 0.67% for Balanced Portfolio, 0.75% for Equity Income
Portfolio, 0.75% for Growth and Income Portfolio, 0.73% for
International Growth Portfolio, 0.66% for Worldwide Growth
Portfolio, 0.65% for Flexible Income Portfolio, 0.75% for High-
Yield Portfolio and 0.25% for Money Market Portfolio. These rates
were based on a higher fee rate that was previously in effect for
certain of these Portfolios.
INVESTMENT PERSONNEL
PORTFOLIO MANAGERS
LAURENCE J. CHANG
- --------------------------------------------------------------------------------
is Executive Vice President and co-manager of
International Growth Portfolio and Worldwide Growth
Portfolio which he has co-managed since May 1998 and
December 1999, respectively. He has also co-managed Janus
Overseas Fund and Janus Worldwide Fund since April 1998
and September 1999, respectively. He served as assistant
portfolio manager for these Funds since 1996. Mr. Chang
joined Janus Capital in 1993 as a research analyst. He
received an undergraduate degree with honors in Religion
with a concentration in Philosophy from Dartmouth College
and a Masters Degree in Political Science from Stanford
University. He has earned the right to use the Chartered
Financial Analyst designation.
Janus Aspen Series prospectus 47
<PAGE>
DAVID J. CORKINS
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Growth and Income Portfolio which he has managed since its
inception. He is Executive Vice President and portfolio
manager of Janus Growth and Income Fund which he has
managed since August 1997. He is an assistant portfolio
manager of Janus Mercury Fund. He joined Janus in 1995 as
a research analyst specializing in domestic financial
services companies and a variety of foreign industries.
Prior to joining Janus, he was the Chief Financial Officer
of Chase U.S. Consumer Services, Inc., a Chase Manhattan
mortgage business. He holds a Bachelor of Arts in English
and Russian from Dartmouth and received his Master of
Business Administration from Columbia University in 1993.
JAMES P. GOFF
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Aggressive Growth Portfolio, which he has managed since
inception. Mr. Goff joined Janus Capital in 1988 and has
managed Janus Enterprise Fund since its inception. Mr.
Goff co-managed or managed Janus Venture Fund from
December 1993 to February 1997. He holds a Bachelor of
Arts in Economics from Yale University and he has earned
the right to use the Chartered Financial Analyst
designation.
HELEN YOUNG HAYES
- --------------------------------------------------------------------------------
is Executive Vice President and co-manager of
International Growth Portfolio and Worldwide Growth
Portfolio, which she has managed or co-managed since
inception. 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 she has
earned the right to use the Chartered Financial Analyst
designation.
48 Janus Aspen Series prospectus
<PAGE>
C. MIKE LU
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Global Technology Portfolio and Janus Global Technology
Fund, which he has managed since inception. He joined
Janus Capital in 1991 as a research analyst and has
consistently focused on companies in the technology
industry. Mr. Lu has a Bachelor of Arts in History and a
Bachelor of Arts in Economics from Yale University. Mr. Lu
has earned the right to use the Chartered Financial
Analyst designation.
THOMAS R. MALLEY
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Global Life Sciences Portfolio and Janus Global Life
Sciences Fund, which he has managed since inception. He
joined Janus Capital in 1991 as a research analyst and has
focused on companies in the health care, pharmaceutical
and biotechnology industries. Mr. Malley has a Bachelor of
Science in Biology from Stanford University and he has
earned the right to use the Chartered Financial Analyst
designation.
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 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 has earned the right to use the
Chartered Financial Analyst designation.
Janus Aspen Series prospectus 49
<PAGE>
KAREN L. REIDY
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Balanced Portfolio and Equity Income Portfolio as of
January 2000, and an assistant portfolio manager of Growth
Portfolio since 1998. She also manages Janus Balanced Fund
and Janus Equity Income Fund as of January 2000. She is
also assistant portfolio manager of Janus Fund. Prior to
joining Janus Capital in 1995, she worked for Price
Waterhouse as a manager in both the Mergers and
Acquisitions and Audit business units. In this capacity,
Ms. Reidy performed due diligence work for corporate
clients and oversaw audit engagements. She received an
undergraduate degree in Accounting from the University of
Colorado in 1989 and passed the CPA exam in 1992. She has
earned the right to use the Chartered Financial Analyst
designation.
BLAINE P. ROLLINS
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Growth Portfolio as of January 2000. He previously managed
Balanced Portfolio from May 1996 to December 1999 and
Equity Income Portfolio from its inception to December
1999. Mr. Rollins joined Janus Capital in 1990 and has
managed Janus Fund since January 2000, Janus Balanced Fund
from January 1996 until December 1999 and Janus Equity
Income Fund from inception until December 1999. He was an
assistant portfolio manager of Janus Fund from January
1994 until December 1999. He gained experience as a
fixed-income trader and equity research analyst prior to
managing Balanced Portfolio. He holds a Bachelor of
Science in Finance from the University of Colorado and he
has earned the right to use the Chartered Financial
Analyst designation.
50 Janus Aspen Series prospectus
<PAGE>
SANDY R. RUFENACHT
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of High-
Yield Portfolio, which he has managed or co-managed since
October 1996. He previously co-managed Flexible Income
Portfolio from January 1997 to May 1998. Mr. Rufenacht
joined Janus Capital in 1990 and has managed Janus Short-
Term Bond Fund since January 1996. He is also the
portfolio manager of Janus High-Yield Fund. He previously
co-managed Janus Flexible Income Fund from June 1996 to
February 1998. He holds a Bachelor of Arts in Business
from the University of Northern Colorado.
SCOTT W. SCHOELZEL
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Capital Appreciation Portfolio, which he has managed since
its inception. He is portfolio manager of Janus Twenty
Fund, which he has managed since August 1997. He
previously managed Janus Olympus Fund from its inception
to August 1997. Mr. Schoelzel joined Janus Capital in
January 1994. He holds a Bachelor of Arts in Business from
Colorado College.
Janus Aspen Series prospectus 51
<PAGE>
RONALD V. SPEAKER
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Flexible Income Portfolio which he has managed or
co-managed since its inception. He previously served as
co-manager of High-Yield Portfolio, from its inception to
May 1998. He managed Short-Term Bond Portfolio from its
inception through April 1996. Mr. Speaker joined Janus
Capital in 1986. He has managed or co-managed Janus
Flexible Income Fund since December 1991 and previously
managed both Janus Short-Term Bond Fund and Janus Federal
Tax-Exempt Fund from inception through December 1995. He
previously managed or co-managed Janus High-Yield Fund
from its inception to February 1998. He holds a Bachelor
of Arts in Finance from the University of Colorado and has
earned the right to use the Chartered Financial Analyst
designation.
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 which ended on April 25, 1997.
52 Janus Aspen Series prospectus
<PAGE>
ASSISTANT PORTFOLIO MANAGERS
MATTHEW A. ANKRUM
- --------------------------------------------------------------------------------
is an assistant portfolio manager of Aggressive Growth
Portfolio. He is also assistant portfolio manager of Janus
Enterprise Fund. Mr. Ankrum joined Janus Capital as an
intern in June 1996, and became an equity research analyst
in August 1997. Prior to joining Janus, Mr. Ankrum worked
as a corporate finance analyst at William Blair and
Company from 1993 through 1995. He was also a fixed-income
research analyst at Conseco Capital Management. Mr. Ankrum
has an undergraduate degree in Business Administration
from the University of Wisconsin and a Master of Business
Administration from the University of Chicago. Mr. Ankrum
has earned the right to use the Chartered Financial
Analyst designation.
DAVID C. DECKER
- --------------------------------------------------------------------------------
is an assistant portfolio manager of Growth Portfolio. He
is also an assistant portfolio manager of Janus Fund. He
is Executive Vice President and portfolio manager of
Strategic Value Portfolio, Janus Strategic Value Fund and
Janus Special Situations Fund, each of which he has
managed since its inception. He obtained a Masters of
Business Administration in Finance from the Fuqua School
of Business at Duke University and a Bachelor of Arts in
Economics and Political Science from Tufts University. Mr.
Decker has earned the right to use the Chartered Financial
Analyst designation.
Janus Aspen Series prospectus 53
<PAGE>
RON SACHS
- --------------------------------------------------------------------------------
is an assistant portfolio manager of Aggressive Growth
Portfolio. Mr. Sachs joined Janus Capital in 1996 as a
research analyst. Prior to coming to Janus, he worked as a
consultant for Bain & Company and as an attorney for
Willkie, Farr & Gallagher. Mr. Sachs graduated from
Princeton cum laude with an undergraduate degree in
economics. He obtained his law degree from the University
of Michigan. Mr. Sachs has earned the right to use the
Chartered Financial Analyst designation.
DANIEL D. SCHOEN
- --------------------------------------------------------------------------------
is an assistant portfolio manager of Money Market
Portfolio. He joined Janus in July 1993 and has worked as
a trader and credit analyst on Janus Money Market Funds.
He has a Bachelor of Arts in Economics from the University
of Colorado.
JOHN H. SCHREIBER
- --------------------------------------------------------------------------------
is an assistant portfolio manager of Growth Portfolio. Mr.
Schreiber joined Janus Capital in 1997 as an equity
research analyst. Prior to coming to Janus he was an
equity analyst with Fidelity Investments. Mr. Schreiber
holds a Bachelor of Science degree in mechanical
engineering from the University of Washington and an MBA
from Harvard University.
54 Janus Aspen Series prospectus
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
CLASSES OF SHARES
Each Portfolio currently offers two or three 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
insurance contracts, as well as certain qualified retirement
plans. Service Shares of the Portfolios are offered only in
connection with investment in and payments under variable
insurance contracts as well as certain qualified retirement plans
that require a fee from Portfolio assets to procure distribution
and administrative services to contract owners and plan
participants. Retirement Shares of certain Portfolios are offered
only to qualified plans using plan service providers that are
compensated for providing distribution and/or recordkeeping and
other administrative services provided to plan participants.
Because the expenses of each class may differ, the performance of
each class is expected to differ. If you would like additional
information about the Service Shares or the Retirement Shares,
please call 1-800-525-0020.
During the third quarter of 2000, the Retirement Shares
shareholders will be asked to approve the spin-off of the
Retirement Shares into a separate Delaware business trust, Janus
Adviser Series. In connection with this spin-off, each Portfolio
will distribute all of its ordinary income and capital gain
income earned through the date of the spin-off. The distributions
will be made for all classes, including Institutional Shares. It
is anticipated that the spin-off and distributions will occur
during the third quarter of 2000.
CONFLICTS OF INTEREST
The Shares offered by this prospectus 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
Janus Aspen Series prospectus 55
<PAGE>
through a separate prospectus) are available to certain qualified
plans. Although the Portfolios do not currently anticipate any
disadvantages to policy owners because 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 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 qualified 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 its 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. 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.
DISTRIBUTION OF EACH PORTFOLIO
Each Portfolio is distributed by Janus Distributors, Inc., a
member of the National Association of Securities Dealers, Inc.
("NASD"). To obtain information about NASD member firms and their
associated persons, you may contact NASD Regulation, Inc. at
www.nasdr.com, or the Public Disclosure Hotline at 800-289-9999.
An investor brochure containing information describing the Public
Disclosure Program is available from NASD Regulation, Inc.
56 Janus Aspen Series prospectus
<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 on its investments annually. A Portfolio's income
from dividends and interest and any net realized short-term gains
are paid to shareholders as ordinary income dividends. Net
realized long-term gains are paid to shareholders as capital
gains distributions.
PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
Each class of each Portfolio, other than Money Market Portfolio,
distributes substantially all of its investment income at least
semi-annually and its net realized gains, if any, at least
annually. 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, other than daily income dividends, are paid to
shareholders as of the record date of the distribution of a
Portfolio, regardless of how long the shares have been held.
Undistributed income and realized gains 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. For 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,
Janus Aspen Series prospectus 57
<PAGE>
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 59 1/2, a 10% penalty tax. The tax status of your
investment depends on the features of your qualified plan or
variable insurance contract. Further information may be found in
your plan documents or in the prospectus of the separate account
offering such contract.
TAXATION OF THE PORTFOLIOS
Dividends, interest and some gains received by the Portfolios on
foreign securities may be subject to tax withholding or other
foreign taxes. The Portfolios may from year to year make the
election permitted under Section 853 of the Internal Revenue Code
to pass through such taxes to shareholders as a foreign tax
credit. If such election is not made, any foreign taxes paid or
accrued will represent an expense to the Portfolios which will
reduce their investment income.
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 the Shares of each
Portfolio are sold in connection with variable 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.
58 Janus Aspen Series prospectus
<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. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN CONNECTION WITH
A PARTICULAR CONTRACT AND CERTAIN CONTRACTS MAY LIMIT ALLOCATIONS
AMONG THE PORTFOLIOS. 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.
PRICING OF PORTFOLIO SHARES
Investments will be processed at the NAV next determined after an
order is received and accepted by a Portfolio or its agent. In
order to receive a day's price, your order must be received by
the close of the regular trading session of the New York Stock
Exchange any day that the NYSE is open. Securities of the
Portfolios other than Money Market Portfolio 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. See the SAI for
more detailed information.
To the extent a Portfolio holds securities that are primarily
listed on foreign exchanges that trade on weekends or other days
when the Portfolios do not price their shares, the NAV of a
Portfolio's shares may change on days when shareholders will not
be able to purchase or redeem the Portfolio's shares.
Janus Aspen Series prospectus 59
<PAGE>
Money Market Portfolio's 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.
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. Participating insurance companies and certain other
designated organizations are authorized to receive purchase
orders on the Portfolios' behalf.
The Portfolios do not permit frequent trading or market timing.
Excessive purchases of Portfolio Shares disrupt portfolio
management and drive Portfolio expenses higher. 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. Although there is no present intention to do so, the
Portfolios may discontinue sales of their shares if management
and the Trustees believe that continued sales may adversely
affect a Portfolio's ability to achieve its investment objective.
If sales of a Portfolio's Shares are discontinued, it is expected
that existing policy owners and plan participants invested in
that Portfolio would be permitted to continue to authorize
investment in that Portfolio and to reinvest any dividends or
capital gains distributions, absent highly unusual circumstances.
60 Janus Aspen Series prospectus
<PAGE>
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
or its agent. 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.
FREQUENT TRADING
Frequent trading of Portfolio shares in response in short-term
fluctuations in the market -- also known as "market timing" --
may make it very difficult to manage a Portfolio's investments.
The Portfolios do not permit frequent trading or market timing.
When market timing occurs, a Portfolio may have to sell portfolio
securities to have the cash necessary to redeem the market
timer's shares. This can happen at a time when it is not
advantageous to sell any securities, which may harm a Portfolio's
performance. When large dollar amounts are involved, market
timing can also make it difficult to use long-term investment
strategies because the portfolio manager cannot predict how much
cash a Portfolio will have to invest. When in Janus Capital's
opinion such activity would have a disruptive effect on portfolio
management, a Portfolio reserves the right to refuse purchase
orders and exchanges into a Portfolio by any person, group or
commonly controlled account. A Portfolio may notify a market
timer of rejection of a purchase or exchange order after the day
the order is placed. If a Portfolio allows a market timer to
trade Portfolio shares, it may require the market timer to enter
into a written agreement to follow certain procedures and
limitations.
Janus Aspen Series prospectus 61
<PAGE>
SHAREHOLDER COMMUNICATIONS
Shareholders will receive annual and semiannual reports including
the financial statements of the Shares of the Portfolios that
they have authorized for investment. Each report will show the
investments owned by each Portfolio and the market values
thereof, as well as other information about the Portfolios and
their operations. The Trust's fiscal year ends December 31.
62 Janus Aspen Series prospectus
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you
understand the Institutional Shares' financial performance for
each of the five most recent fiscal years or the life of the
Portfolio if less than five years. Items 1 through 11 reflect
financial results for a single Share. Total return in the tables
represents the rate that an investor would have earned (or lost)
on an investment in each of the Institutional Shares of the
Portfolios (assuming reinvestment of all dividends and
distributions) but does not include charges and expenses
attributable to any insurance product. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with
the Portfolios' financial statements, is included in the Annual
Report, which is available upon request and incorporated by
reference into the SAI.
Financial highlights are not presented for Global Life Sciences
Portfolio and Global Technology Portfolio because the Portfolios
had not commenced operations as of December 31, 1999.
Janus Aspen Series prospectus 63
<PAGE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO - INSTITUTIONAL SHARES
- ------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING
OF PERIOD $23.54 $18.48 $15.51 $13.45 $10.57
INCOME FROM INVESTMENT
OPERATIONS:
2. Net investment income 0.07 0.05 0.15 0.17 0.28
3. Net gains or losses on
securities (both realized
and unrealized) 10.24 6.36 3.34 2.29 2.90
4. Total from investment
operations 10.31 6.41 3.49 2.46 3.18
LESS DISTRIBUTIONS:
5. Dividends (from net
investment income) (0.06) (0.05) (0.15) (0.17) (0.30)
6. Dividends (in excess of net
investment income) -- -- -- -- --
7. Distributions (from capital
gains) (0.14) (1.30) (0.37) (0.23) --
8. Distributions (in excess of
realized gains) -- -- -- -- --
9. Tax return of capital
distributions -- -- -- -- --
10. Total distributions (0.20) (1.35) (0.52) (0.40) (0.30)
11. NET ASSET VALUE, END OF
PERIOD $33.65 $23.54 $18.48 $15.51 $13.45
12. Total return 43.98% 35.66% 22.75% 18.45% 30.17%
13. Net assets, end of period
(in thousands) $2,942,649 $1,103,549 $608,281 $325,789 $126,911
14. Average net assets for the
period (in thousands) $1,775,373 $789,454 $477,914 $216,125 $77,344
15. Ratio of gross expenses to
average net assets 0.67%(1) 0.68%(1) 0.70%(1) 0.69%(1) 0.78%(1)
16. Ratio of net expenses to
average net assets 0.67% 0.68% 0.69% 0.69% 0.76%
17. Ratio of net investment
income to average net
assets 0.30% 0.26% 0.91% 1.39% 1.24%
18. Portfolio turnover rate 53% 73% 122% 87% 185%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) The ratio was 0.69% in 1999, 0.75% in 1998, 0.78% in 1997, 0.83% in 1996 and
0.98% in 1995 before waiver of certain fees and/or reduction of adviser's
fees to the effective rate of Janus Fund.
64 Janus Aspen Series prospectus
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO - INSTITUTIONAL SHARES
- ------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING OF
PERIOD $27.64 $20.55 $18.24 $17.08 $13.62
INCOME FROM INVESTMENT
OPERATIONS:
2. Net investment income -- -- -- -- 0.24
3. Net gains or losses on
securities (both realized and
unrealized) 33.46 7.09 2.31 1.36 3.47
4. Total from investment
operations 33.46 7.09 2.31 1.36 3.71
LESS DISTRIBUTIONS:
5. Dividends (from net
investment income) -- -- -- -- (0.25)
6. Dividends (in excess of net
investment income) -- -- -- -- --
7. Distributions (from capital
gains) (1.40) -- -- (0.19) --
8. Distributions (in excess of
realized gains) -- -- -- -- --
9. Tax return of capital
distributions -- -- -- (0.01) --
10. Total distributions (1.40) -- -- (0.20) (0.25)
11. NET ASSET VALUE, END OF
PERIOD $59.70 $27.64 $20.55 $18.24 $17.08
12. Total return 125.40% 34.26% 12.66% 7.95% 27.48%
13. Net assets, end of period (in
thousands) $3,319,619 $772,943 $508,198 $383,693 $185,911
14. Average net assets for the
period (in thousands) $1,476,445 $576,444 $418,464 $290,629 $107,582
15. Ratio of gross expenses to
average net assets 0.70%(1) 0.75%(1) 0.76%(1) 0.76%(1) 0.86%(1)
16. Ratio of net expenses to
average net assets 0.69% 0.75% 0.76% 0.76% 0.84%
17. Ratio of net investment
income to average net assets (0.50%) (0.36%) (0.10%) (0.27%) 0.58%
18. Portfolio turnover rate 105% 132% 130% 88% 155%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) The ratio was 0.70% in 1999, 0.75% in 1998, 0.78% in 1997, 0.83% in 1996 and
0.93% in 1995 before waiver of certain fees and/or reduction of adviser's
fees to the effective rate of Janus Enterprise Fund.
Janus Aspen Series prospectus 65
<PAGE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO - INSTITUTIONAL SHARES
- ----------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997(1)
<S> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING OF PERIOD $19.94 $12.62 $10.00
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.12 0.01 0.05
3. Net gains or losses on securities (both
realized and unrealized) 13.22 7.32 2.61
4. Total from investment operations 13.34 7.33 2.66
LESS DISTRIBUTIONS:
5. Dividends (from net investment income) (0.11) (0.01) (0.04)
6. Dividends (in excess of net investment income) -- -- --
7. Distributions (from capital gains) -- -- --
8. Distributions (in excess of realized gains) -- -- --
9. Tax return of capital distributions -- -- --
10. Total distributions (0.11) (0.01) (0.04)
11. NET ASSET VALUE, END OF PERIOD $33.17 $19.94 $12.62
12. Total return* 67.00% 58.11% 26.60%
13. Net assets, end of period (in thousands) $626,611 $74,187 $6,833
14. Average net assets for the period (in
thousands) $257,422 $25,964 $2,632
15. Ratio of gross expenses to average net assets** 0.70%(2) 0.92%(2) 1.26%(2)
16. Ratio of net expenses to average net assets** 0.70% 0.91% 1.25%
17. Ratio of net investment income to average net
assets** 0.76% 0.27% 1.43%
18. Portfolio turnover rate** 52% 91% 101%
- ----------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) May 1, 1997 (inception) through December 31, 1997.
(2) The ratio was 0.79% in 1999, 0.97% in 1998 and 2.19% in 1997 before waiver
of certain fees and/or reduction of adviser's fees to the effective rate of
the corresponding retail fund (Janus Olympus Fund until May 1, 1999, Janus
Twenty Fund thereafter).
66 Janus Aspen Series prospectus
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO - INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING OF
PERIOD $22.50 $17.47 $14.77 $13.03 $10.63
INCOME FROM INVESTMENT
OPERATIONS:
2. Net investment income 0.59 0.39 0.34 0.32 0.17
3. Net gains (or losses) on
securities (both realized and
unrealized) 5.38 5.51 2.89 1.81 2.45
4. Total from investment
operations 5.97 5.90 3.23 2.13 2.62
LESS DISTRIBUTIONS:
5. Dividends (from net investment
income) (0.56) (0.38) (0.35) (0.30) (0.22)
6. Dividends (in excess of net
investment income) -- -- -- -- --
7. Distributions (from capital
gains) -- (0.45) (0.18) (0.09) --
8. Distributions (in excess of
realized gains) -- (0.04) -- -- --
9. Tax return of capital
distributions -- -- -- -- --
10. Total distributions (0.56) (0.87) (0.53) (0.39) (0.22)
11. NET ASSET VALUE, END OF PERIOD $27.91 $22.50 $17.47 $14.77 $13.03
12. Total return 26.76% 34.28% 22.10% 16.18% 24.79%
13. Net assets, end of period (in
thousands) $2,453,079 $882,495 $362,409 $85,480 $14,021
14. Average net assets for the
period (in thousands) $1,583,635 $555,002 $176,432 $43,414 $5,739
15. Ratio of gross expenses to
average net assets 0.69%(1) 0.74%(1) 0.83%(1) 0.94%(1) 1.37%(1)
16. Ratio of net expenses to
average net assets 0.69% 0.74% 0.82% 0.92% 1.30%
17. Ratio of net investment income
to average net assets 2.86% 2.41% 2.87% 2.92% 2.41%
18. Portfolio turnover rate 92% 70% 139% 103% 149%
- --------------------------------------------------------------------------------------------
</TABLE>
(1) The ratio was 0.69% in 1999, 0.74% in 1998, 0.83% in 1997, 1.07% in 1996 and
1.55% in 1995 before waiver of certain fees and/or reduction of adviser's
fees to the effective rate of Janus Balanced Fund.
Janus Aspen Series prospectus 67
<PAGE>
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO - INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997(1)
<S> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING OF PERIOD $19.41 $13.46 $10.00
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.07 0.02 0.01
3. Net gains (or losses) on securities (both
realized and unrealized) 7.99 6.16 3.46
4. Total from investment operations 8.06 6.18 3.47
LESS DISTRIBUTIONS:
5. Dividends (from net investment income) (0.06) (0.02) (0.01)
6. Dividends (in excess of net investment income) -- -- --
7. Distributions (from capital gains) (0.09) (0.21) --
8. Distributions (in excess of realized gains) -- -- --
9. Tax return of capital distributions -- -- --
10. Total distributions (0.15) (0.23) (0.01)
11. NET ASSET VALUE, END OF PERIOD $27.32 $19.41 $13.46
12. Total return* 41.58% 46.24% 34.70%
13. Net assets, end of period (in thousands) $18,975 $9,017 $3,047
14. Average net assets for the period (in thousands) $14,663 $5,629 $1,101
15. Ratio of gross expenses to average net assets** 1.25%(2) 1.25%(2) 1.25%(2)
16. Ratio of net expenses to average net assets** 1.25% 1.25% 1.25%
17. Ratio of net investment income to average net
assets** 0.31% 0.17% 0.35%
18. Portfolio turnover rate** 114% 79% 128%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) May 1, 1997 (inception) through December 31, 1997.
(2) The ratio was 1.38% in 1999, 1.86% in 1998 and 5.75% in 1997 before waiver
of certain fees and/or reduction of adviser's fees to the effective rate of
Janus Equity Income Fund.
68 Janus Aspen Series prospectus
<PAGE>
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO - INSTITUTIONAL SHARES
- ------------------------------------------------------------------------------------
Period ending
December 31
1999 1998(1)
<S> <C> <C>
1. NET ASSET VALUE, BEGINNING OF PERIOD $11.96 $10.00
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.04 0.02
3. Net gains (or losses) on securities (both realized and
unrealized) 8.81 1.96
4. Total from investment operations 8.85 1.98
LESS DISTRIBUTIONS:
5. Dividends (from net investment income) (0.04) (0.02)
6. Dividends (in excess of net investment income) -- --
7. Distributions (from capital gains) -- --
8. Distributions (in excess of realized gains) -- --
9. Tax return of capital distributions -- --
10. Total distributions (0.04) (0.02)
11. NET ASSET VALUE, END OF PERIOD $20.77 $11.96
12. Total return* 74.04% 19.80%
13. Net assets, end of period (in thousands) $84,480 $6,413
14. Average net assets for the period (in thousands) $28,838 $2,883
15. Ratio of gross expenses to average net assets** 1.06%(2) 1.25%(2)
16. Ratio of net expenses to average net assets** 1.05% 1.25%
17. Ratio of net investment income to average net assets** 0.56% 0.66%
18. Portfolio turnover rate** 59% 62%
- ------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized.
** Annualized.
(1) May 1, 1998 (inception) through December 31, 1998.
(2) The ratio was 1.15% in 1999 and 3.06% in 1998 before waiver of certain fees
and/or reduction of adviser's fees to the effective rate of Janus Growth and
Income Fund.
Janus Aspen Series prospectus 69
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH PORTFOLIO - INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING OF
PERIOD $21.27 $18.48 $15.72 $11.95 $9.72
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.06 0.13 0.11 0.05 0.09
3. Net gains or losses on securities
(both realized and unrealized) 17.40 3.07 2.80 4.06 2.16
4. Total from investment operations 17.46 3.20 2.91 4.11 2.25
LESS DISTRIBUTIONS:
5. Dividends (from net investment
income) (0.06) (0.14) (0.11) (0.11) (0.02)
6. Dividends (in excess of net
investment income) -- -- -- -- --
7. Distributions (from capital
gains) -- -- (0.01) (0.23) --
8. Distributions (in excess of
realized gains) -- (0.27) (0.03) -- --
9. Tax return of capital
distributions -- -- -- -- --
10. Total distributions (0.06) (0.41) (0.15) (0.34) (0.02)
11. NET ASSET VALUE, END OF PERIOD $38.67 $21.27 $18.48 $15.72 $11.95
12. Total return* 82.27% 17.23% 18.51% 34.71% 23.15%
13. Net assets, end of period (in
thousands) $810,392 $311,110 $161,091 $27,192 $1,608
14. Average net assets for the period
(in thousands) $425,876 $234,421 $96,164 $7,437 $1,792
15. Ratio of gross expenses to
average net assets** 0.77%(1) 0.86%(1) 0.96%(1) 1.26%(1) 2.69%(1)
16. Ratio of net expenses to average
net assets** 0.76% 0.86% 0.96% 1.25% 2.50%
17. Ratio of net investment income to
average net assets** 0.26% 0.73% 0.70% 0.62% (0.80%)
18. Portfolio turnover rate** 80% 93% 86% 65% 211%
- --------------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) The ratio was 0.84% in 1999, 0.95% in 1998, 1.08% in 1997, 2.21% in 1996 and
3.57% in 1995 before waiver of certain fees and/or reduction of adviser's
fees to the effective rate of Janus Overseas Fund.
70 Janus Aspen Series prospectus
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE GROWTH PORTFOLIO - INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING
OF PERIOD $29.09 $23.39 $19.44 $15.31 $12.07
INCOME FROM INVESTMENT
OPERATIONS:
2. Net investment income 0.07 0.16 0.16 0.16 0.11
3. Net gains or losses on
securities (both realized
and unrealized) 18.65 6.59 4.14 4.27 3.19
4. Total from investment
operations 18.72 6.75 4.30 4.43 3.30
LESS DISTRIBUTIONS:
5. Dividends (from net
investment income) (0.06) (0.18) (0.17) (0.17) (0.06)
6. Dividends (in excess of net
investment income) -- -- (0.02) -- --
7. Distributions (from capital
gains) -- -- (0.16) (0.13) --
8. Distributions (in excess of
realized gains) -- (0.87) -- -- --
9. Tax return of capital
distributions -- -- -- -- --
10. Total distributions (0.06) (1.05) (0.35) (0.30) (0.06)
11. NET ASSET VALUE, END OF
PERIOD $47.75 $29.09 $23.39 $19.44 $15.31
12. Total return 64.45% 28.92% 22.15% 29.04% 27.37%
13. Net assets, end of period
(in thousands) $6,496,773 $2,890,375 $1,576,548 $582,603 $108,563
14. Average net assets for the
period (in thousands) $3,862,773 $2,217,695 $1,148,951 $304,111 $59,440
15. Ratio of gross expenses to
average net assets 0.71%(1) 0.72%(1) 0.74%(1) 0.80%(1) 0.90%(1)
16. Ratio of net expenses to
average net assets 0.71% 0.72% 0.74% 0.80% 0.87%
17. Ratio of net investment
income to average net assets 0.20% 0.64% 0.67% 0.83% 0.95%
18. Portfolio turnover rate 67% 77% 80% 62% 113%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) The ratio was 0.71% in 1999, 0.74% in 1998, 0.81% in 1997, 0.91% in 1996 and
1.09% in 1995 before waiver of certain fees and/or reduction of adviser's
fees to the effective rate of Janus Worldwide Fund.
Janus Aspen Series prospectus 71
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE INCOME PORTFOLIO - INSTITUTIONAL SHARES
- -------------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING OF PERIOD $12.05 $11.78 $11.24 $11.11 $9.48
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.76 0.64 0.67 0.74 0.53
3. Net gains or losses on securities
(both realized and unrealized) (0.58) 0.41 0.62 0.24 1.70
4. Total from investment operations 0.18 1.05 1.29 0.98 2.23
LESS DISTRIBUTIONS:
5. Dividends (from net investment income) (0.75) (0.67) (0.64) (0.72) (0.60)
6. Dividends (in excess of net investment
income) -- -- -- -- --
7. Distributions (from capital gains) (0.07) (0.11) (0.11) (0.13) --
8. Distributions (in excess of realized
gains) -- -- -- -- --
9. Tax return of capital distributions -- -- -- -- --
10. Total distributions (0.82) (0.78) (0.75) (0.85) (0.60)
11. NET ASSET VALUE, END OF PERIOD $11.41 $12.05 $11.78 $11.24 $11.11
12. Total return 1.60% 9.11% 11.76% 9.19% 23.86%
13. Net assets, end of period (in
thousands) $186,681 $129,582 $54,098 $25,315 $10,831
14. Average net assets for the period (in
thousands) $161,459 $86,627 $36,547 $17,889 $5,556
15. Ratio of gross expenses to average net
assets 0.72% 0.73% 0.75% 0.84% 1.07%
16. Ratio of net expenses to average net
assets 0.72% 0.73% 0.75% 0.83% 1.00%
17. Ratio of net investment income to
average net assets 6.99% 6.36% 6.90% 7.31% 7.46%
18. Portfolio turnover rate 116% 145% 119% 250% 236%
- -------------------------------------------------------------------------------------------------
</TABLE>
72 Janus Aspen Series prospectus
<PAGE>
<TABLE>
<CAPTION>
HIGH-YIELD PORTFOLIO - INSTITUTIONAL SHARES
- ------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997 1996(1)
<S> <C> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING OF PERIOD $10.85 $11.78 $10.83 $10.00
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 1.14 0.87 0.70 0.43
3. Net gains or losses on securities (both
realized and unrealized) (0.41) (0.70) 0.99 0.80
4. Total from investment operations 0.73 0.17 1.69 1.23
LESS DISTRIBUTIONS:
5. Dividends (from net investment income) (1.13) (0.89) (0.68) (0.40)
6. Dividends (in excess of net investment
income) -- -- -- --
7. Distributions (from capital gains) -- (0.05) (0.06) --
8. Distributions (in excess of realized
gains) -- (0.16) -- --
9. Tax return of capital distributions -- -- -- --
10. Total distributions (1.13) (1.10) (0.74) (0.40)
11. NET ASSET VALUE, END OF PERIOD $10.45 $10.85 $11.78 $10.83
12. Total return* 6.85% 1.26% 15.98% 12.40%
13. Net assets, end of period (in
thousands) $1,620 $2,977 $2,914 $783
14. Average net assets for the period (in
thousands) $2,448 $3,281 $1,565 $459
15. Ratio of gross expenses to average net
assets** 1.00%(2) 1.00%(2) 1.00%(2) 1.01%(2)
16. Ratio of net expenses to average net
assets** 1.00% 1.00% 1.00% 1.00%
17. Ratio of net investment income to
average net assets** 8.41% 7.76% 7.98% 5.74%
18. Portfolio turnover rate** 554% 301% 299% 301%
- ------------------------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) May 1, 1996 (inception) through December 31, 1996.
(2) The ratio was 4.92% in 1999, 2.11% in 1998, 3.27% in 1997 and 6.29% in 1996
before waiver of certain fees incurred by the Portfolio.
Janus Aspen Series prospectus 73
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO - INSTITUTIONAL SHARES
- -----------------------------------------------------------------------------------------------
Periods ending December 31
1999 1998 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
1. NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.05 0.05 0.05 0.05 0.04
3. Net gains or losses on securities
(both realized and unrealized) -- -- -- -- --
4. Total from investment operations 0.05 0.05 0.05 0.05 0.04
LESS DISTRIBUTIONS:
5. Dividends (from net investment
income) (0.05) (0.05) (0.05) (0.05) (0.04)
6. Dividends (in excess of net
investment income) -- -- -- -- --
7. Distributions (from capital gains) -- -- -- -- --
8. Distributions (in excess of realized
gains) -- -- -- -- --
9. Tax return of capital distributions -- -- -- -- --
10. Total distributions (0.05) (0.05) (0.05) (0.05) (0.04)
11. NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
12. Total return* 4.98% 5.36% 5.17% 5.05% 3.63%
13. Net assets, end of period (in
thousands) $69,266 $38,690 $15,374 $6,016 $1,735
14. Average net assets for the period
(in thousands) $54,888 $31,665 $8,926 $3,715 $1,543
15. Ratio of gross expenses to average
net assets** 0.43% 0.34% 0.50% 0.50% 0.50%
16. Ratio of net expenses to average net
assets** 0.43% 0.34% 0.50%(2) 0.50%(2) 0.50%(2)
17. Ratio of net investment income to
average net assets** 4.94% 5.21% 5.17% 4.93% 5.30%
- -------------------------------------------------------------------------
</TABLE>
* Total return not annualized for periods of less than one year.
** Annualized for periods of less than one full year.
(1) May 1, 1995 (inception) to December 31, 1995.
(2) The ratio was 0.55% in 1997, 0.78% in 1996 and 1.07% in 1995 before waiver
of certain fees incurred by the Portfolio.
74 Janus Aspen Series prospectus
<PAGE>
GLOSSARY OF INVESTMENT TERMS
- --------------------------------------------------------------------------------
This glossary provides a more detailed description of some of the
types of securities and other instruments in which the Portfolios
may invest. The Portfolios may invest in these instruments to the
extent permitted by their investment objectives 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 of the
bond) 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. The
Portfolios may purchase commercial paper issued in private
placements under Section 4(2) of the Securities Act of 1933.
COMMON STOCKS are equity securities representing shares of
ownership in a company and usually carry 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.
DEBT SECURITIES are securities representing money borrowed that
must be repaid at a later date. Such securities have specific
maturities and usually a specific rate of interest or an original
purchase discount.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based
corporation that entitle the holder to dividends and capital
gains
Janus Aspen Series prospectus 75
<PAGE>
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 BONDS are bonds 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 bonds include "lower rated
bonds," "noninvestment grade bonds" and "junk bonds."
MORTGAGE- AND ASSET-BACKED SECURITIES are shares in a pool of
mortgages or other debt. These securities are generally pass-
through securities, which means that principal and interest
payments on the underlying securities (less servicing fees) are
passed through to shareholders on a pro rata basis. These
securities involve prepayment risk, which is the risk that the
underlying mortgages or other debt may be refinanced or paid off
prior to their maturities during periods of declining interest
rates. In that case, a portfolio manager may have to reinvest the
proceeds from the securities at a lower rate. Potential market
gains on a security subject to prepayment risk may be more
limited than potential market gains on a comparable security that
is not subject to prepayment risk.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS) are any foreign
corporations which generate certain amounts of passive income or
hold certain amounts of assets for the production of passive
income. Passive income includes dividends, interest, royalties,
rents and annuities. To avoid taxes and interest that the
Portfolios must pay if these investments are profitable, the
Portfolios may
76 Janus Aspen Series prospectus
<PAGE>
make various elections permitted by the tax laws. 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.
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 STOCKS are equity securities that generally pay
dividends at a specified rate and have 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.
Janus Aspen Series prospectus 77
<PAGE>
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 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
78 Janus Aspen Series prospectus
<PAGE>
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 in
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 regular
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.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
FORWARD CONTRACTS are contracts to purchase or sell a specified
amount of a financial instrument 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.
Janus Aspen Series prospectus 79
<PAGE>
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.
80 Janus Aspen Series prospectus
<PAGE>
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 81
<PAGE>
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 Janus Capital 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
<TABLE>
<S> <C>
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, CCC, CC, C........ Predominantly speculative with respect
to the 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.
</TABLE>
82 Janus Aspen Series prospectus
<PAGE>
MOODY'S INVESTORS SERVICE, INC.
<TABLE>
<S> <C>
BOND RATING EXPLANATION
----------------------------------------------------------------
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.
</TABLE>
Unrated securities will be treated as noninvestment grade
securities unless a 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.
Janus Aspen Series prospectus 83
<PAGE>
SECURITIES HOLDINGS BY RATING CATEGORY
During the fiscal period ended December 31, 1999, the percentage
of securities holdings for the following Portfolios by rating
category based upon a weighted monthly average was:
<TABLE>
<CAPTION>
FLEXIBLE INCOME PORTFOLIO
---------------------------------------------------------------------
<S> <C>
BONDS-S&P RATING:
AAA 5%
AA 6%
A 10%
BBB 23%
BB 12%
B 19%
CCC 2%
CC 0%
C 0%
Not Rated 6%
Preferred Stock 2%
Cash and Options 15%
TOTAL 100%
---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HIGH-YIELD PORTFOLIO
---------------------------------------------------------------------
<S> <C>
BONDS-S&P RATING:
AAA 0%
AA 0%
A 0%
BBB 0%
BB 5%
B 61%
CCC 4%
CC 0%
C 0%
Not Rated 7%
Preferred Stock 1%
Cash and Options 22%
TOTAL 100%
---------------------------------------------------------------------
</TABLE>
No other Portfolio described in this Prospectus held 5% or more
of its assets in bonds rated below investment grade for the
fiscal year ended December 31, 1999.
84 Janus Aspen Series prospectus
<PAGE>
[JANUS LOGO]
JANUS ASPEN SERIES
INSTITUTIONAL SHARES
PROSPECTUS
STRATEGIC VALUE PORTFOLIO
MAY 1, 2000
The Securities and Exchange Commission has not
approved or disapproved of these securities or passed
on the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Strategic Value Portfolio (the "Portfolio") is a mutual fund in Janus Aspen
Series and is described in this prospectus. The Portfolio currently offers two
classes of shares. The Institutional Shares, (the "Shares"), are sold under the
name of "Janus Aspen Series" and 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 Aspen Series sells and redeems its Shares at net asset value without sales
charges, commissions or redemption fees. Each variable insurance contract
involves fees and expenses that are not described in this Prospectus. See the
accompanying contract prospectus for information regarding contract fees and
expenses and any restrictions on purchases or allocations.
This prospectus contains information that a prospective purchaser of a variable
insurance contract or plan participant should consider in conjunction with the
accompanying separate account prospectus of the specific insurance company
product before allocating purchase payments or premiums to the Portfolio.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
RISK/RETURN SUMMARY
Strategic Value Portfolio.................... 2
Fees and expenses............................ 4
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
Strategic Value Portfolio.................... 6
General portfolio policies................... 8
Risks for Strategic Value Portfolio.......... 11
MANAGEMENT OF THE PORTFOLIO
Investment adviser........................... 15
Management expenses and expense limits....... 15
Investment personnel......................... 17
OTHER INFORMATION............................... 18
DISTRIBUTIONS AND TAXES
Distributions................................ 20
Taxes........................................ 20
SHAREHOLDER'S GUIDE
Pricing of portfolio shares.................. 22
Purchases.................................... 22
Redemptions.................................. 23
Frequent Trading............................. 24
Shareholder communications................... 24
FINANCIAL HIGHLIGHTS............................ 25
GLOSSARY
Glossary of investment terms................. 26
</TABLE>
Janus Aspen Series prospectus 1
<PAGE>
RISK RETURN SUMMARY
- --------------------------------------------------------------------------------
STRATEGIC VALUE PORTFOLIO
Strategic Value Portfolio is designed for long-term investors who
seek growth of capital and who can tolerate the greater risks
associated with common stock investments.
1. WHAT IS THE INVESTMENT OBJECTIVE OF STRATEGIC VALUE PORTFOLIO?
- --------------------------------------------------------------------------------
STRATEGIC VALUE PORTFOLIO seeks long-term growth of capital.
The Portfolio's Trustees may change the objective without a
shareholder vote and the Portfolio will notify you of any
changes that are material. If there is a material change to
the Portfolio's objective or policies, you should consider
whether the Portfolio remains an appropriate investment for
you. There is no guarantee that the Portfolio will meet its
objective.
2. WHAT ARE THE MAIN INVESTMENT STRATEGIES OF STRATEGIC VALUE PORTFOLIO?
The portfolio manager applies a "bottom up" approach in choosing
investments. In other words, he looks for companies with earnings
growth potential one at a time. If the portfolio manager is
unable to find investments with earnings growth potential, a
significant portion of the Portfolio's assets may be in cash or
similar investments.
STRATEGIC VALUE PORTFOLIO invests primarily in common stocks with
the potential for long-term growth of capital using a "value"
approach. The "value" approach the portfolio manager uses
emphasizes investments in companies he believes are undervalued
relative to their intrinsic worth.
The portfolio manager measures value as a function of
price/earnings (P/E) ratios and price/free cash flow. A P/E ratio
is the relationship between the price of a stock and its earnings
per share. This figure is determined by dividing a stock's market
price by the company's earnings per share amount. Price/free cash
flow is the relationship between the price of a stock and its
available cash from operations minus capital expenditures.
2 Janus Aspen Series prospectus
<PAGE>
The portfolio manager will typically seek attractively valued
companies that are improving their free cash flow and improving
their returns on invested capital. These companies may also
include special situations companies that are experiencing
management changes and/or are temporarily out of favor.
The Portfolio may invest without limit in foreign equity and debt
securities and less than 35% of its net assets in
high-yield/high-risk bonds.
3. WHAT ARE THE MAIN RISKS OF INVESTING IN STRATEGIC VALUE PORTFOLIO?
The biggest risk of investing in this Portfolio is that its
returns may vary, and you could lose money. If you are
considering investing in Strategic Value Portfolio, remember that
it is designed for long-term investors who can accept the risks
of investing in a portfolio with significant common stock
holdings. Common stocks tend to be more volatile than other
investment choices.
The value of the Portfolio's holdings may decrease if the value
of an individual company in the portfolio decreases or if the
portfolio manager's belief about a company's intrinsic worth is
incorrect. The value of the Portfolio's holdings could also
decrease if the stock market goes down. If the value of the
Portfolio's holdings decreases, its net asset value (NAV) will
also decrease,which means if you sell your shares in the
Portfolio you would get back less money.
The Portfolio is nondiversified. In other words, it may hold
larger positions in a smaller number of securities than a
diversified fund. As a result, a single security's increase or
decrease in value may have a greater impact on the Portfolio's
NAV and total return.
An investment in the Portfolio is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Since the Portfolio did not commence operations until May 1,
2000, there is no performance available as of the date of this
prospectus.
Janus Aspen Series prospectus 3
<PAGE>
FEES AND EXPENSES
SHAREHOLDER FEES, such as sales loads, redemption fees or
exchange fees, are charged directly to an investor's account. All
Janus funds are no-load investments, so you will not pay any
shareholder fees when you buy or sell shares of the Portfolio.
However, each variable insurance contract involves fees and
expenses not described in this prospectus. See the accompanying
contract prospectus for information regarding contract fees and
expenses and any restrictions on purchases or allocations.
ANNUAL FUND OPERATING EXPENSES are paid out of the Portfolio's
assets and include fees for portfolio management, maintenance of
shareholder accounts, shareholder servicing, accounting and other
services. You do not pay these fees directly but, as the example
below shows, these costs are borne indirectly by all
shareholders.
This table and example are designed to assist participants in
qualified plans that invest in the Shares of the Portfolio in
understanding the fees and expenses that you may pay 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 FEES AND EXPENSES, AS
THE TABLE AND EXAMPLE DO NOT REFLECT DEDUCTIONS AT THE SEPARATE
ACCOUNT LEVEL OR CONTRACT LEVEL FOR ANY CHARGES THAT MAY BE
INCURRED UNDER A CONTRACT.
4 Janus Aspen Series prospectus
<PAGE>
<TABLE>
<CAPTION>
Management Other Total Annual Fund
Fee Expenses* Operating Expenses
<S> <C> <C> <C>
Strategic Value Portfolio 0.65% 0.35% 1.00%
</TABLE>
- -------------------------------------------------------------------------------
* Other expenses are based on the estimated annualized expenses the
Portfolio's Shares expect to incur in their initial fiscal year and are
shown without the effect of any expense offset arrangements.
- -------------------------------------------------------------------------------
EXAMPLE:
This example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Portfolio for the time
periods indicated then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return
each year, and that the Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years
------------------
<S> <C> <C>
Strategic Value Portfolio $102 $318
</TABLE>
Janus Aspen Series prospectus 5
<PAGE>
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
Strategic Value Portfolio has a similar investment objective and
similar principal investment strategies to Janus Strategic Value
Fund. Although it is anticipated that the Portfolio and Janus
Strategic Value Fund will hold similar securities, differences in
asset size, cash flow needs and other factors may result in
differences in investment performance. The expenses of the
Portfolio and Janus Strategic Value 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
fees and expenses.
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
This section takes a closer look at the investment objective of
Strategic Value Portfolio, its principal investment strategies
and certain risks of investing in Strategic Value Portfolio.
Strategies and policies that are noted as "fundamental" cannot be
changed without a shareholder vote.
Please carefully review the "Risks" section of this Prospectus on
pages 11-14 for a discussion of risks associated with certain
investment techniques. We've also included a Glossary with
descriptions of investment terms used throughout this Prospectus.
Strategic Value Portfolio seeks long-term growth of capital. It
pursues its objective by investing primarily in common stocks
with the potential for long-term growth of capital using a
"value" approach. The "value" approach the portfolio manager uses
emphasizes investments in companies he believes are undervalued
relative to their intrinsic worth.
The portfolio manager measures value as a function of
price/earnings (P/E) ratios and price/free cash flow. A P/E ratio
is the relationship between the price of a stock and its earnings
per share. This figure is determined by dividing a stock's market
price by the company's earnings per share amount. Price/free cash
flow is the relationship between the price of a stock and its
available cash from operations minus capital expenditures.
6 Janus Aspen Series prospectus
<PAGE>
The portfolio manager will typically seek attractively valued
companies that are improving their free cash flow and improving
their returns on invested capital. These companies may also
include special situations companies that are experiencing
management changes and/or are temporarily out of favor.
The following questions and answers are designed to help you better understand
Strategic Value Portfolio's principal investment strategies.
1. HOW ARE COMMON STOCKS SELECTED?
The Portfolio may invest substantially all of its assets in
common stocks if the portfolio manager believes that common
stocks will appreciate in value. The portfolio manager generally
takes a "bottom up" approach to selecting companies. In other
words, he seeks to identify individual companies with earnings
growth potential that may not be recognized by the market at
large. He makes this assessment by looking at companies one at a
time, regardless of size, country of organization, place of
principal business activity, or other similar selection criteria.
Realization of income is not a significant consideration when
choosing investments for the Portfolio. Income realized on the
Portfolio's investments will be incidental to its objective.
2. ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. The portfolio manager seeks companies that meet
his selection criteria, regardless of where a company is located.
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. There are no limitations on the countries in which
the Portfolio may invest and the Portfolio may at times have
significant foreign exposure.
Janus Aspen Series prospectus 7
<PAGE>
3. HOW DOES THE PORTFOLIO MANAGER DETERMINE THAT A COMPANY MAY BE UNDERVALUED?
A company may be undervalued when, in the opinion of the
portfolio manager, the company is selling for a price that is
below its intrinsic worth. A company may be undervalued due to
market or economic conditions, temporary earnings declines,
unfavorable developments affecting the company or other factors.
Such factors may provide buying opportunities at attractive
prices compared to historical or market price-earnings ratios,
price/free cash flow, book value, or return on equity. The
portfolio manager believes that buying these securities at a
price that is below its intrinsic worth may generate greater
returns for the Portfolio than those obtained by paying premium
prices for companies currently in favor in the market.
4. WHAT DOES "MARKET CAPITALIZATION" MEAN?
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. Although Equity Income
Portfolio does not emphasize companies of any particular size, a
Portfolio with a larger asset base are more likely to invest in
larger, more established issuers.
GENERAL PORTFOLIO POLICIES
In investing its portfolio assets, the Portfolio will follow the
general policies listed below. The percentage limitations
included in these policies and elsewhere in this Prospectus apply
at the time of purchase of the security. So, 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 manager believes that market conditions are
unfavorable for profitable investing, or when he is otherwise
8 Janus Aspen Series prospectus
<PAGE>
unable to locate attractive investment opportunities, the
Portfolio's 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 generally are a
residual - they represent the assets that remain after the
portfolio manager has committed available assets to desirable
investment opportunities. However, the portfolio manager may also
temporarily increase the Portfolio's cash position to protect its
assets or maintain liquidity.
When the Portfolio's investments in cash or similar investments
increase, it may not participate in market advances or declines
to the same extent that it would if the Portfolio remained more
fully invested in stocks or bonds.
OTHER TYPES OF INVESTMENTS
Strategic Value Portfolio invests primarily in domestic and
foreign equity securities, which may include preferred stocks,
common stocks, warrants and securities convertible into common or
preferred stocks. The Portfolio may also invest to a lesser
degree in other types of securities. These securities (which are
described in the Glossary) may include:
- debt securities
- indexed/structured securities
- high-yield/high-risk bonds (less than 35% of the Portfolio's
assets)
- options, futures, forwards, swaps and other types of
derivatives for hedging purposes or for non-hedging purposes
such as seeking to enhance return
- securities purchased on a when-issued, delayed delivery or
forward commitment basis
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in illiquid
investments. An illiquid investment is a security or other
position that cannot be disposed of quickly in the normal course
of
Janus Aspen Series prospectus 9
<PAGE>
business. For example, some securities are not registered under
U.S. securities laws and cannot be sold to the U.S. public
because of SEC regulations (these are known as "restricted
securities"). Under procedures adopted by the Portfolio's
Trustees, certain restricted securities may be deemed liquid, and
will not be counted toward this 15% limit.
FOREIGN 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.
SPECIAL SITUATIONS
The Portfolio may invest in special situations. 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. The Portfolio's performance could suffer if the
anticipated development in a "special situation" investment does
not occur or does not attract the expected attention.
PORTFOLIO TURNOVER
The Portfolio generally intends to purchase securities for
long-term investment although, to a limited extent, the Portfolio
may purchase securities in anticipation of relatively short-term
price gains. Short-term transactions may also 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
10 Janus Aspen Series prospectus
<PAGE>
investment decision. 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. Changes are made in the Portfolio's holdings
whenever the portfolio manager believes such changes are
desirable. Portfolio turnover rates are generally not a factor in
making buy and sell decisions.
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. Higher costs
associated with increased portfolio turnover may offset gains in
the Portfolio's performance.
RISKS FOR STRATEGIC VALUE PORTFOLIO
Because the Portfolio may invest substantially all of its assets
in common stocks, the main risk is the risk that the value of the
stocks it holds might decrease in response to the activities of
an individual company or in response to general market and/or
economic conditions. If this occurs, the Portfolio's share price
may also decrease. The Portfolio's performance may also be
affected by risks specific to certain types of investments, such
as foreign securities, derivative investments, non-investment
grade bonds, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other
investment techniques may have a magnified performance impact on
a portfolio with a small asset base. A portfolio may not
experience similar performance as its assets grow.
The following questions and answers are designed to help you better understand
some of the risks of investing in Strategic Value Portfolio.
1. THE PORTFOLIO MAY INVEST IN SMALLER OR NEWER COMPANIES. DOES THIS CREATE ANY
SPECIAL RISKS?
Many attractive investment opportunities may be smaller, start-up
companies offering emerging products or services. Smaller or
newer companies may suffer more significant losses as well as
realize more substantial growth than larger or more established
Janus Aspen Series prospectus 11
<PAGE>
issuers because they may lack depth of management, be unable to
generate funds necessary for growth or potential development, or
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 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 wide price fluctuations. Investments in such
companies tend to be more volatile and somewhat more speculative.
2. HOW DOES THE NONDIVERSIFIED STATUS OF STRATEGIC VALUE PORTFOLIO AFFECT ITS
RISK?
Diversification is a way to reduce risk by investing 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. This fluctuation, if
significant, may affect the performance of the Portfolio.
3. WHAT ARE THE RISKS ASSOCIATED WITH VALUE INVESTING?
If the portfolio manager's perception of a company's worth is not
realized in the time frame he expects, the overall performance of
the Portfolio may suffer. In addition, if the market value of a
company declines the Portfolio's performance could suffer. In
general, the portfolio manager believes these risks are mitigated
by investing in companies that are undervalued in the market in
relation to earnings, dividends and/or assets.
12 Janus Aspen Series prospectus
<PAGE>
4. HOW COULD THE PORTFOLIO'S INVESTMENTS IN FOREIGN SECURITIES AFFECT ITS
PERFORMANCE?
The Portfolio may invest without limit in foreign securities
either indirectly (e.g., depositary receipts) or directly in
foreign markets. Investments in foreign securities, including
those of foreign governments, may involve greater risks than
investing in domestic securities because the Portfolio's
performance may depend on issues other than the performance of a
particular company. These issues include:
- CURRENCY RISK. As long as the Portfolio holds a foreign
security, its value will be affected by the value of the local
currency relative to the U.S. dollar. When the Portfolio sells
a foreign denominated security, its value may be worth less in
U.S. dollars even if the security increases in value in its
home country. U.S. dollar denominated securities of foreign
issuers may also be affected by currency risk.
- POLITICAL AND ECONOMIC RISK. Foreign investments may be subject
to heightened political and economic risks, particularly in
emerging markets which may have relatively unstable
governments, immature economic structures, national policies
restricting investments by foreigners, different legal systems,
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.
- REGULATORY RISK. There may be less government supervision of
foreign markets. As a result, foreign issuers may not be
subject to the uniform accounting, auditing and financial
reporting standards and practices applicable to domestic
issuers and there may be less publicly available information
about foreign issuers.
- MARKET RISK. Foreign securities markets, particularly those of
emerging market countries, may be less liquid and more volatile
than domestic markets. Certain markets may require payment
Janus Aspen Series prospectus 13
<PAGE>
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.
- TRANSACTION COSTS. Costs of buying, selling and holding foreign
securities, including brokerage, tax and custody costs, may be
higher than those involved in domestic transactions.
5. ARE THERE SPECIAL RISKS ASSOCIATED WITH INVESTMENTS IN HIGH-YIELD/HIGH-RISK
BONDS?
High-yield/high-risk bonds (or "junk" bonds) are bonds rated
below investment grade by the primary rating agencies such as
Standard & Poor's and Moody's. The value of lower quality bonds
generally is more dependent on credit risk, or the ability of the
issuer to meet interest and principal payments, than investment
grade bonds. Issuers of high-yield bonds may not be as strong
financially as those issuing bonds with higher credit ratings and
are more vulnerable to real or perceived economic changes,
political changes or adverse developments specific to the issuer.
Please refer to the SAI for a description of bond rating
categories.
6. HOW DOES THE PORTFOLIO TRY TO REDUCE RISK?
The Portfolio may use futures, options, swaps and other
derivative instruments to "hedge" or protect its portfolio from
adverse 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. The portfolio manager believes the use of these instruments
will benefit the Portfolio. However, the Portfolio's performance
could be worse than if the Portfolio had not used such
instruments if the portfolio manager's judgement proves
incorrect. Risks associated with the use of derivative
instruments are described in the SAI.
14 Janus Aspen Series prospectus
<PAGE>
MANAGEMENT OF THE PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928,
is the investment adviser to the Portfolio and is responsible for
the day-to-day management of the investment portfolio and other
business affairs of the Portfolio.
Janus Capital began serving as investment adviser to Janus Fund
in 1970 and currently serves as investment adviser to all of the
Janus retail funds, acts as sub-adviser for a number of
private-label mutual funds and provides separate account advisory
services for institutional accounts.
Janus Capital furnishes continuous advice and recommendations
concerning the Portfolio's investments. Janus Capital also
furnishes certain administrative, compliance and accounting
services for the Portfolio, and may be reimbursed by the
Portfolio for its costs in providing those services. In addition,
Janus Capital employees serve as officers of the Trust and Janus
Capital provides office space for the Portfolio and pays the
salaries, fees and expenses of all Portfolio officers and those
Trustees who are affiliated with Janus Capital.
Participating insurance companies that purchase the Portfolio's
Shares may perform certain administrative services relating to
the Portfolio and Janus Capital or the Portfolio may pay those
companies for such services.
MANAGEMENT EXPENSES AND EXPENSE LIMITS
The Portfolio pays Janus Capital a management fee which is
calculated daily and paid monthly. 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).
In addition, the Shares of the Portfolio incur expenses not
assumed by Janus Capital, including transfer agent and custodian
fees and expenses, legal and auditing fees, printing and mailing
costs of sending reports and other information to existing
shareholders, and independent Trustees' fees and expenses.
Janus Aspen Series prospectus 15
<PAGE>
<TABLE>
<CAPTION>
Average Daily Annual Rate Expense Limit
Fee Schedule Net Assets of Portfolio Percentage (%) Percentage (%)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Strategic Value Portfolio All Asset Levels 0.65 1.25(1)
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Janus Capital has agreed to limit the Portfolio's expenses as indicated
until at least the next annual renewal of the advisory agreement. As noted
in the fee table on page 5, however, the Portfolio's expenses without
waivers are not expected to exceed the expense limit.
16 Janus Aspen Series prospectus
<PAGE>
INVESTMENT PERSONNEL
PORTFOLIO MANAGER
DAVID C. DECKER
- --------------------------------------------------------------------------------
is Executive Vice President and portfolio manager of
Strategic Value Portfolio, which he has managed since
inception. He is also Executive Vice President and
portfolio manager of Janus Strategic Value Fund and Janus
Special Situations Fund, each of which he has managed
since inception and an assistant portfolio manager of
Janus Fund and Growth Portfolio. He obtained a Master of
Business Administration in Finance from the Fuqua School
of Business at Duke University and a Bachelor of Arts in
Economics and Political Science from Tufts University. Mr.
Decker has earned the right to use the Chartered Financial
Analyst designation.
Janus Aspen Series prospectus 17
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
CLASSES OF SHARES
The Portfolio 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 insurance contracts as well as
certain qualified retirement plans. Service Shares of the
Portfolio are offered only in connection with investment in and
payments under variable insurance contracts as well as certain
qualified retirement plans that require a fee from Portfolio
assets to procure distribution and administrative services to
contract owners and plan participants. Because the expenses of
each class may differ, the performance of each class is expected
to differ. If you would like additional information about the
Service Shares, please call 1-800-525-0020.
CONFLICTS OF INTEREST
The Shares offered by this prospectus 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 because
the 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 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 qualified plans to withdraw its
investments in the Portfolio or substitute Shares of another
Portfolio. If this occurs, the Portfolio may be forced to sell
its 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 the Portfolio's Shares if such action is required
by law or regulatory authority or is in the best interests
18 Janus Aspen Series prospectus
<PAGE>
of the Portfolio's shareholders. It is possible that a qualified
plan investing in 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 Portfolio. 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
Portfolio to redeem those investments if a plan loses (or in the
opinion of Janus Capital is at risk of losing) its qualified plan
status.
DISTRIBUTION OF THE PORTFOLIO
The Portfolio is distributed by Janus Distributors, Inc., a
member of the National Association of Securities Dealers, Inc.
("NASD"). To obtain information about NASD member firms and their
associated persons, you may contact NASD Regulation, Inc. at
www.nasdr.com, or the Public Disclosure Hotline at 800-289-9999.
An investor brochure containing information describing the Public
Disclosure Program is available from NASD Regulation, Inc.
Janus Aspen Series prospectus 19
<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 on its investments annually. The Portfolio's income from
dividends and interest and any net realized short-term gains are
paid to shareholders as ordinary income dividends. Net realized
long-term gains are paid to shareholders as capital gains
distributions.
Each class of the Portfolio distributes substantially all of its
investment income at least semi-annually and its net realized
gains, if any, at least annually. All dividends and capital gains
distributions from Shares of the Portfolio will automatically be
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. Undistributed income and realized gains
are included in the daily NAV of the Portfolio's Shares. The
Share price of the Portfolio drops by the amount of the
distribution, net of any subsequent market fluctuations. For
example, assume that on December 31, the Shares of Strategic
Value Portfolio declared a dividend in the amount of $0.25 per
share. If the price of Strategic Value 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 Shares of the Portfolio will be exempt
from current taxation if left to accumulate within the variable
insurance contract or
20 Janus Aspen Series prospectus
<PAGE>
qualified plan. Generally, withdrawals from such contracts may be
subject to ordinary income tax and, if made before age 59 1/2, a
10% penalty tax. The tax status of your investment depends on the
features of your qualified plan or variable insurance contract.
Further information may be found in your plan documents or in the
prospectus of the separate account offering such contract.
TAXATION OF THE PORTFOLIO
Dividends, interest and some gains received by the Portfolio on
foreign securities may be subject to tax withholding or other
foreign taxes. The Portfolio may from year to year make the
election permitted under Section 853 of the Internal Revenue Code
to pass through such taxes to shareholders as a foreign tax
credit. If such election is not made, any foreign taxes paid or
accrued will represent an expense to the Portfolio which will
reduce its investment income.
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 the Shares of the
Portfolio are sold in connection with variable 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.
Janus Aspen Series prospectus 21
<PAGE>
SHAREHOLDER'S GUIDE
- --------------------------------------------------------------------------------
INVESTORS MAY NOT PURCHASE OR REDEEM SHARES OF THE PORTFOLIO
DIRECTLY. SHARES MAY BE PURCHASED OR REDEEMED ONLY THROUGH
VARIABLE INSURANCE CONTRACTS OFFERED BY THE SEPARATE ACCOUNTS OF
PARTICIPATING INSURANCE COMPANIES OR THROUGH QUALIFIED RETIREMENT
PLANS. REFER TO THE PROSPECTUS FOR THE PARTICIPATING INSURANCE
COMPANY'S SEPARATE ACCOUNT OR YOUR PLAN DOCUMENTS FOR
INSTRUCTIONS ON PURCHASING OR SELLING OF VARIABLE INSURANCE
CONTRACTS AND ON HOW TO SELECT THE PORTFOLIO AS AN INVESTMENT
OPTION FOR A CONTRACT OR A QUALIFIED PLAN.
PRICING OF PORTFOLIO SHARES
Investments will be processed at the NAV next determined after an
order is received and accepted by the Portfolio or its agent. In
order to receive a day's price, your order must be received by
the close of the regular trading session of the New York Stock
Exchange any day that the NYSE is open. Securities of the
Portfolio 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.
See the SAI for more detailed information.
To the extent the Portfolio holds securities that are primarily
listed on foreign exchanges that trade on weekends or other days
when the Portfolio does not price its shares, the NAV of the
Portfolio's shares may change on days when shareholders will not
be able to purchase or redeem the Portfolio's shares.
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
22 Janus Aspen Series prospectus
<PAGE>
documents for information on how to invest in the Shares of the
Portfolio. Participating insurance companies and certain other
designated organizations are authorized to receive purchase
orders on the Portfolio's behalf.
The Portfolio does not permit frequent trading or market timing.
Excessive purchases of Portfolio Shares disrupt portfolio
management and drive Portfolio expenses higher. The Portfolio
reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Janus Capital's opinion,
they are of a size that would disrupt the management of the
Portfolio. Although there is no present intention to do so, the
Portfolio may discontinue sales of its shares if management and
the Trustees believe that continued sales may adversely affect
the Portfolio's ability to achieve its investment objective. If
sales of the Portfolio's Shares are discontinued, it is expected
that existing policy owners and plan participants invested in the
Portfolio would be permitted to continue to authorize investment
in the Portfolio and to reinvest any dividends or capital gains
distributions, absent highly unusual circumstances. 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.
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
or its agent. 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.
Janus Aspen Series prospectus 23
<PAGE>
FREQUENT TRADING
Frequent trading of Portfolio shares in response in short-term
fluctuations in the market - also known as "market timing" - may
make it very difficult to manage the Portfolio's investments. The
Portfolio does not permit frequent trading or market timing. When
market timing occurs, the Portfolio may have to sell portfolio
securities to have the cash necessary to redeem the market
timer's shares. This can happen at a time when it is not
advantageous to sell any securities, which may harm the
Portfolio's performance. When large dollar amounts are involved,
market timing can also make it difficult to use long-term
investment strategies because the portfolio manager cannot
predict how much cash the Portfolio will have to invest. When in
Janus Capital's opinion such activity would have a disruptive
effect on portfolio management, the Portfolio reserves the right
to refuse purchase orders and exchanges into the Portfolio by any
person, group or commonly controlled account. The Portfolio may
notify a market timer of rejection of a purchase or exchange
order after the day the order is placed. If the Portfolio allows
a market timer to trade Portfolio shares, it may require the
market timer to enter into a written agreement to follow certain
procedures and limitations.
SHAREHOLDER COMMUNICATIONS
Shareholders will receive annual and semiannual reports including
the financial statements of the Shares of the Portfolio that they
have authorized for investment. Each report will show the
investments owned by the Portfolio and the market values thereof,
as well as other information about the Portfolio and its
operations. The Trust's fiscal year ends December 31.
24 Janus Aspen Series prospectus
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
No Financial Highlights are presented because the Portfolio did
not commence operations until May 1, 2000.
Janus Aspen Series prospectus 25
<PAGE>
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 of the
bond) 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. The
Portfolio may purchase commercial paper issued in private
placements under Section 4(2) of the Securities Act of 1933.
COMMON STOCKS are equity securities representing shares of
ownership in a company and usually carry 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.
DEBT SECURITIES are securities representing money borrowed that
must be repaid at a later date. Such securities have specific
maturities and usually a specific rate of interest or an original
purchase discount.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based
corporation that entitle the holder to dividends and capital
gains
26 Janus Aspen Series prospectus
<PAGE>
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 BONDS are bonds 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 bonds 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. To avoid taxes and interest that the
Portfolio must pay if these investments are profitable, the
Portfolio may
Janus Aspen Series prospectus 27
<PAGE>
make various elections permitted by the tax laws. 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.
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 STOCKS are equity securities that generally pay
dividends at a specified rate and have 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.
28 Janus Aspen Series prospectus
<PAGE>
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 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
Janus Aspen Series prospectus 29
<PAGE>
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 bear the risk of market value fluctuations in
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 regular
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.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
FORWARD CONTRACTS are contracts to purchase or sell a specified
amount of a financial instrument 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. It may also enter into forward contracts to
purchase or sell securities or other financial indices.
30 Janus Aspen Series prospectus
<PAGE>
FUTURES CONTRACTS are contracts that obligate the buyer to
receive and the seller to deliver an instrument or money at a
specified price on a specified date. The Portfolio may buy and
sell futures contracts on foreign currencies, securities and
financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income
securities. The Portfolio may also buy options on futures
contracts. An option on a futures contract gives the buyer the
right, but not the obligation, to buy or sell a futures contract
at a specified price on or before a specified date. Futures
contracts and options on futures are standardized and traded on
designated exchanges.
INDEXED/STRUCTURED SECURITIES are typically short- to
intermediate-term debt securities whose value at maturity or
interest rate is linked to currencies, interest rates, equity
securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively
indexed (i.e. their value may increase or decrease if the
reference index or instrument appreciates). Indexed/structured
securities may have return characteristics similar to direct
investments in the underlying instruments and may be more
volatile than the underlying instruments. The Portfolio bears the
market risk of an investment in the underlying instruments, as
well as the credit risk of the issuer.
INTEREST RATE SWAPS involve the exchange by two parties of their
respective commitments to pay or receive interest (e.g., an
exchange of floating rate payments for fixed rate payments).
INVERSE FLOATERS are debt instruments whose interest rate bears
an inverse relationship to the interest rate on another
instrument or index. For example, upon reset the interest rate
payable on a security may go down when the underlying index has
risen. Certain inverse floaters may have an interest rate reset
mechanism that multiplies the effects of change in the underlying
index. Such mechanism may increase the volatility of the
security's market value.
Janus Aspen Series prospectus 31
<PAGE>
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.
32 Janus Aspen Series prospectus
<PAGE>
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<PAGE>
[JANUS LOGO]
Please direct all mail to:
WESTERN RESERVE LIFE ASSURANCE CO. OF
OHIO
Please complete and return Application
to:
IF MAILED:
Janus Retirement Advantage
c/o Western Reserve Life Assurance Co.
of Ohio
Attn: Annuity Dept.
P.O. Box 9052
Clearwater, FL 33758-9052
IF OVERNIGHT DELIVERY:
Janus Retirement Advantage
c/o Western Reserve Life Assurance Co.
of Ohio
Attn: Annuity Dept.
Spectrum Technology Park
8550 Ulmerton Rd., Suite 101
Largo, FL 33771
JRAKITGFKCOP
<PAGE>
[JANUS LOGO]
JANUS ASPEN SERIES
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
GROWTH PORTFOLIO
AGGRESSIVE GROWTH PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
BALANCED PORTFOLIO
EQUITY INCOME PORTFOLIO
GROWTH AND INCOME PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
WORLDWIDE GROWTH PORTFOLIO
GLOBAL LIFE SCIENCES PORTFOLIO
GLOBAL TECHNOLOGY PORTFOLIO
FLEXIBLE INCOME PORTFOLIO
HIGH-YIELD PORTFOLIO
MAY 1, 2000
100 Fillmore Street
Denver, CO 80206-4928
(800) 525-0020
This SAI is not a Prospectus and should be read in conjunction with the
Portfolios' Prospectus dated May 1, 2000, 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. The Annual Reports, which contain important
financial information about the Portfolios, are incorporated by reference into
this SAI and are also available, without charge, from your insurance company.
<PAGE>
This Statement of Additional Information 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 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. Each Portfolio is managed
separately by Janus Capital Corporation.
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.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASSIFICATION, PORTFOLIO TURNOVER, INVESTMENT POLICIES AND
RESTRICTIONS, AND INVESTMENT STRATEGIES AND RISKS........... 2
INVESTMENT ADVISER.......................................... 22
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS.......... 25
PORTFOLIO TRANSACTIONS AND BROKERAGE........................ 26
TRUSTEES AND OFFICERS....................................... 30
SHARES OF THE TRUST......................................... 36
Net Asset Value Determination............................ 36
Purchases................................................ 36
Redemptions.............................................. 37
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
STATUS...................................................... 38
PRINCIPAL SHAREHOLDERS...................................... 39
MISCELLANEOUS INFORMATION................................... 42
Shares of the Trust...................................... 42
Shareholder Meetings..................................... 42
Voting Rights............................................ 42
Independent Accountants.................................. 43
Registration Statement................................... 43
PERFORMANCE INFORMATION..................................... 44
FINANCIAL STATEMENTS........................................ 46
APPENDIX A.................................................. 47
Explanation of Rating Categories......................... 47
</TABLE>
1
<PAGE>
CLASSIFICATION, PORTFOLIO TURNOVER, INVESTMENT POLICIES
AND RESTRICTIONS, AND INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
CLASSIFICATION
Each Portfolio is a series of the Trust, an open-end, management
investment company. The Investment Company Act of 1940 ("1940 Act")
classifies mutual funds as either diversified or nondiversified.
Aggressive Growth Portfolio, Capital Appreciation Portfolio, Global
Life Sciences Portfolio and Global Technology Portfolio are
nondiversified funds. Each of these Portfolios reserves the right to
become a diversified fund by limiting the investments in which more
than 5% of its total assets are invested. Growth Portfolio, Balanced
Portfolio, Equity Income Portfolio, Growth and Income Portfolio,
International Growth Portfolio, Worldwide Growth Portfolio, Flexible
Income Portfolio and High-Yield Portfolio are diversified funds.
PORTFOLIO TURNOVER
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.
<TABLE>
<CAPTION>
Portfolio Name 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Growth Portfolio............................................ 53% 73%
Aggressive Growth Portfolio................................. 105% 132%
Capital Appreciation Portfolio.............................. 52% 91%
Balanced Portfolio.......................................... 92% 70%
Equity Income Portfolio..................................... 114% 79%
Growth and Income Portfolio................................. 59% 62%(1)
International Growth Portfolio.............................. 80% 93%
Worldwide Growth Portfolio.................................. 67% 77%
Global Life Sciences Portfolio(2)........................... N/A N/A
Global Technology Portfolio(2).............................. N/A N/A
Flexible Income Portfolio................................... 116% 145%
High-Yield Portfolio........................................ 554% 301%
</TABLE>
(1) May 1, 1998 (inception) to December 31, 1998, annualized.
(2) The Portfolio had not commenced operations as of December 31, 1999.
INVESTMENT POLICIES AND RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
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, Capital Appreciation Portfolio, Global
Life Sciences Portfolio and Global Technology 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, 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
2
<PAGE>
value of its total assets, Aggressive Growth Portfolio, Capital
Appreciation Portfolio, Global Life Sciences Portfolio and Global
Technology 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).
This policy does not apply to Global Life Sciences Portfolio or Global
Technology Portfolio.
(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.
3
<PAGE>
(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 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.
Under the terms of an exemptive order received from the Securities and
Exchange Commission ("SEC"), each of the Portfolios may 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. A Portfolio
will borrow money through the program only when the costs are equal to
or lower than the cost of bank loans. Interfund loans and borrowings
normally extend overnight, but can have a maximum duration of seven
days. A Portfolio will lend through the program only when the returns
are higher than those available from other short-term instruments
(such as repurchase agreements). A Portfolio may have to borrow from a
bank at a higher interest rate if an interfund loan is called or not
renewed. Any delay in repayment to a lending Portfolio could result in
a lost investment opportunity or additional borrowing costs.
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
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different, the Portfolios may further classify issuers in accordance
with industry classifications as published by the 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
securities.
GLOBAL LIFE SCIENCES PORTFOLIO. As a fundamental policy, Global Life
Sciences Portfolio will normally invest at least 25% of its total
assets, in the aggregate, in the following industry groups: health
care; pharmaceuticals; agriculture; cosmetics/personal care; and
biotechnology.
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).
INVESTMENT STRATEGIES AND RISKS
Cash Position
As discussed in the Prospectus, when a portfolio manager believes that
market conditions are unfavorable for profitable investing, or when he
or she is otherwise unable to locate attractive investment
opportunities, the Portfolio's investment in cash and similar
investments may increase. Securities that the Portfolios may invest in
as a means of receiving a return on idle cash include 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. (See
"Investment Company Securities" on page 8).
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 have authorized Janus Capital to make liquidity
determinations with respect to certain securities, including Rule 144A
Securities, commercial paper and municipal lease obligations purchased
by the Portfolios. 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.
If illiquid securities exceed 15% of a Portfolio's net assets after
the time of purchase the Portfolio will take steps to reduce in an
orderly fashion its holdings of illiquid securities. Because illiquid
securities may not be readily marketable, a portfolio manager may not
be able to dispose of them in a timely manner. As a
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result, a Portfolio may be forced to hold illiquid securities while
their price depreciates. Depreciation in the price of illiquid
securities may cause the net asset value of a Portfolio to decline.
Securities Lending
The Portfolios may lend securities to qualified parties (typically
brokers or other financial institutions) who need to borrow securities
in order to complete certain transactions such as covering short
sales, avoiding failures to deliver securities or completing arbitrage
activities. The Portfolios may seek to earn additional income through
securities lending. Since there is the risk of delay in recovering a
loaned security or the risk of loss in collateral rights if the
borrower fails financially, securities lending will only be made to
parties that Janus Capital deems creditworthy and in good standing. In
addition, such loans will only be made if Janus Capital believes the
benefit from granting such loans justifies the risk. The Portfolios
will not have the right to vote on securities while they are being
lent, but it will generally call a loan in anticipation of any
important vote. All loans will be continuously secured by collateral
which consists of cash, U.S. government securities, letters of credit
and such other collateral permitted by the SEC and policies approved
by the Trustees. Cash collateral may be invested in money market funds
advised by Janus to the extent consistent with exemptive relief
obtained from the SEC.
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 to the security sold short
that the Portfolio has the right to obtain, for delivery at a
specified date in the future. A Portfolio may enter into a short sale
against the box to hedge against anticipated declines in the market
price of portfolio securities. If the value of the securities sold
short increases prior to the scheduled delivery date, a Portfolio
loses the opportunity to participate in the gain.
Zero Coupon, Step Coupon and Pay-In-Kind Securities
Each Portfolio may invest up to 10% (without limit for High-Yield
Portfolio and Flexible Income 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. For the purposes of any Portfolio's
restriction on investing 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).
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
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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.
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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 the
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 Portfolios may invest in securities of other
investment companies, subject to the provisions of Section 12(d)(1) of
the 1940 Act. The Portfolios may invest in securities of money market
funds managed by Janus Capital in excess of the limitations of Section
12(d)(1) under the terms of an SEC exemptive order obtained by Janus
Capital and the Janus funds.
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 and GDRs are
securities that are typically issued by foreign banks or foreign trust
companies, although U.S. banks or U.S. trust companies may issue them.
EDRs and GDRs are structured similarly to the arrangements of ADRs.
EDRs, in bearer form, are designed for use in European securities
markets.
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Depositary Receipts are generally subject to the same sort of risks as
direct investments in a foreign country, such as, currency risk,
political and economic risk, and market risk, because their values
depend on the performance of a foreign security denominated in its
home currency. The risks of foreign investing are addressed in some
detail in the Portfolios' prospectus.
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 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. 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.
In order to most effectively use these investments, a portfolio
manager must correctly assess probable movements in interest rates.
This involves different skills than those used to select most
portfolio securities. If the portfolio manager incorrectly forecasts
such movements, a Portfolio could be adversely affected by the use of
variable or floating rate obligations.
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. No Portfolio will invest more than 5% of its assets in
inverse floaters. Similar to variable and floating rate obligations,
effective use of inverse floaters requires skills different from those
needed to select most portfolio securities. If movements in interest
rates are incorrectly anticipated, a fund could lose money or its NAV
could decline by the use of inverse floaters.
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STRIP BONDS. 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.
The Portfolios will purchase standby commitments, tender option bonds
and instruments with demand features primarily for the purpose of
increasing the liquidity of their holdings.
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 consists of 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 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
are 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 obtain 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 Bonds
Flexible Income Portfolio and High-Yield Portfolio may invest without
limit in bonds that are rated below investment grade (e.g., bonds
rated BB or lower by Standard & Poor's Ratings Services or Ba or lower
by Moody's Investors Service, Inc.). No other Portfolio intends to
invest 35% or more of its net assets in such bonds. Lower rated bonds
involve a higher degree of credit risk, which is the risk that the
issuer will not make interest or principal payments when due. In the
event of an unanticipated default, a Portfolio would experience a
reduction in its income, and could expect a decline in the market
value of the bonds so affected.
Any Portfolio may also invest in unrated debt bonds of foreign and
domestic issuers. Unrated bonds, while not necessarily of lower
quality than rated bonds, may not have as broad a market. Because of
the size and
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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 bond, in determining whether to purchase unrated
municipal bonds. Unrated bonds will be included in the 35% limit of
each Portfolio unless its manager deems such securities to be the
equivalent of investment grade bonds.
Subject to the above limits, each Portfolio may purchase defaulted
securities only when its portfolio manager believes, based upon
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 about 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.
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
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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 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 bonds in its portfolio.
If interest rates increase as anticipated, the value of the bonds
would decline, but the value of that Portfolio's interest rate futures
contract will increase, thereby
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keeping the net asset value of that Portfolio from declining as much
as it may have otherwise. If, on the other hand, a portfolio manager
expects interest rates to decline, that Portfolio may take a long
position in interest rate futures contracts in anticipation of later
closing out the futures position and purchasing the bonds. Although a
Portfolio can accomplish similar results by buying securities with
long maturities and selling securities with short maturities, given
the greater liquidity of the futures market than the cash market, it
may be possible to accomplish the same result more easily and more
quickly by using futures contracts as an investment tool to reduce
risk.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets, are subject to
distortions. First, all participants in the futures market are subject
to initial margin and variation margin requirements. Rather than
meeting additional variation margin requirements, investors may close
out futures contracts through offsetting transactions which could
distort the normal price relationship between the cash and futures
markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making
or taking delivery of the instrument underlying a futures contract. To
the extent participants decide to make or take delivery, liquidity in
the futures market could be reduced and prices in the futures market
distorted. Third, from the point of view of speculators, the margin
deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by a portfolio
manager still may not result in a successful use of futures.
Futures contracts entail risks. Although the Portfolios believe that
use of such contracts will benefit the Portfolios, a Portfolio's
overall performance could be worse than if such Portfolio had not
entered into futures contracts if the portfolio manager's investment
judgement proves incorrect. For example, if a Portfolio has hedged
against the effects of a possible decrease in prices of securities
held in its portfolio and prices increase instead, that Portfolio will
lose part or all of the benefit of the increased value of these
securities because of offsetting losses in its futures positions. In
addition, if a Portfolio has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin
requirements. Those sales may be, but will not necessarily be, at
increased prices which reflect the rising market and may occur at a
time when the sales are disadvantageous to such Portfolio.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of
futures contracts, it is possible that the standardized futures
contracts available to a Portfolio will not match exactly such
Portfolio's current or potential investments. A Portfolio may buy and
sell futures contracts based on underlying instruments with different
characteristics from the securities in which it typically
invests - for example, by hedging investments in portfolio securities
with a futures contract based on a broad index of securities - which
involves a risk that the futures position will not correlate precisely
with the performance of such Portfolio's investments.
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
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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.
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The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio
securities. For example, 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
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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 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 projected, 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.
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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, should 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 to or less than the
exercise price of the
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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.
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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-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.
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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.
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
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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.
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INVESTMENT ADVISER
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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, Capital Appreciation
Portfolio, Balanced Portfolio, Equity Income Portfolio, Growth and
Income Portfolio, International Growth Portfolio, Worldwide Growth
Portfolio, Global Life Sciences Portfolio and Global Technology
Portfolio have each agreed to compensate Janus Capital for its
services by the monthly payment of a fee at the annual rate of 0.65%
of the average daily net assets of each Portfolio. This fee is the
same or lower than the fee that each of the Equity Portfolios paid
under its old agreement during its most recent fiscal year.
Janus Capital has agreed to reimburse Equity Income Portfolio, Global
Life Sciences Portfolio and Global Technology Portfolio by the amount,
if any, that such Portfolio's normal operating expenses in any fiscal
year, including the investment advisory fee but excluding brokerage
commissions, interest, taxes and extraordinary expenses, exceed an
annual rate of 1.25% of the average daily net assets of the Portfolio
until at least the next annual renewal of the advisory agreements.
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 has agreed to compensate Janus Capital for
its services by the monthly payment of a fee at the annual rate of
.65% of the first $300 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. Janus Capital has agreed to waive the
advisory fee payable of High-Yield Portfolio and Flexible Income
Portfolio in an amount equal to the amount, if any, that the
Portfolio's normal operating expenses 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. Mortality risk, expense risk and
other charges imposed by participating insurance companies are
excluded from the above expense limitation. Janus Capital has agreed
to continue such waivers until at least the next annual renewal of the
advisory agreements.
22
<PAGE>
The following table summarizes the advisory fees paid by the
Portfolios and any advisory fee waivers for the periods indicated. The
information below is for fiscal years ended December 31. The
information presented in the table below reflects the management fees
in effect during each of the periods shown. Effective May 1, 2000, the
Equity Portfolios' management fees were changed to 0.65% of the
average daily net assets of each Portfolio. This fee is the same as or
lower than the fee that each Equity Portfolio paid under its old
agreement.
<TABLE>
<CAPTION>
1999 1998 1997
Portfolio Name Advisory Fees Waivers(1) Advisory Fees Waivers(1) Advisory Fees Waivers(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio $11,643,196 -- $ 5,144,931 -- $3,119,619 --
Aggressive Growth Portfolio $10,080,519 -- $ 4,159,741 -- $3,036,239 --
Capital Appreciation Portfolio $ 1,716,060 -- $ 181,285 -- $ 12,832(2) $ 9,172(2)
Balanced Portfolio $10,804,814 -- $ 4,020,954 -- $1,348,363 --
Equity Income Portfolio $ 106,069 $14,279 $ 42,337 $34,357 $ 5,959(2) $ 5,959(2,3)
Growth and Income Portfolio $ 201,847 -- $ 12,900 $12,900(3,4) -- --
International Growth Portfolio $ 2,829,430 -- $ 1,547,572 -- $ 645,307 --
Worldwide Growth Portfolio $25,509,504 -- $14,485,092 -- $7,532,715 --
Global Life Sciences Portfolio(5) N/A -- N/A -- N/A --
Global Technology Portfolio(5) N/A -- N/A -- N/A --
Flexible Income Portfolio $ 1,051,109 -- $ 563,148 -- $ 237,601 --
High-Yield Portfolio $ 18,446 $18,446(3) $ 24,691 $24,691(3) $ 11,790 $11,790(3)
</TABLE>
(1) In addition to these fee waivers, Janus Capital has agreed to reduce the
advisory fee of the Growth, Aggressive Growth, Capital Appreciation,
Balanced, Equity Income, Growth and Income Portfolios, International Growth
and Worldwide Growth to the extent that such fee exceeds the effective rate
of the Janus retail fund corresponding to such Portfolio.
(2) May 1, 1997 (inception) to December 31, 1997.
(3) Fee waiver by Janus Capital exceeded the advisory fee.
(4) May 1, 1998 (inception) to December 31, 1998.
(5) The Portfolio had not commenced operations as of December 31, 1999.
The Advisory Agreement for each of the Portfolios is dated July 1,
1997 (except Global Life Sciences Portfolio and Global Technology
Portfolio, which are dated December 14, 1999). The Equity Portfolios'
Advisory Agreements were each amended effective May 1, 2000 to
decrease the management fees. Each Advisory Agreement will continue in
effect until July 1, 2001, 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 acts as sub-adviser for a number of private-label mutual
funds and provides separate account advisor services for institutional
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
23
<PAGE>
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.
Kansas City Southern Industries, Inc. ("KCSI"), indirectly through its
wholly owned subsidiary, Stilwell Financial Inc., owns approximately
81% of the outstanding voting stock of Janus Capital. 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 Janus Capital's voting stock and,
by agreement with KCSI, selects at least a majority of Janus Capital's
Board, subject to the approval of Stilwell Financial, which cannot be
unreasonably withheld.
KCSI has announced its intention to separate its transportation and
financial services businesses. KCSI anticipates the separation to be
completed in the first half of 2000.
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.
Janus Capital does not permit the Portfolios' portfolio managers to
purchase and sell securities for their own accounts except under the
limited exceptions contained in the Portfolios' Code of Ethics
("Code"). The Portfolios' Code of Ethics is on file with and available
through the SEC Web site at www.sec.gov. The Code applies to
Directors/Trustees of Janus Capital and the Portfolios, and employees
of Janus Capital and the Trust, and requires investment personnel,
inside Directors/Trustees of Janus Capital and the Portfolios and
certain other designated employees deemed to have access to current
trading information to pre-clear all transactions in securities not
otherwise exempt under the Code. Requests for trading authorization
will be denied when, among other reasons, the proposed personal
transaction would be contrary to the provisions of the Code 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 Code
subjects such personnel to various trading restrictions and reporting
obligations. All reportable transactions are required to be reviewed
for compliance with the Code. Those persons also may be required under
certain circumstances to forfeit their profits made from personal
trading.
The provisions of the Code are administered by and subject to
exceptions authorized by Janus Capital.
24
<PAGE>
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 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
it selects, 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, 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., a subsidiary of KCSI, license
fees at the annual rate of $3.06 per shareholder account for the
equity portfolios and $3.98 per shareholder account for the
fixed-income portfolios for the use of DST's shareholder accounting
system. The Portfolios also pay DST $1.10 per closed shareholder
account. The Portfolios pay DST for the use of its portfolio and fund
accounting system a monthly base fee of $250 to $1,250 per month based
on the number of Janus funds using the system and an asset charge of
$1 per million dollars 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 credits 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., 100 Fillmore Street, Denver, Colorado
80206-4928, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Portfolios. Janus Distributors is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc.
25
<PAGE>
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.
26
<PAGE>
For the year ended December 31, 1999, the total brokerage commissions
paid by the Portfolios to brokers and dealers in transactions
identified for execution primarily on the basis of research and other
services provided to the Portfolios are summarized below:
<TABLE>
<CAPTION>
Portfolio Name Commissions Transactions
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Growth Portfolio $ 972,059 $1,043,385,823
Aggressive Growth Portfolio $ 853,240 $ 646,562,742
Capital Appreciation Portfolio $ 143,650 $ 174,669,374
Balanced Portfolio $ 530,904 $ 499,553,931
Equity Income Portfolio $ 4,697 $ 4,680,446
Growth and Income Portfolio $ 12,117 $ 9,878,778
International Growth Portfolio $ 86,547 $ 61,003,752
Worldwide Growth Portfolio $ 841,652 $ 808,050,621
</TABLE>
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.
27
<PAGE>
The following table lists the total amount of brokerage commissions
paid by each Portfolio for the fiscal periods ending on December 31st
of each year:
<TABLE>
<CAPTION>
Portfolio Name 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio $1,800,731 $1,062,104 $1,249,908
Aggressive Growth Portfolio $1,664,794 $1,157,439 $ 974,825
Capital Appreciation Portfolio $ 232,858 $ 39,464 $ 2,570(2)
Balanced Portfolio $1,254,757 $ 337,008 $ 408,226
Equity Income Portfolio $ 15,272 $ 6,415 $ 1,055(2)
Growth and Income Portfolio $ 39,174 $ 3,844(1) $ N/A
International Growth Portfolio $1,084,559 $ 810,115 $ 512,690
Worldwide Growth Portfolio $7,327,446 $5,334,034 $4,223,192
Global Life Sciences Portfolio(3) N/A N/A N/A
Global Technology Portfolio(3) N/A N/A N/A
Flexible Income Portfolio $ 1,200 $ 4,050 $ 2,841
High-Yield Portfolio $ 60 $ 679 $ 103
</TABLE>
(1) May 1, 1998 (inception) to December 31, 1998.
(2) May 1, 1997 (inception) to December 31, 1997.
(3) The Portfolio had not commenced operations as of December 31, 1999.
Note: Portfolios that are not included in the table did not pay brokerage
commissions because securities transactions for such Portfolios involved
dealers acting as principals.
Included in such brokerage commissions are the following amounts paid
to DSTS, which served to reduce each Portfolio's out-of-pocket
expenses as follows:
<TABLE>
<CAPTION>
Commission Paid
through DSTS for the
Period Ended Reduction of % of Total % of Total
Portfolio Name December 31, 1999* Expenses* Commissions+ Transactions
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $7,244 $5,433 0.40% 0.33%
Balanced Portfolio $2,294 $1,721 0.18% 0.10%
Growth and Income Portfolio $ 55 $ 41 0.14% 0.08%
</TABLE>
* The difference between commissions paid to DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions are due, in part, to variations among share prices and
number of shares traded, while average price per share commission rates were
substantially the same.
Note: Portfolios that did not execute trades with DSTS during the periods
indicated are not included in the table.
<TABLE>
<CAPTION>
Commission Paid Commission
through DSTS for the Paid through DSTS
Period Ended Reduction of for the Period Ended Reduction
Portfolio Name December 31, 1998* Expenses* December 31, 1997* of Expenses*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $6,937 $5,203 $2,819 $2,114
Aggressive Growth Portfolio $9,626 $7,219 $6,780 $5,085
Balanced Portfolio $ -- $ -- $ 391 $ 293
Equity Income Portfolio $ 7 $ 6 $ 15 $ 11
Worldwide Growth Portfolio $ -- $ -- $6,697 $5,023
</TABLE>
* The difference between commissions paid through DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
Note: Portfolios that did not execute trades with DSTS during the periods
indicated are not included in the table.
28
<PAGE>
As of December 31, 1999, certain Portfolios owned securities of their
regular broker-dealers (or parents), as shown below:
<TABLE>
<CAPTION>
Value of
Name of Securities
Portfolio Name Broker-Dealer Owned
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth Portfolio Charles Schwab Corporation $42,087,398
Balanced Portfolio Charles Schwab Corporation $24,595,881
Equity Income Portfolio Charles Schwab Corporation $ 254,388
Growth and Income Portfolio Charles Schwab Corporation $ 126,637
</TABLE>
29
<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
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, Age 62 - 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.
Director of Janus Distributors, Inc.
James P. Craig, III, Age 43 - Trustee and Vice President*#
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Trustee and Vice President of Janus Investment Fund. Chief Investment
Officer, Director of Research, Vice Chairman and Director of Janus
Capital. Formerly Executive Vice President and Portfolio Manager of
Growth Portfolio and Janus Fund. Formerly Executive Vice President and
Co-Manager of Janus Venture Fund. Formerly Executive Vice President
and Portfolio Manager of Balanced Portfolio and Janus Balanced Fund.
Gary O. Loo, Age 59 - Trustee#
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. President and Director of High
Valley Group, Inc., Colorado Springs, CO (investments).
Dennis B. Mullen, Age 56 - Trustee
7500 E. McCormick Parkway, #24
Scottsdale, AZ 85258
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Private Investor. Formerly
(1997-1998), Chief Financial Officer-Boston Market Concepts, Boston
Chicken, Inc., Golden, CO (restaurant chain); (1993-1997) President
and Chief Executive Officer of BC Northwest, L.P., a franchise of
Boston Chicken, Inc., Bellevue, WA (restaurant chain).
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Trust's Executive Committee.
30
<PAGE>
James T. Rothe, Age 56 - Trustee
102 South Tejon Street, Suite 1100
Colorado Springs, CO 80903
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Professor of Business, University of
Colorado, Colorado Springs, CO. Principal, Phillips-Smith Retail
Group, Colorado Springs, CO (a venture capital firm).
William D. Stewart, Age 55 - Trustee#
5330 Sterling Drive
Boulder, CO 80302
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. President of HPS Division of MKS
Instruments, Boulder, CO (manufacturer of vacuum fittings and valves).
Martin H. Waldinger, Age 61 - Trustee
4940 Sandshore Court
San Diego, CA 92130
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Private Consultant. Formerly
(1993-1996), Director of Run Technologies, Inc., a software
development firm, San Carlos, CA.
Laurence J. Chang, Age 34 - Executive Vice President, Co-Manager of
100 Fillmore Street International Growth Portfolio, Co-Manager of
Denver, CO 80206-4928 Worldwide Growth Portfolio*
- --------------------------------------------------------------------------------
Executive Vice President and Co-Manager of Janus Investment Fund.
Formerly (1998-1999), an assistant portfolio manager at Janus Capital.
Formerly (1993-1998), a research analyst at Janus Capital.
David J. Corkins, Age 33 - Executive Vice President, Portfolio Manager of Growth
100 Fillmore Street and Income Portfolio*
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President of Janus Investment Fund. Vice President of
Janus Capital. Formerly (1995-1997), research analyst and assistant
portfolio manager at Janus Capital. Formerly (1993-1995), Chief
Financial Officer of Chase U.S. Consumer Services, Inc., a Chase
Manhattan mortgage business.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Trust's Executive Committee.
31
<PAGE>
James P. Goff, Age 36 - Executive Vice President, Portfolio Manager of
100 Fillmore Street Aggressive Growth Portfolio*
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Vice President of Janus Capital.
Helen Young Hayes, Age 37 - Executive Vice President, Co-Manager of Worldwide
100 Fillmore Street Growth Portfolio, Co-Manager of International Growth
Denver, CO 80206-4928 Portfolio*
- --------------------------------------------------------------------------------
Executive Vice President, Co-Manager of Janus Investment Fund. Vice
President of Janus Capital.
C. Mike Lu, Age 30 - Executive Vice President, Portfolio Manager of Global
100 Fillmore Street Technology Portfolio*
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Formerly (1991-1998), research analyst at Janus Capital.
Thomas R. Malley, Age 31 - Executive Vice President, Portfolio Manager of Global
100 Fillmore Street Technology Portfolio*
Denver, CO 80906-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Vice President of Janus Capital. Formerly (1991-1998), research
analyst at Janus Capital.
Karen L. Reidy, Age 32 - Executive Vice President, Portfolio Manager of Balanced
100 Fillmore Street Portfolio and Equity Income Portfolio*
Denver, CO 80906-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Vice President of Janus Capital. Formerly (1995-1999), equity
analyst at Janus Capital.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
32
<PAGE>
Blaine P. Rollins, Age 33 - Executive Vice President, Portfolio Manager of
100 Fillmore Street Growth Portfolio*
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Vice President of Janus Capital. Formerly (1996-1999), Executive
Vice President and Portfolio Manager of Equity Income and Balanced
Portfolios. Formerly (1990-1995), fixed-income trader and equity
securities analyst at Janus Capital.
Sandy R. Rufenacht, Age 35 - Executive Vice President, Portfolio Manager of
100 Fillmore Street High-Yield Portfolio*
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Vice President of Janus Capital. Formerly (1990-1995), senior
accountant, fixed-income trader and fixed-income research analyst at
Janus Capital.
Ronald V. Speaker, age 35 - Executive Vice President, Portfolio Manager of
100 Fillmore Street Flexible Income Portfolio*
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Vice President of Janus Capital.
Scott W. Schoelzel, Age 41 - Executive Vice President, Portfolio Manager of
100 Fillmore Street Capital Appreciation Portfolio*
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Vice President of Janus Capital.
Thomas A. Early, Age 45 - Vice President and General Counsel*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Vice President and General Counsel of Janus Investment Fund. Vice
President, General Counsel and Secretary of Janus Capital. Vice
President and General Counsel of Janus Service Corporation, Janus
Distributors, Inc., Janus Capital International, Ltd. and Janus
International (UK) Limited. Director of Janus World Funds Plc.
Formerly (1997 to 1998), Executive Vice President and General Counsel
of Prudential Investments Fund Management LLC, Newark, NJ. Formerly
(1994 to 1997), Vice President and General Counsel of Prudential
Retirement Services, Newark, NJ.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
33
<PAGE>
Steven R. Goodbarn, Age 42 - 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 Capital, Janus Service Corporation and Janus Distributors, Inc.
Director of Janus Service Corporation, Janus Distributors, Inc. and
Janus World Funds Plc. Director, Treasurer and Vice President of
Finance of Janus Capital International, Ltd. and Janus International
(UK) Limited. Formerly (1992-1996), Treasurer of Janus Investment Fund
and Janus Aspen Series.
Kelley Abbott Howes, Age 34 - Vice President and Secretary*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Vice President and Secretary of Janus Investment Fund. Vice President
and Assistant General Counsel of Janus Capital. Vice President of
Janus Distributors, Inc. Assistant Vice President of Janus Service
Corporation.
Glenn P. O'Flaherty, Age 41 - Treasurer and Chief Accounting Officer*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Treasurer and Chief Accounting Officer of Janus Investment Fund. Vice
President of Janus Capital. Formerly (1991-1997), Director of Fund
Accounting, Janus Capital.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
34
<PAGE>
The Trustees are responsible for major decisions relating to each
Portfolio's objective, policies and techniques. The Trustees also
supervise the operation of the Portfolios by their officers and review
the investment decisions of the officers although they do not actively
participate on a regular basis in making such decisions.
The Trust's Executive Committee shall have and may exercise all the
powers and authority of the Trustees except for matters requiring
action by all Trustees pursuant to the Trust's Bylaws or Trust
Instrument, Delaware law or the 1940 Act.
The following table shows the aggregate compensation paid to each
Trustee by the Portfolios and all funds advised and sponsored by Janus
Capital (collectively, the "Janus Funds") for the periods indicated.
None of the Trustees receive pension or retirement benefits from the
Portfolios or the Janus Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
from the Portfolios for from the Janus Funds for
fiscal year ended calendar year ended
Name of Person, Position December 31, 1999 December 31, 1999**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman and Trustee* $ 0 $ 0
James P. Craig, III, Trustee* $ 0 $ 0
William D. Stewart, Trustee $8,342 $107,333
Gary O. Loo, Trustee $7,685 $107,333
Dennis B. Mullen, Trustee $7,379 $107,333
Martin H. Waldinger, Trustee $8,342 $107,333
James T. Rothe, Trustee $7,685 $107,333
</TABLE>
* An interested person of the Portfolios and of Janus Capital. Compensated by
Janus Capital and not the Portfolios.
** As of December 31, 1999, Janus Funds consisted of two registered investment
companies comprised of a total of 32 funds.
35
<PAGE>
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, Martin Luther King 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 an 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. Participating insurance companies and certain other
designated organizations are authorized to receive purchase orders on
the Portfolios' behalf and those organizations are authorized to
designate their agents and affiliates as intermediaries to receive
purchase orders. Purchase orders are deemed received by a Portfolio
when authorized organizations, their agents or affiliates receive the
order. The Portfolios are not responsible for the failure of any
designated organization or its agents or affiliates to carry out its
obligations to its customers. 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
36
<PAGE>
accepted by a Portfolio or its authorized agent. In order to receive a
day's price, your order must be received by the close of the regular
trading session of the NYSE as described above in "Net Asset Value
Determination." The prospectus for your insurance company's separate
account or your plan documents contain detailed information about
investing in the different Portfolios.
REDEMPTIONS
Redemptions, like purchases, may only be effected through the separate
accounts of participating insurance companies or qualified retirement
plans. Certain designated organizations are authorized to receive
redemption orders on the Portfolios' behalf and those organizations
are authorized to designate their agents and affiliates as
intermediaries to receive redemption orders. Redemption orders are
deemed received by a Portfolio when authorized organizations, their
agents or affiliates receive the order. The Portfolios are not
responsible for the failure of any designated organization or its
agents or affiliates to carry out its obligations to its customers.
Shares normally will be redeemed for cash, although each Portfolio
retains the right to redeem some or all of its Shares in kind under
unusual circumstances, in order to protect the interests of remaining
shareholders, or to accommodate a request by a particular shareholder
that does not adversely affect the interest of the 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.
37
<PAGE>
Income dividends, capital gains distributions and tax status
It is a policy of the Shares of the Portfolios to make distributions
of substantially all of their respective investment income and any net
realized capital gains. The Portfolios intend to qualify as regulated
investment companies by satisfying certain requirements prescribed by
Subchapter M of the Internal Revenue Code ("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 appreciate in value, 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.
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. If
such 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 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.
38
<PAGE>
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 or through a qualified plan.
As a result, such officers and Trustees as a group own less than 1% of
the outstanding Shares of each Portfolio. As of April 3, 2000, all of
the outstanding Shares of the Portfolios were owned by certain
insurance company separate accounts or qualified plans. The percentage
ownership of each separate account or plan owning more than 5% of the
Shares of any Portfolio is as follows:
Aetna Life Insurance & Annuity Company, 151 Farmington Avenue,
Hartford, CT 06156, owned of record 5% or more of the outstanding
Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by Aetna Insurance & Annuity
Portfolio Name Company
- -----------------------------------------------------------------------------------------------
<S> <C>
Growth Portfolio 29.56%
Aggressive Growth Portfolio 58.36%
Balanced Portfolio 33.64%
Worldwide Growth Portfolio 35.55%
Flexible Income Portfolio 35.28%
</TABLE>
ADP, 1 ADP Boulevard, Roseland, NJ 07068, owned of record 5% or more
of the outstanding Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Portfolio Name Held by ADP
- -----------------------------------------------------------------------------------------------
<S> <C>
International Growth Portfolio 8.64%
</TABLE>
American United Life Insurance Company, One American Square, Suite
209, Indianapolis, IN 46282, owned of record 5% or more of the
outstanding Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by American United
Portfolio Name Life Insurance Company
- -----------------------------------------------------------------------------------------------
<S> <C>
Flexible Income Portfolio 9.03%
</TABLE>
Citibank, N.A., Joseph E. Seagram & Sons Inc., 3800 Citibank Center
Tampa, Tampa, FL 33610, owned of record 5% or more of the outstanding
Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Portfolio Name Held by Citibank, N.A.
- -----------------------------------------------------------------------------------------------
<S> <C>
Global Technology Portfolio 99.98%
</TABLE>
Connecticut Mutual Life Insurance Company, 1295 State Street,
Springfield, MA 01111, owned of record 5% or more of the outstanding
Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by Connecticut Mutual
Portfolio Name Life Insurance Company
- -------------------------------------------------------------------------------------------
<S> <C>
Capital Appreciation Portfolio 7.82%
</TABLE>
Kemper Investors Life Insurance Company, 1 Kemper Drive T-1, Long
Grove, IL 60049, owned of record 5% or more of the outstanding Shares
of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by Kemper Investors Life
Portfolio Name Insurance Company
- -------------------------------------------------------------------------------------------
<S> <C>
Balanced Portfolio 5.66%
Growth and Income Portfolio 80.72%
</TABLE>
39
<PAGE>
The Life Insurance Company of Virginia, 6610 West Broad Street,
Richmond, VA 23230, owned of record 5% or more of the outstanding
Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by The Life Insurance
Portfolio Name Company of Virginia
- -----------------------------------------------------------------------------------------------
<S> <C>
Growth Portfolio 23.16%
Aggressive Growth Portfolio 15.68%
Capital Appreciation Portfolio 53.96%
Balanced Portfolio 18.99%
International Growth Portfolio 20.88%
Worldwide Growth Portfolio 14.10%
Flexible Income Portfolio 32.00%
</TABLE>
Lincoln Benefit Life Company, P.O. Box 82532, Lincoln, NE 68501, owned
of record 5% or more of the outstanding Shares of the Portfolios, as
follows:
<TABLE>
<CAPTION>
Held by Lincoln Benefit
Portfolio Name Life Company
- -----------------------------------------------------------------------------------------------
<S> <C>
Flexible Income Portfolio 5.35%
</TABLE>
Lincoln National Life Insurance Company, 1300 South Clinton Street,
Fort Wayne, IN 46802, owned of record 5% or more of the outstanding
Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by Lincoln National
Portfolio Name Life Insurance Company
- -----------------------------------------------------------------------------------------------
<S> <C>
Worldwide Growth Portfolio 5.56%
</TABLE>
MONY Life Insurance Company, 1740 Broadway, Suite 635, New York, NY
10019, owned of record 5% or more of the outstanding Shares of the
Portfolios, as follows:
<TABLE>
<CAPTION>
Held by MONY Life
Portfolio Name Insurance Company
- ----------------------------------------------------------------------------------------------------
<S> <C>
Capital Appreciation Portfolio 7.51%
</TABLE>
National Integrity Life Insurance Company, 515 West Market Street, 8th
Floor, Louisville, KY 40202, owned of record 5% or more of the
outstanding Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by National Integrity
Portfolio Name Insurance Company
- -----------------------------------------------------------------------------------------------
<S> <C>
Capital Appreciation Portfolio 6.39%
</TABLE>
New York Life Insurance & Annuity Corporation, Morris Corporate Center
1, Building A, 300 Interspace Parkway, Parsippany, NJ 07054, owned of
record 5% or more of the outstanding Shares of the Portfolios, as
follows:
<TABLE>
<CAPTION>
Held by New York Life
Insurance & Annuity
Portfolio Name Corporation
- -----------------------------------------------------------------------------------------------
<S> <C>
Balanced Portfolio 22.50%
Worldwide Growth Portfolio 9.54%
</TABLE>
40
<PAGE>
Pruco Life Insurance Company, 100 Mulberry Street, Newark, NJ 07102,
owned of record 5% or more of the outstanding Shares of the
Portfolios, as follows:
<TABLE>
<CAPTION>
Held by Pruco
Portfolio Name Life Insurance Company
- -----------------------------------------------------------------------------------------------
<S> <C>
Growth Portfolio 13.13%
International Growth Portfolio 34.23%
</TABLE>
State Street Bank and Trust Company, FBO Northwest Airlines Retirement
Savings Plan, 105 Rosemont Road, Westwood, MA 02090, owned of record
5% or more of the outstanding Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by State Street Bank and
Portfolio Name Trust Company
- -----------------------------------------------------------------------------------------------
<S> <C>
International Growth Portfolio 9.48%
</TABLE>
Western Reserve Life Assurance Co. of Ohio, 201 Highland Avenue,
Clearwater, FL 34618, owned of record 5% or more of the outstanding
Shares of the Portfolios, as follows:
<TABLE>
<CAPTION>
Held by Western Reserve Life
Portfolio Name Assurance Co. of Ohio
- -----------------------------------------------------------------------------------------------
<S> <C>
Capital Appreciation Portfolio 6.44%
Equity Income Portfolio 100.00%
Growth and Income Portfolio 17.85%
High-Yield Portfolio 98.97%
</TABLE>
No qualified plan owned more than 10% of the shares of the Trust as a
whole.
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.
41
<PAGE>
MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
Each Portfolio is a series of the Trust, an open-end management
investment company registered under the 1940 Act and organized as a
Delaware business trust on May 20, 1993. As of the date of this SAI,
the Trust is offering fourteen series of shares, known as
"Portfolios," each of which consists of two or three 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 or three 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 qualified
retirement plans. A second class of shares, Retirement Shares, is
offered only to certain participant directed qualified plans whose
service providers require a fee from the Trust assets for providing
certain services to plan participants.
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 Portfolio or class only
if a matter affects or requires the vote of only that Portfolio or
class or that Portfolio's or class' interest in the matter differs
from the interest of other Portfolios of the Trust. Shareholder is
entitled to one vote for each Share owned.
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
42
<PAGE>
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.
As mentioned above in "Shareholder Meetings," 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.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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.
43
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
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, 1999, is shown in the table below (with the exception of
Global Life Sciences Portfolio and Global Technology Portfolio, which
had not commenced operations as of December 31, 1999):
<TABLE>
<CAPTION>
Date Number Average Annual Total Return
Available of Months One Five Ten Life of
Portfolio Name for Sale in Lifetime Year Years Years Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio - Institutional Shares 9/13/93 75.5 43.98% 29.89% N/A 24.28%
Aggressive Growth Portfolio - Institutional Shares 9/13/93 75.5 125.40% 36.23% N/A 34.42%
Capital Appreciation Portfolio - Institutional Shares 5/1/97 32 67.00% N/A N/A 57.18%
Balanced Portfolio - Institutional Shares 9/13/93 75.5 26.76% 24.68% N/A 20.62%
Equity Income Portfolio - Institutional Shares 5/1/97 32 41.58% N/A N/A 46.87%
Growth and Income Portfolio - Institutional Shares 5/1/98 20 74.04% N/A N/A 55.33%
International Growth Portfolio - Institutional Shares 5/2/94 68 82.27% 33.25% N/A 28.19%
Worldwide Growth Portfolio - Institutional Shares 9/13/93 75.5 64.45% 33.60% N/A 29.71%
Flexible Income Portfolio - Institutional Shares 9/13/93 75.5 1.60% 10.88% N/A 8.50%
High-Yield Portfolio - Institutional Shares 5/1/96 44 6.85% N/A N/A 9.83%
</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 (net of reimbursements)
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, 1999, for the
Shares of the following Portfolios is shown below:
<TABLE>
<S> <C>
Flexible Income Portfolio - Institutional Shares - 8.22%
High-Yield Portfolio - Institutional Shares - 9.45%
</TABLE>
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.
("Lipper"), Ibbotson Associates, Micropal or Morningstar, Inc.,
44
<PAGE>
("Morningstar") or by publications of general interest such as Forbes,
Money, The Wall Street Journal, Mutual Funds Magazine, Kiplinger's or
Smart Money. The Portfolios may also compare their performance to that
of other selected mutual funds (for example, peer groups created by
Lipper or Morningstar), mutual fund averages or recognized stock
market indicators, including, but not limited to, the Standard &
Poor's 500 Composite Stock Price Index, the Standard & Poor's MidCap
400 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 Capital International
World Index or Morgan Stanley Capital International Europe,
Australasia, Far East Index (EAFE(R) 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.
45
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following audited financial statements for the period ended
December 31, 1999 are hereby incorporated into this Statement of
Additional Information by reference to the Portfolios' Annual Report
dated December 31, 1999 (with the exception of Global Life Sciences
Portfolio and Global Technology Portfolio, which had not commenced
operations as of December 31, 1999). A copy of such report accompanies
this SAI.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT
Schedules of Investments as of December 31, 1999
Statements of Operations for the period ended December 31, 1999
Statements of Assets and Liabilities as of December 31, 1999
Statements of Changes in Net Assets for the periods ended December 31,
1999 and 1998
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Report of Independent Accountants
The portions of the 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.
46
<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 Janus
Capital 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
<TABLE>
<S> <C>
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, CCC, CC, C........... Predominantly speculative with respect to the 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.
</TABLE>
MOODY'S INVESTORS SERVICE, INC.
<TABLE>
<S> <C>
BOND RATING EXPLANATION
-----------------------------------------------------------------------------------------
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.
</TABLE>
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<PAGE>
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.
48
<PAGE>
[JANUS LOGO]
JANUS ASPEN SERIES
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET PORTFOLIO
MAY 1, 2000
100 Fillmore Street
Denver, CO 80206-4928
(800) 525-0020
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus dated May 1, 2000, which is incorporated by reference into this SAI
and may be obtained from the Trust at the above phone number or address. This
SAI contains additional and more detailed information about the Portfolio's
operations and activities than the Prospectus. The Annual Report, which contains
important financial information about the Portfolio, is incorporated by
reference into this SAI and is also available, without charge, from your
insurance company.
<PAGE>
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus for the Institutional Shares
(the "Shares") of Money Market Portfolio. The Shares are sold under the name
"Janus Aspen Series." The Portfolio is a separate series of Janus Aspen Series,
a Delaware business trust.
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.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT RESTRICTIONS AND INVESTMENT STRATEGIES........... 2
PERFORMANCE DATA............................................ 10
DETERMINATION OF NET ASSET VALUE............................ 12
INVESTMENT ADVISER.......................................... 13
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS.......... 15
PORTFOLIO TRANSACTIONS AND BROKERAGE........................ 16
TRUSTEES AND OFFICERS....................................... 18
PURCHASE OF SHARES.......................................... 22
REDEMPTION OF SHARES........................................ 23
DIVIDENDS AND TAX STATUS.................................... 24
PRINCIPAL SHAREHOLDERS...................................... 25
MISCELLANEOUS INFORMATION................................... 26
Shares of the Trust...................................... 26
Shareholder Meetings..................................... 26
Voting Rights............................................ 26
Independent Accountants.................................. 27
Registration Statement................................... 27
FINANCIAL STATEMENTS........................................ 28
APPENDIX A.................................................. 29
Description of Securities Ratings........................ 29
APPENDIX B.................................................. 31
Description of Municipal Securities...................... 31
</TABLE>
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INVESTMENT RESTRICTIONS AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
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. U.S. Government Securities may also include
repurchase agreements collateralized and municipal securities escrowed
with or 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
2
<PAGE>
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.
Investment restriction (1) is intended to reflect the requirements
under Section 5(b)(1) of the 1940 Act for a diversified fund. Rule
2a-7 provides that money market funds that comply with the
diversification limits of Rule 2a-7 are deemed to comply with the
diversification limits of Section 5(b)(1). Thus, the Portfolio
interprets restriction (1) in accordance with Rule 2a-7. Accordingly,
if securities are subject to a guarantee provided by a non-controlled
person, the Rule 2a-7 diversification tests apply to the guarantor,
and the diversification test in restriction (1) does not apply to the
issuer.
The Portfolio has adopted the following nonfundamental investment
restrictions that may be changed by the Trustees without shareholder
approval:
(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.
Under the terms of an exemptive order received from the Securities and
Exchange Commission ("SEC"), the Portfolio may 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. The Portfolio will borrow
money through the program only when the costs are equal to or lower
than the cost of bank loans. Interfund loans and borrowings normally
extend overnight, but can have a maximum duration of seven days. The
Portfolio will lend through the program only when the returns are
higher than those available from other short-term instruments (such as
repurchase agreements). The Portfolio may have to borrow from a bank
at a higher interest rate if an interfund loan is called or not
renewed. Any delay in repayment to a lending Portfolio could result in
a lost investment opportunity or additional borrowing costs.
For purposes of the Portfolio's policies on investing in particular
industries, the Portfolio will rely primarily on industry or industry
group classifications as published by Bloomberg L.P. To the extent
that Bloomberg
3
<PAGE>
L.P. industry classifications are so broad that the primary economic
characteristics in a single industry are materially different, the
Portfolio may further classify issuers in accordance with industry
classifications as published by the SEC.
INVESTMENT STRATEGIES
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. Investment in demand features, guarantees
and other types of instruments or features are subject to the
diversification limits under Rule 2a-7.
Pursuant to Rule 2a-7, the Portfolio will invest at least 95% of its
total assets in "first-tier" securities. First-tier securities are
eligible securities that are rated, or are issued by an issuer with
short-term debt outstanding that is rated, in the highest rating
category by the Requisite NRSROs or are unrated and of comparable
quality to a rated security. In addition, the Portfolio may invest in
"second-tier" securities which are eligible securities that are not
first-tier securities. However, the Portfolio may not invest in a
second-tier security if immediately after the acquisition thereof it
would have invested more than (i) the greater of one percent of its
total assets or one million dollars in second-tier securities issued
by that issuer, or (ii) five percent of its total assets in
second-tier securities.
The following discussion of types of securities in which the Portfolio
may invest supplements and should be read in conjunction with the
Prospectus.
Participation Interests
The Portfolio may purchase participation interests in loans or
securities in which it may invest directly. Participation interests
are generally sponsored or issued by banks or other financial
institutions. A participation interest gives the Portfolio an
undivided interest in the underlying loans or securities in the
proportion that the Portfolio's interest bears to the total principal
amount of the underlying loans or securities. Participation interests,
which may have fixed, floating or variable rates, may carry a demand
feature backed by a letter of credit or guarantee of a bank or
institution permitting the holder to tender them back to the bank or
other institution. For certain participation interests, the Portfolio
will have the right to demand payment, on not more than seven days'
notice, for all or a part of the Portfolio's participation interest.
The Portfolio intends to exercise any demand rights it may have upon
default under the terms of the loan or security, to provide liquidity
or to maintain or improve the quality of the Portfolio's investment
portfolio. The Portfolio will only purchase participation interests
that Janus Capital determines present minimal credit risks.
4
<PAGE>
Variable and Floating Rate Notes
The Portfolio also may purchase variable and floating rate demand
notes of corporations, which are unsecured obligations redeemable upon
not more than 30 days' notice. These obligations include master demand
notes that permit investment of fluctuating amounts at varying rates
of interest pursuant to direct arrangements with the issuer of the
instrument. The issuer of these obligations often has the right, after
a given period, to prepay the outstanding principal amount of the
obligations upon a specified number of days' notice. These obligations
generally are not traded, nor generally is there an established
secondary market for these obligations. To the extent a demand note
does not have a seven day or shorter demand feature and there is no
readily available market for the obligation, it is treated as an
illiquid investment.
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. 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 indices that are not appropriate for the
duration and volatility standards of a money market fund.
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
5
<PAGE>
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.
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
6
<PAGE>
upon repurchase date and interest payments are calculated daily, often
based upon the prevailing overnight repurchase rate. The Portfolio
will use the proceeds of reverse repurchase agreements only to satisfy
unusually heavy redemption requests or for other temporary or
emergency purposes without the necessity of selling portfolio
securities.
Generally, a reverse repurchase agreement enables the Portfolio to
recover for the term of the reverse repurchase agreement all or most
of the cash invested in the portfolio securities sold and to keep the
interest income associated with those portfolio securities. Such
transactions are only advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost
of obtaining the cash otherwise. In addition, interest costs on the
money received in a reverse repurchase agreement may exceed the return
received on the investments made by the Portfolio with those monies.
When-Issued and Delayed Delivery Securities
The Portfolio may purchase securities on a when-issued or delayed
delivery basis. The Portfolio will enter into such transactions only
when it has the intention of actually acquiring the securities. To
facilitate such acquisitions, the Portfolio's custodian will segregate
cash or high quality liquid assets in an amount at least equal to such
commitments. On delivery dates for such transactions, the Portfolio
will meet its obligations from maturities, sales of the segregated
securities or from other available sources of cash. If it chooses to
dispose of the right to acquire a when-issued security prior to its
acquisition, the Portfolio could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation.
At the time it makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Portfolio will record the
transaction as a purchase and thereafter reflect the value of such
securities in determining its net asset value.
Investment Company Securities
From time to time, the Portfolio may invest in securities of other
investment companies. The Portfolio is subject to the provisions of
Section 12(d)(1) of the 1940 Act. The Portfolio may invest in
securities of money market funds managed by Janus Capital in excess of
the limitations of Section 12(d)(1) under the terms of an SEC
exemptive order obtained by Janus Capital and the Janus funds.
Debt Obligations
Money Market Portfolio may invest in U.S. dollar denominated debt
obligations. In general, sales of these securities may not be made
absent registration under the Securities Act of 1933 or the
availability of an appropriate exemption. 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 the Portfolio may invest include
negotiable certificates of deposit, bankers' acceptances, time
deposits and other obligations 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
Eurodollar and Yankee bank obligations as discussed below and other
U.S. dollar-denominated obligations of foreign banks having total
assets in excess of ten billion dollars that
7
<PAGE>
Janus Capital believes are of an investment quality comparable to
obligations of U.S. banks in which the Portfolio may invest.
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 a 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 and 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 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.
Foreign, 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
exploration or nationalization of foreign issuers.
U.S. Government Securities
Money Market Portfolio may invest 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 Leases
The Portfolio may invest in municipal leases. Municipal leases
frequently have special risks not normally associated with general
obligation or revenue bonds. Municipal leases are municipal securities
which may take the form of a lease or an installment purchase or
conditional sales contract. Municipal leases are issued by state and
local governments and authorities to acquire a wide variety of
equipment and facilities. 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
8
<PAGE>
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.
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.
9
<PAGE>
PERFORMANCE DATA
- --------------------------------------------------------------------------------
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 Portfolio may also compare its 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 yield fluctuates from day to day and that the
Share's 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
10
<PAGE>
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 yield information may not necessarily be used to compare the
Portfolio with investment alternatives which are insured or
guaranteed.
The Shares' current yield and effective yield for the seven day period
ended December 31, 1999, were 5.70% and 5.86%, respectively.
11
<PAGE>
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
Pursuant to the rules of the SEC, 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.
12
<PAGE>
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 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 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. Janus Capital has agreed to continue such
waivers until at least the next annual renewal of the advisory
agreements.
For the fiscal year ended December 31, 1999, the advisory fee was
$137,596. For the fiscal years ended December 31, 1998 and December
31, 1997, the advisory fees were $79,201 and $22,333, respectively.
For the fiscal year ended December 31, 1997, Janus Capital waived
$2,184.
The Advisory Agreement is dated July 1, 1997 and will continue in
effect until July 1, 2001, 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 acts as sub-adviser for a number of private-label
mutual funds and provides separate account advisory services for
institutional 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
13
<PAGE>
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.
Kansas City Southern Industries, Inc. ("KCSI"), indirectly through its
wholly owned subsidiary, Stilwell Financial Inc., owns approximately
81% of the outstanding voting stock of Janus Capital. 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 Janus Capital's voting stock and,
by agreement with KCSI, selects at least a majority of Janus Capital's
Board.
KCSI has announced its intention to separate its transportation and
financial services businesses. KCSI anticipates the separation to be
completed in the first half of 2000.
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.
Janus Capital does not permit portfolio managers to purchase and sell
securities for their own accounts except under the limited exceptions
contained in the Portfolio's Code of Ethics ("Code"). The Portfolio's
Code of Ethics is on file with and available from the SEC through the
SEC Web site at www.sec.gov. The Code applies to Directors/ Trustees
of Janus Capital and the Portfolios and employees of Janus Capital and
the Trust, and requires investment personnel and officers of Janus
Capital, inside Directors/Trustees of Janus Capital and the Portfolio
and certain other designated employees deemed to have access to
current trading information to pre-clear all transactions in
securities not otherwise exempt under the Code. Requests for trading
authorization will be denied when, among other reasons, the proposed
personal transaction would be contrary to the provisions of the Code
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 Code
subjects such personnel, to various trading restrictions and reporting
obligations. All reportable transactions are required to be reviewed
for compliance with the Code. Those persons also may be required under
certain circumstances to forfeit their profits made from personal
trading.
The provisions of the Code are administered by and subject to
exceptions authorized by Janus Capital.
14
<PAGE>
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
- --------------------------------------------------------------------------------
Citibank, N.A., 111 Wall Street, 24th Floor, Zone 5, New York, NY
10043, 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, 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.
Janus Distributors, Inc., 100 Fillmore Street, Denver, Colorado
80206-4928, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Portfolio. Janus Distributors is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc.
The Portfolio pays DST Systems, Inc., a subsidiary of KCSI, license
fees at the annual rate of $3.98 per shareholder account for the use
of DST's accounting system. The Portfolio also pays DST $1.10 per
closed shareholder account. The Portfolio pays DST for the use of its
portfolio and fund accounting system a monthly base fee of $250 to
$1,250 per month based on the number of Janus funds using the system
and an asset charge of $1 per million 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 credits against the charges
of DST and its affiliates with regard to commissions earned by such
affiliate. See "Portfolio Transactions and Brokerage."
15
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Decisions as to the assignment of portfolio business for the Portfolio
and negotiation of its commission rates are made by Janus Capital
whose policy is to obtain the "best execution" (prompt and reliable
execution at the most favorable security price) of all portfolio
transactions.
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.
For the fiscal years ended December 31, 1999, December 31, 1998 and
December 31, 1997, the Portfolio did not incur any brokerage
commissions. The Portfolio generally buys and sells securities in
principal transactions, in which no commissions are paid. However, the
Portfolio may engage an agent and pay commissions for such
transactions if Janus Capital believes that the net result of the
transaction to the Portfolio will be no less favorable than that of
contemporaneously available principle transactions.
Janus Capital may use research products and services in servicing
other accounts in addition to the Portfolio. If Janus Capital
determines that any research product or service has a mixed use, such
that it also serves functions that do not assist in the investment
decision-making process, Janus Capital may allocate the costs of such
service or product accordingly. Only that portion of the product or
service that Janus Capital determines will assist it in the investment
decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus
Capital.
Janus Capital may consider sales of Portfolio shares or shares of
other Janus funds by a broker-dealer or the recommendation of a
broker-dealer to its customers that they purchase such shares as a
factor in the selection of broker-dealers to execute Portfolio
transactions. Janus Capital may also consider payments made by brokers
effecting transactions for a Portfolio i) to the Portfolio or ii) to
other persons on behalf of the Portfolio for services provided to the
Portfolio for which it would be obligated to pay. In placing portfolio
business with such broker-dealers, Janus Capital will seek the best
execution of each transaction.
When the 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.
16
<PAGE>
As of December 31, 1999, the Portfolio owned securities of its regular
broker-dealers (or parents) as shown below:
<TABLE>
<CAPTION>
Value of
Name of Securities
Portfolio Name Broker-Dealer Owned
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Portfolio Morgan Stanley, Dean Witter, Discover & Co. $11,000,000
</TABLE>
17
<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
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, Age 62 - 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.
Director of Janus Distributors, Inc.
James P. Craig, III, Age 43 - Trustee and Vice President*#
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Trustee and Vice President of Janus Investment Fund. Chief Investment
Officer, Director of Research, Vice Chairman and Director of Janus
Capital. Formerly Executive Vice President and Portfolio Manager of
Growth Portfolio and Janus Fund. Formerly Executive Vice President and
Co-Manager of Janus Venture Fund. Formerly Executive Vice President
and Portfolio Manager of Balanced Portfolio and Janus Balanced Fund.
Gary O. Loo, Age 59 - 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, CO (investments).
Dennis B. Mullen, Age 56 - Trustee
7500 E. McCormick Parkway, #24
Scottsdale, AZ 85258
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Private Investor. Formerly
(1997-1998), Chief Financial Officer - Boston Market Concepts, Boston
Chicken, Inc., Golden, CO (restaurant chain); (1993 to 1997) President
and Chief Executive Officer of BC Northwest, L.P., a franchise of
Boston Chicken, Inc., Bellevue, WA (restaurant chain).
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Executive Committee.
18
<PAGE>
James T. Rothe, Age 56 - Trustee
102 South Tejon Street, Suite 1100
Colorado Springs, CO 80903
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Professor of Business, University of
Colorado, Colorado Springs, CO. Principal, Phillips-Smith Retail
Group, Colorado Springs, CO (a venture capital firm).
William D. Stewart, Age 55 - Trustee#
5330 Sterling Drive
Boulder, CO 80302
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. President of HPS Division of MKS
Instruments, Boulder, CO (manufacturer of vacuum fittings and valves).
Martin H. Waldinger, Age 61 - Trustee
4940 Sandshore Court
San Diego, CA 92130
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Private Consultant. Formerly (1993
to 1996), Director of Run Technologies, Inc., a software development
firm, San Carlos, CA.
Sharon S. Pichler, Age 50 - Executive Vice President and Portfolio Manager*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Money Market
Fund, and Janus Tax-Exempt Money Market Fund series of Janus
Investment Fund. Formerly (1994-1998) Executive Vice President and
Portfolio Manager of Janus Government Money Market Fund. Vice
President of Janus Capital.
Thomas A. Early, Age 45 - Vice President and General Counsel*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Vice President and General Counsel of Janus Investment Fund. Vice
President, General Counsel and Secretary of Janus Capital. Vice
President and General Counsel of Janus Service Corporation, Janus
Distributors, Inc., Janus Capital International, Ltd. and Janus
International (UK) Limited. Director of Janus World Funds Plc.
Formerly (1997 to 1998), Executive Vice President and General Counsel
of Prudential Investments Fund Management LLC, Newark, NJ. Formerly
(1994 to 1997), Vice President and General Counsel of Prudential
Retirement Services, Newark, NJ.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Executive Committee.
19
<PAGE>
Steven R. Goodbarn, Age 42 - 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 Capital, Janus Service Corporation, and Janus Distributors, Inc.
Director of Janus Service Corporation and Janus Distributors, Inc. and
Janus World Funds Plc. Director, Treasurer and Vice President of
Finance of Janus Capital International, Ltd. and Janus International
(UK) Limited. Formerly (1992-1996), Treasurer of Janus Investment Fund
and Janus Aspen Series.
Kelley Abbott Howes, Age 34 - Vice President and Secretary*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Vice President and Secretary of Janus Investment Fund. Vice President
and Assistant General Counsel of Janus Capital. Vice President of
Janus Distributors, Inc. Assistant Vice President of Janus Service
Corporation.
Glenn P. O'Flaherty, Age 41 - Treasurer and Chief Accounting Officer*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Treasurer and Chief Accounting Officer of Janus Investment Fund. Vice
President of Janus Capital. Formerly (1991-1997), Director of Fund
Accounting, Janus Capital.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
20
<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 Trust's Executive Committee shall have and may exercise all the
powers and authority of the Trustees except for matters requiring
action by all Trustees pursuant to the Trust's Bylaws or Trust
Instrument, Delaware law or the 1940 Act.
The Money Market Funds Committee, consisting of Messrs. Loo, Mullen,
and Rothe monitors the compliance with policies and procedures adopted
particularly for money market funds.
The following table shows the aggregate compensation earned by and
paid to each Trustee by the Portfolio and all funds advised and
sponsored by Janus Capital (collectively, the "Janus Funds") for the
periods indicated. None of the Trustees receive pension or retirement
benefits from the Portfolio or the Janus Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
from the Portfolio for from the Janus Funds for
fiscal year ended calendar year ended
Name of Person, Position December 31, 1999 December 31, 1999**
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman and Trustee* $ -- $ --
James P. Craig, III, Trustee* $ -- $ --
William D. Stewart, Trustee $ 47 $107,333
Gary O. Loo, Trustee $101 $107,333
Dennis B. Mullen, Trustee $127 $107,333
Martin H. Waldinger, Trustee $ 47 $107,333
James T. Rothe, Trustee $101 $107,333
</TABLE>
*An interested person of the Portfolio and of Janus Capital. Compensated by
Janus Capital and not the Portfolio.
**As of December 31, 1999, Janus Funds consisted of two registered investment
companies comprised of a total of 32 funds.
21
<PAGE>
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. Participating insurance companies and certain other
designated organizations are authorized to receive purchase orders on
the Portfolio's behalf, and those organizations are authorized to
designate their agents and affiliates as intermediaries to receive
purchase orders. Purchase orders are deemed received by the Portfolio
when authorized organizations, their agents or affiliates receive the
order. The Portfolio is not responsible for the failure of any
designated organization or its agents or affiliates to carry out its
obligations to its customers. 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 next occurring after a purchase
order is received and accepted by the Portfolio or its authorized
agent. In order to receive a day's dividend, your order must be
received by the close of the regular trading session of the NYSE. The
prospectus for your insurance company's separate account or your plan
documents contain detailed information about investing in the
Portfolio.
22
<PAGE>
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Redemptions, like purchases, may only be effected through the separate
accounts of participating insurance companies or qualified retirement
plans. Participating insurance companies and certain designated
organizations are authorized to receive redemption orders on the
Portfolio's behalf and those organizations are authorized to designate
their agents and affiliates as intermediaries to receive redemption
orders. Redemption orders are deemed received by the Portfolio when
authorized organizations, their agents or affiliates receive the
order. The Portfolio is not responsible for the failure of any
designated organization or its agents or affiliates to carry out its
obligations to its customers. Shares normally will be redeemed for
cash, although the Portfolio retains the right to redeem some or all
of its shares in kind under unusual circumstances, in order to protect
the interests of remaining shareholders, or to accommodate a request
by a particular shareholder that does not adversely affect the
interest of the 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 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.
23
<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 Code. 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 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.
24
<PAGE>
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 or through a qualified plan.
As a result, such officers and Trustees as a group own less than 1% of
the outstanding Shares of the Portfolio. As of April 3, 2000, all of
the outstanding Shares of the Portfolio were owned by certain
insurance company separate accounts or qualified plans. The percentage
ownership of each separate account or qualified plan owning more than
5% of the Shares of the Portfolio is as follows:
Western Reserve Life, 201 Highland Avenue, Clearwater, FL 34618, owned
57.66% of the outstanding Shares of the Portfolio. National Integrity
Life Insurance Company, 515 West Market Street, 8th Floor, Louisville,
KY 40202, owned 42.34% of the outstanding Shares of the Portfolio.
No qualified plan owned more than 10% of the shares of the Trust as a
whole.
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.
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MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
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 consists of fourteen series of
shares, known as "portfolios," in two or three 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 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 or three 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.
SHAREHOLDER MEETINGS
The Trust does not intend to hold annual shareholder meetings.
However, special meetings may be called for the 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 Portfolio or class only if a
matter affects or requires the vote of only that Portfolio or class or
that Portfolio's or class' interest in the matter differs from the
interest of the other portfolios or class of the Trust. A shareholder
is entitled to one vote for each share owned.
VOTING RIGHTS
A participating insurance company issuing a variable insurance
contract will vote shares in the separate account as required by law
and interpretations thereof, as may be amended or changed from time to
time. In accordance with current law and interpretations, a
participating insurance company is required to request voting
instructions from policy owners and must vote shares in the separate
account, including shares for which no instructions have been
received, in proportion to the voting instructions received.
Additional information may be found in the participating insurance
company's separate account prospectus.
The Trustees are responsible for major decisions relating to the
Portfolio's policies and objectives; the Trustees oversee the
operation of the Portfolio by its officers.
The present Trustees were elected by the initial trustee of the Trust
on May 25, 1993, and were approved by the initial shareholder on May
25, 1993 with the exception of Mr. Craig and Mr. Rothe who were
appointed by the Trustees as of June 30, 1995 and January 1, 1997,
respectively. Under the Trust Instrument, each Trustee will continue
in office until the termination of the Trust or his earlier death,
retirement, resignation, bankruptcy, incapacity or removal. Vacancies
will be filled by a majority of the remaining Trustees, subject to the
1940 Act. Therefore, no annual or regular meetings of shareholders
26
<PAGE>
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.
As mentioned in "Shareholder Meetings", 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 the
matter differs from the interests of other portfolios or classes of
the Trust.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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.
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<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following audited financial statements for the period ended
December 31, 1999 are hereby incorporated into this Statement of
Additional Information by reference to the Portfolio's Annual Report
dated December 31, 1999. 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, 1999
Statement of Operations for the period ended December 31, 1999
Statement of Assets and Liabilities as of December 31, 1999
Statement of Changes in Net Assets for the periods ended December 31,
1999 and 1998
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Report of Independent Accountants
The portions of the Annual Report that are not specifically listed
above are not incorporated by reference into this Statement of
Additional Information and are not part of the Registration Statement.
28
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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
29
<PAGE>
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 IBCA
<TABLE>
<S> <C>
BOND RATING EXPLANATION
-----------------------------------------------------------------------------------------
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.
</TABLE>
DUFF & PHELPS INC.
<TABLE>
<S> <C>
BOND RATING EXPLANATION
-----------------------------------------------------------------------------------------
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.
</TABLE>
THOMSON BANKWATCH, INC.
<TABLE>
<S> <C>
BOND RATING EXPLANATION
-----------------------------------------------------------------------------------------
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.
</TABLE>
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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
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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 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
32
<PAGE>
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.
33
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<PAGE>
[JANUS LOGO]
JANUS ASPEN SERIES
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
STRATEGIC VALUE PORTFOLIO
MAY 1, 2000
100 Fillmore Street
Denver, CO 80206-4928
(800) 525-0020
This SAI is not a Prospectus and should be read in conjunction with the
Portfolio's Prospectus dated May 1, 2000, which is incorporated by reference
into this SAI and may be obtained from your insurance company or plan sponsor.
This SAI contains additional and more detailed information about the Portfolio's
operations and activities than the Prospectus.
<PAGE>
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus for the Institutional Shares
(the "Shares") of Strategic Value Portfolio. The Portfolio is a separate series
of Janus Aspen Series, a Delaware business 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. The Portfolio is managed separately by
Janus Capital Corporation.
The Institutional 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.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASSIFICATION, PORTFOLIO TURNOVER, INVESTMENT POLICIES AND
RESTRICTIONS, AND INVESTMENT STRATEGIES AND RISKS........... 2
INVESTMENT ADVISER.......................................... 21
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS.......... 23
PORTFOLIO TRANSACTIONS AND BROKERAGE........................ 24
TRUSTEES AND OFFICERS....................................... 26
SHARES OF THE TRUST......................................... 30
Net Asset Value Determination............................ 30
Purchases................................................ 31
Redemptions.............................................. 31
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
STATUS...................................................... 32
MISCELLANEOUS INFORMATION................................... 33
Shares of the Trust...................................... 33
Shareholder Meetings..................................... 33
Voting Rights............................................ 33
Independent Accountants.................................. 34
Registration Statement................................... 34
PERFORMANCE INFORMATION..................................... 35
APPENDIX A.................................................. 36
Explanation of Rating Categories......................... 36
</TABLE>
1
<PAGE>
CLASSIFICATION, PORTFOLIO TURNOVER, INVESTMENT POLICIES
AND RESTRICTIONS, AND INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
CLASSIFICATION
The Portfolio is a series of the Trust, an open-end, management
investment company. The Investment Company Act of 1940 ("1940 Act")
classifies mutual funds as either diversified or nondiversified, and
the Portfolio is a nondiversified fund.
PORTFOLIO TURNOVER
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 the Portfolio's
securities.
INVESTMENT POLICIES AND RESTRICTIONS
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, 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. With respect to the other 50% of the value of its total
assets, the 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 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 the 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, 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
objective, policies and limitations as the Portfolio.
2
<PAGE>
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.
(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
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 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 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 Portfolio does 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 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.
3
<PAGE>
Under the terms of an exemptive order received from the Securities and
Exchange Commission ("SEC"), the Portfolio may 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. The Portfolio will borrow
money through the program only when the costs are equal to or lower
than the cost of bank loans. Interfund loans and borrowings normally
extend overnight, but can have a maximum duration of seven days. The
Portfolio will lend through the program only when the returns are
higher than those available from other short-term instruments (such as
repurchase agreements). The Portfolio may have to borrow from a bank
at a higher interest rate if an interfund loan is called or not
renewed. Any delay in repayment to a lending Portfolio could result in
a lost investment opportunity or additional borrowing costs.
For purposes of the Portfolio's 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. industry classifications are so broad that the primary
economic characteristics in a single industry are materially
different, the Portfolio may further classify issuers in accordance
with industry classifications as published by the SEC.
INVESTMENT STRATEGIES AND RISKS
Cash Position
As discussed in the Prospectus, when the portfolio manager believes
that market conditions are unfavorable for profitable investing, or
when he is otherwise unable to locate attractive investment
opportunities, the Portfolio's investment in cash and similar
investments may increase. Securities that the Portfolio may invest in
as a means of receiving a return on idle cash include 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. (See
"Investment Company Securities" on page 7).
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 have authorized Janus Capital to make liquidity
determinations with respect to certain securities, including Rule 144A
Securities, commercial paper and municipal lease obligations purchased
by the Portfolio. 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.
If illiquid securities exceed 15% of the Portfolio's net assets after
the time of purchase the Portfolio will take steps to reduce in an
orderly fashion its holdings of illiquid securities. Because illiquid
securities may not be readily marketable, the portfolio manager may
not be able to dispose of them in a timely manner. As a result, the
Portfolio may be forced to hold illiquid securities while their price
depreciates. Depreciation in the price of illiquid securities may
cause the net asset value of the Portfolio to decline.
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Securities Lending
The Portfolio may lend securities to qualified parties (typically
brokers or other financial institutions) who need to borrow securities
in order to complete certain transactions such as covering short
sales, avoiding failures to deliver securities or completing arbitrage
activities. The Portfolio may seek to earn additional income through
securities lending. Since there is the risk of delay in recovering a
loaned security or the risk of loss in collateral rights if the
borrower fails financially, securities lending will only be made to
parties that Janus Capital deems creditworthy and in good standing. In
addition, such loans will only be made if Janus Capital believes the
benefit from granting such loans justifies the risk. The Portfolio
will not have the right to vote on securities while they are being
lent, but they will call a loan in anticipation of any important vote.
All loans will be continuously secured by collateral which consists of
cash, U.S. government securities, letters of credit and such other
collateral permitted by the Securities and Exchange Commission and
policies approved by the Trustees. Cash collateral may be invested in
money market funds advised by Janus Capital to the extent consistent
with exemptive relief obtained from the SEC.
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 to the security sold short
that the Portfolio has the right to obtain, for delivery at a
specified date in the future. The Portfolio may enter into a short
sale against the box to hedge against anticipated declines in the
market price of portfolio securities. 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.
Zero Coupon, Step Coupon and Pay-In-Kind 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 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. Additionally, these actions
are likely to
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reduce the assets to which Portfolio expenses could be allocated and
to reduce the rate of return for the 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 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
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sooner. Thus, the security holders frequently receive prepayments of
principal in addition to the principal that is part of the regular
monthly payments. The 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 nor the
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, subject to the provisions of Section 12(d)(1) of
the 1940 Act. The Portfolio may invest in securities of money market
funds managed by Janus Capital in excess of the limitations of Section
12(d)(1) under the terms of an SEC exemptive order obtained by Janus
Capital and the Janus funds.
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 and GDRs are
securities that are typically issued by foreign banks or foreign trust
companies, although U.S. banks or U.S. trust companies may issue them.
EDRs and GDRs represent ownership of underlying securities issued by a
foreign or U.S. securities market. EDRs and GDRs are similar to the
arrangements of ADRs. EDRs, in bearer form, are designed for use in
European securities markets.
Depositary Receipts are generally subject to the same sort of risks as
direct investments in a foreign country, such as, currency risk,
political and economic risk, and market risk, because their values
depend on the performance of a foreign security denominated in its
home currency. The risks of foreign investing are addressed in some
detail in the Portfolio's prospectus.
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Municipal Obligations
The Portfolio 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 the 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 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. 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. 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."
In order to most effectively use these investments, the portfolio
manager must correctly assess probable movements in interest rates.
This involves different skills than those used to select most
portfolio securities. If the portfolio manager incorrectly forecasts
such movements, the Portfolio could be adversely affected by the use
of variable or floating rate obligations.
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. Similar to variable and floating rate obligations,
effective use of inverse floaters requires skills different from those
needed to select most portfolio securities. If movements in interest
rates are incorrectly anticipated, the Portfolio could lose money or
its NAV could decline by the use of inverse floaters.
STRIP BONDS. 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.
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The Portfolio will purchase standby commitments, tender option bonds
and instruments with demand features primarily for the purpose of
increasing the liquidity of its holdings.
High-Yield/High-Risk Bonds
The Portfolio intends to invest less than 35% of its net assets in
bonds that are rated below investment grade (e.g., bonds rated BB or
lower by Standard & Poor's Ratings Services or Ba or lower by Moody's
Investors Service, Inc.). 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 bonds so affected.
The Portfolio may also invest in unrated bonds of foreign and domestic
issuers. Unrated bonds, while not necessarily of lower quality than
rated bonds, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country. Because these ratings do
not take into account individual factors relevant to each issue and
may not be updated regularly, Janus Capital may treat such securities
as unrated debt. Because of the size and perceived demand of the
issue, among other factors, certain municipalities may not incur the
costs of obtaining a rating. The Portfolio's manager will analyze the
creditworthiness of the issuer, as well as any financial institution
or other party responsible for payments on the bond, in determining
whether to purchase unrated municipal bonds. Unrated bonds will be
included in the 35% limit of the Portfolio unless the portfolio
manager deems such securities to be the equivalent of investment grade
bonds.
Subject to the above limits, the Portfolio may purchase defaulted
securities only when its portfolio manager believes, based upon
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 about the resumption of income, however, the purchase
of any security on which payment of interest or dividends is suspended
involves a high degree of risk. Such risk includes, among other
things, the following:
FINANCIAL AND MARKET RISKS. Investments in securities that are in
default involve a high degree of financial and market risks that can
result in substantial or, at times, even total losses. Issuers of
defaulted securities may have substantial capital needs and may become
involved in bankruptcy or reorganization proceedings. Among the
problems involved in investments in such issuers is the fact that it
may be difficult to obtain information about the condition of such
issuers. The market prices of such securities also are subject to
abrupt and erratic movements and above average price volatility, and
the spread between the bid and asked prices of such securities may be
greater than normally expected.
DISPOSITION OF PORTFOLIO SECURITIES. Although the Portfolio generally
will purchase securities for which its portfolio manager expects an
active market to be maintained, defaulted securities may be less
actively traded than other securities and it may be difficult to
dispose of substantial holdings of such securities at prevailing
market prices. The Portfolio will limit holdings of any such
securities to amounts that the portfolio manager believes could be
readily sold, and holdings of such securities would, in any event, be
limited so as not to limit the Portfolio's ability to readily dispose
of securities to meet redemptions.
OTHER. Defaulted securities require active monitoring and may, at
times, require participation in bankruptcy or receivership proceedings
on behalf of the Portfolio.
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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 consists of 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 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
are 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 obtain 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, 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.
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 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
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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.
A 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
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 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 bonds in its portfolio. If
interest rates increase as anticipated, the value of the bonds would
decline, but the value of the Portfolio's interest rate futures
contract will increase, thereby
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keeping the net asset value of the Portfolio from declining as much as
it may have otherwise. If, on the other hand, the 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 the
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
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fluctuation limits for futures contracts. The Portfolio may buy or
sell futures contracts with a greater or lesser value than the
securities it wishes to hedge or is considering purchasing in order to
attempt to compensate for differences in historical volatility between
the futures contract and the securities, although this may not be
successful in all cases. If price changes in the Portfolio's futures
positions are poorly correlated with its other investments, its
futures positions may fail to produce desired gains or result in
losses that are not offset by the gains in the Portfolio's other
investments.
Because futures contracts are generally settled within a day from the
date they are closed out, compared with a settlement period of three
days for some types of securities, the futures markets can provide
superior liquidity to the securities markets. Nevertheless, there is
no assurance that a liquid secondary market will exist for any
particular futures contract at any particular time. In addition,
futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves
upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it may be
impossible for the Portfolio to enter into new positions or close out
existing positions. If the secondary market for a futures contract is
not liquid because of price fluctuation limits or otherwise, the
Portfolio may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a
futures position until the delivery date, regardless of changes in its
value. As a result, the Portfolio's access to other assets held to
cover its futures positions also could be impaired.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may buy and write put and
call options on futures contracts. An option on a future gives the
Portfolio the right (but not the obligation) to buy or sell a futures
contract at a specified price on or before a specified date. The
purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the price of
the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less
risky than ownership of the futures contract or the underlying
instrument. As with the purchase of futures contracts, when the
Portfolio is not fully invested it may buy a call option on a futures
contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign
currency which is deliverable under, or of the index comprising, the
futures contract. If the futures price at the expiration of the option
is below the exercise price, the Portfolio will retain the full amount
of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio'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, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any increase
in the price of securities which the Portfolio is considering buying.
If a call or put option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the
premium it received. Depending on the degree of correlation between
the change in the value of its portfolio securities and changes in the
value of the futures positions, the Portfolio's losses from existing
options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
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The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio
securities. For example, the Portfolio may buy a put option on a
futures contract to hedge its portfolio against the risk of falling
prices or rising interest rates.
The amount of risk the Portfolio assumes when it buys an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed
above, the purchase of an option also entails the risk that changes in
the value of the underlying futures contract will not be fully
reflected in the value of the options bought.
FORWARD CONTRACTS. A forward contract is an agreement between two
parties in which one party is obligated to deliver a stated amount of
a stated asset at a specified time in the future and the other party
is obligated to pay a specified amount for the assets at the time of
delivery. The Portfolio may enter into forward contracts to purchase
and sell government securities, equity or income securities, foreign
currencies or other financial instruments. Forward contracts generally
are traded in an interbank market conducted directly between traders
(usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into
them. The parties to a forward contract may agree to offset or
terminate the contract before its maturity, or may hold the contract
to maturity and complete the contemplated exchange.
The following discussion summarizes the Portfolio's principal uses of
forward foreign currency exchange contracts ("forward currency
contracts"). The Portfolio may enter into forward currency contracts
with stated contract values of up to the value of the Portfolio's
assets. A forward currency contract is an obligation to buy or sell an
amount of a specified currency for an agreed price (which may be in
U.S. dollars or a foreign currency). The Portfolio will exchange
foreign currencies for U.S. dollars and for other foreign currencies
in the normal course of business and may buy and sell currencies
through forward currency contracts in order to fix a price for
securities it has agreed to buy or sell ("transaction hedge"). The
Portfolio also may hedge some or all of its investments denominated in
a foreign currency or exposed to foreign currency fluctuations against
a decline in the value of that currency relative to the U.S. dollar by
entering into forward currency contracts to sell an amount of that
currency (or a proxy currency whose performance is expected to
replicate or exceed the performance of that currency relative to the
U.S. dollar) approximating the value of some or all of its portfolio
securities denominated in that currency ("position hedge") or by
participating in options or futures contracts with respect to the
currency. The Portfolio also may enter into a forward currency
contract with respect to a currency where the Portfolio is considering
the purchase or sale of investments denominated in that currency but
has not yet selected the specific investments ("anticipatory hedge").
In any of these circumstances the Portfolio may, alternatively, enter
into a forward currency contract to purchase or sell one foreign
currency for a second currency that is expected to perform more
favorably relative to the U.S. dollar if the portfolio manager
believes there is a reasonable degree of correlation between movements
in the two currencies ("cross-hedge").
These types of hedging minimize the effect of currency appreciation as
well as depreciation, but do not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the proceeds of or rates of
return on the Portfolio's foreign currency denominated portfolio
securities. The matching of the increase in value of a forward
contract and the decline in the U.S. dollar equivalent value of the
foreign currency denominated asset that is the subject of the hedge
generally will not be precise. Shifting the Portfolio's currency
exposure from one foreign currency to another removes the Portfolio's
opportunity to profit from increases in the value of the original
currency and involves a risk of increased losses to the Portfolio if
its
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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 other 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 contracts.
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 projected, 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.
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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, should 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
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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.
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 deposited 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.
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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 funds 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
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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 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.
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INVESTMENT ADVISER
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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 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 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 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 Agreement,
Janus Capital furnishes certain other services, including net asset
value determination, portfolio accounting and recordkeeping, for which
the Portfolio may reimburse Janus Capital for its costs.
The Portfolio has agreed to compensate Janus Capital for its services
by the monthly payment of a fee at the annual rate of 0.65% of the
Portfolio's average daily net assets.
Janus Capital has agreed to reimburse Strategic Value Portfolio by the
amount, if any, that such Portfolio's normal operating expenses in any
fiscal year, including the investment advisory fee but excluding
brokerage commissions, interest, taxes and extraordinary expenses,
exceed an annual rate of 1.25% of the average daily net assets of the
Portfolio until at least the next annual renewal of the advisory
agreements. Mortality risk, expense risk and other charges imposed by
participating insurance companies are excluded from the above expense
limitation.
The Advisory Agreement is dated December 14, 1999 and will continue in
effect until July 1, 2001, 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 Agreements or interested
persons of any such party, and by either a majority of the outstanding
voting shares or the Trustees of the Portfolio. 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 of the Portfolio, 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 acts as sub-adviser for a number of private-label mutual
funds and provides separate account advisor services for institutional
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
21
<PAGE>
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.
Kansas City Southern Industries, Inc. ("KCSI"), indirectly through its
wholly owned subsidiary, Stilwell Financial Inc., owns approximately
81% of the outstanding voting stock of Janus Capital. 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 Janus Capital's voting stock and,
by agreement with KCSI, selects at least a majority of Janus Capital's
Board, subject to the approval of Stilwell Financial, which cannot be
unreasonably withheld.
KCSI has announced its intention to separate its transportation and
financial services businesses. KCSI anticipates the separation to be
completed in the first half of 2000.
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.
The portfolio manager is not permitted to purchase and sell securities
for his own accounts except under the limited exceptions contained in
the Portfolio's Code of Ethics ("Code"). The Portfolio's Code of
Ethics is on file with and available from the SEC through the SEC Web
site at www.sec.gov. The Code applies to Directors/Trustees of Janus
Capital and the Portfolio, and employees of Janus Capital and the
Trust and requires investment personnel and officers of Janus Capital,
inside Directors/Trustees of Janus Capital and the Portfolio and
certain other designated employees deemed to have access to current
trading information to pre-clear all transactions in securities not
otherwise exempt under the Code. Requests for trading authorization
will be denied when, among other reasons, the proposed personal
transaction would be contrary to the provisions of the Code or would
be deemed to adversely affect any transaction 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 Code
subjects such personnel to various trading restrictions and reporting
obligations. All reportable transactions are required to be reviewed
for compliance with the Code. Those persons also may be required under
certain circumstances to forfeit their profits made from personal
trading.
The provisions of the Code are administered by and subject to
exceptions authorized by Janus Capital.
22
<PAGE>
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, P.O. Box 0351, Boston,
Massachusetts 02117-0351 is the custodian of the domestic securities
and cash of the Portfolio. State Street and the foreign subcustodians
it selects, have custody of the assets of the Portfolio held outside
the U.S. and cash incidental thereto. The custodian and subcustodian
hold the Portfolio's assets in safekeeping and collect and remit the
income thereon, subject to the instructions of the Portfolio.
Janus Service Corporation, 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., a subsidiary of KCSI, license
fees at the annual rate of $3.06 per shareholder account for the use
of DST's shareholder accounting system. The Portfolio also pays DST
$1.10 per closed shareholder account. The Portfolio pays DST for the
use of its portfolio and fund accounting system a monthly base fee of
$250 to $1,250 per month based on the number of Janus funds using the
system and an asset charge of $1 per million 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 credits against the charges
of DST and its affiliates with regard to commissions earned by such
affiliate. See "Portfolio Transactions and Brokerage."
Janus Distributors, Inc., 100 Fillmore Street, Denver, Colorado
80206-4928, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Portfolio. Janus Distributors is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc.
23
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Decisions as to the assignment of portfolio business for the Portfolio
and negotiation of its commission rates are made by Janus Capital,
whose policy is to obtain the "best execution" (prompt and reliable
execution at the most favorable security price) of all portfolio
transactions. The Portfolio may trade foreign securities in foreign
countries because the best available market for these securities is
often on foreign exchanges. In transactions on foreign stock
exchanges, brokers' commissions are frequently fixed and are often
higher than in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to:
Janus Capital's knowledge of currently available negotiated commission
rates or prices of securities currently available and other current
transaction costs; the nature of the security being traded; the size
and type of the transaction; the nature and character of the markets
for the security to be purchased or sold; the desired timing of the
trade; the activity existing and expected in the market for the
particular security; confidentiality; the quality of the execution,
clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of
any broker or dealer; rebates of commissions by a broker to the
Portfolio or to a third party service provider to the Portfolio to pay
Portfolio expenses; and research products or services provided. In
recognition of the value of the foregoing factors, Janus Capital may
place portfolio transactions with a broker or dealer with whom it has
negotiated a commission that is in excess of the commission another
broker or dealer would have charged for effecting that transaction if
Janus Capital determines in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that
particular transaction or of the overall responsibilities of Janus
Capital. Research may include furnishing advice, either directly or
through publications or writings, as to the value of securities, the
advisability of purchasing or selling specific securities and the
availability of securities or purchasers or sellers of securities;
furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods,
legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research
analysts, corporate management personnel, industry experts, economists
and government officials; comparative performance evaluation and
technical measurement services and quotation services, and products
and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software,
information and accessories that deliver, process or otherwise utilize
information, including the research described above) that assist Janus
Capital in carrying out its responsibilities. 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.
24
<PAGE>
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 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 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.
25
<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
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, Age 62 - 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.
Director of Janus Distributors, Inc.
James P. Craig, III, Age 43 - Trustee and Vice President*#
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Trustee and Vice President of Janus Investment Fund. Chief Investment
Officer, Director of Research, Vice Chairman and Director of Janus
Capital. Formerly Executive Vice President and Portfolio Manager of
Growth Portfolio and Janus Fund (from inception and 1986,
respectively, until December 1999). Formerly Executive Vice President
and Co-Manager of Janus Venture Fund. Formerly Executive Vice
President and Portfolio Manager of Balanced Portfolio and Janus
Balanced Fund.
Gary O. Loo, Age 59 - Trustee#
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. President and Director of High
Valley Group, Inc., Colorado Springs, CO (investments).
Dennis B. Mullen, Age 56 - Trustee
7500 E. McCormick Parkway, #24
Scottsdale, AZ 85258
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Private Investor. Formerly
(1997-1998), Chief Financial Officer-Boston Market Concepts, Boston
Chicken, Inc., Golden, CO (restaurant chain); (1993-1997), President
and Chief Executive Officer of BC Northwest, L.P., a franchise of
Boston Chicken, Inc., Bellevue, WA (restaurant chain).
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Trust's Executive Committee.
26
<PAGE>
James T. Rothe, Age 56 - Trustee
102 South Tejon Street, Suite 1100
Colorado Springs, CO 80903
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Professor of Business, University of
Colorado, Colorado Springs, CO. Principal, Phillips-Smith Retail
Group, Colorado Springs, CO (a venture capital firm).
William D. Stewart, Age 55 - Trustee#
5330 Sterling Drive
Boulder, CO 80302
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. President of HPS Division of MKS
Instruments, Boulder, CO (manufacturer of vacuum fittings and valves).
Martin H. Waldinger, Age 61 - Trustee
4940 Sandshore Court
San Diego, CA 92130
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. Private Consultant. Formerly
(1993-1996), Director of Run Technologies, Inc., a software
development firm, San Carlos, CA.
David C. Decker, Age 33 - Executive Vice President, Portfolio Manager of
100 Fillmore Street Strategic Value Portfolio*
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Investment
Fund. Vice President of Janus Capital. Formerly, research analyst at
Janus Capital (1992-1996).
Thomas A. Early, Age 45 - Vice President and General Counsel*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Vice President and General Counsel of Janus Investment Fund. Vice
President, General Counsel and Secretary of Janus Capital. Vice
President and General Counsel of Janus Service Corporation, Janus
Distributors, Inc., Janus Capital International, Ltd. and Janus
International (UK) Limited. Director of Janus World Funds Plc.
Formerly (1997 to 1998), Executive Vice President and General Counsel
of Prudential Investments Fund Management LLC, Newark, NJ. Formerly
(1994 to 1997), Vice President and General Counsel of Prudential
Retirement Services, Newark, NJ.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Trust's Executive Committee.
27
<PAGE>
Steven R. Goodbarn, Age 42 - 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 Capital, Janus Service Corporation, and Janus Distributors, Inc.
Director of Janus Service Corporation, Janus Distributors, Inc. and
Janus World Funds Plc. Director, Treasurer and Vice President of
Finance of Janus Capital International Ltd. and Janus International
(UK) Limited. Formerly (1992-1996), Treasurer of Janus Investment Fund
and Janus Aspen Series.
Kelley Abbot Howes, Age 34 - Vice President and Secretary*
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Vice President and Secretary of Janus Investment Fund. Vice President
and Assistant General Counsel of Janus Capital. Vice President of
Janus Distributors, Inc. Assistant Vice President of Janus Service
Corporation.
Glenn P. O'Flaherty, Age 41 - Treasurer and Chief Accounting Officer*
100 Fillmore Street, Suite 300
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Treasurer and Chief Accounting Officer of Janus Investment Fund. Vice
President of Janus Capital. Formerly (1991-1997), Director of Fund
Accounting, Janus Capital.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
28
<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 Trust's Executive Committee shall have and may exercise all the
powers and authority of the Trustees except for matters requiring
action by all Trustees pursuant to the Trust's Bylaws or Trust
Instrument, Delaware law or the 1940 Act.
Because the Portfolio has not commenced operations as of the date of
this prospectus, the Trustees have not received compensation from the
Portfolio yet. 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>
<CAPTION>
Aggregate Compensation Total Compensation
from the Portfolio for from the Janus Funds for
fiscal year ended calendar year ended
Name of Person, Position December 31, 1999 December 31, 1999**
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman and Trustee* $ 0 $ 0
James P. Craig, III, Trustee* $ 0 $ 0
William D. Stewart, Trustee $ 0 $107,333
Gary O. Loo, Trustee $ 0 $107,333
Dennis B. Mullen, Trustee $ 0 $107,333
Martin H. Waldinger, Trustee $ 0 $107,333
James T. Rothe, Trustee $ 0 $107,333
</TABLE>
* An interested person of the Portfolio and of Janus Capital. Compensated by
Janus Capital and not the Portfolio.
** As of December 31, 1999, Janus Funds consisted of two registered investment
companies comprised of a total of 32 funds.
29
<PAGE>
SHARES OF THE TRUST
- --------------------------------------------------------------------------------
NET ASSET VALUE DETERMINATION
As stated in the Prospectus, the net asset value ("NAV") of the Shares
of the 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 the
Portfolio is not determined on days the NYSE is closed (generally, New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas). The per Share NAV of the Shares of the Portfolio is
determined by dividing the total value of a 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 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. 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 an 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.
30
<PAGE>
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) qualified plans.
Participating insurance companies and certain other designated
organizations are authorized to receive purchase orders on the
Portfolio's behalf and those organizations are authorized to designate
their agents and affiliates as intermediaries to receive purchase
orders. Purchase orders are deemed received by the Portfolio when
authorized organizations, their agents or affiliates receive the
order. The Portfolio is not responsible for the failure of any
designated organization or its agents or affiliates to carry out its
obligations to its customers. 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 a Portfolio or its authorized agent. In order to
receive a day's price, your order must be received by the close of the
regular trading session of the NYSE as described above in "Net Asset
Value Determination." 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 plans.
Certain designated organizations are authorized to receive redemption
orders on the Portfolio's behalf and those organizations are
authorized to designate their agents and affiliates as intermediaries
to receive redemption orders. Redemption orders are deemed received by
the Portfolio when authorized organizations, their agents or
affiliates receive the order. The Portfolio is not responsible for the
failure of any designated organization or its agents or affiliates to
carry out its obligations to its customers. Shares normally will be
redeemed for cash, although the Portfolio retains the right to redeem
some or all of its Shares in kind under unusual circumstances, in
order to protect the interests of remaining shareholders, or to
accommodate a request by a particular shareholder that does not
adversely affect the interest of the 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.
31
<PAGE>
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
It is a policy of the Shares of the Portfolio to distribute
substantially all of its respective investment income at least
semi-annually and its respective net realized gains, if any, at least
annually. The Portfolio intends to qualify as a regulated investment
company by satisfying certain requirements prescribed by Subchapter M
of the Internal Revenue Code ("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 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 instruments appreciate in value, 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. If
such 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.
32
<PAGE>
MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
The Portfolio is a series of the Trust, an open-end management
investment company registered under the 1940 Act and organized as a
Delaware business trust on May 20, 1993. As of the date of this SAI,
the Trust is offering fourteen series of shares, known as
"Portfolios," each of which consists of two or three 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 the Portfolio are fully paid and
nonassessable when issued. 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 offers two classes of shares. The Shares discussed in
this SAI are offered only in connection with investment in and
payments under variable insurance contracts and to qualified
retirement plans. A second class of shares, Service Shares, is offered
only in connection with investment in and payments under variable
insurance contracts and to qualified retirement plans that require a
fee from Portfolio assets to procure distribution and administrative
services to contract owners and plan participants.
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 the Portfolio or class only
if a matter affects or requires the vote of only the Portfolio or
class or the Portfolio's or class' interest in the matter differs from
the interest of other Portfolios of the Trust. Shareholder is entitled
to one vote for each Share owned.
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, 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
33
<PAGE>
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.
As mentioned above in "Shareholder Meetings," each share of the
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. The Portfolio or class of the Trust will
vote separately only with respect to those matters that affect only
the 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
PricewaterhouseCoopers 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.
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<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Quotations of average annual total return for the Shares of the
Portfolio will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in the Shares of 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 expenses of the
Shares of the Portfolio on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
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. ("Lipper"), Ibbotson
Associates, Micropal or Morningstar, Inc. ("Morningstar") or by
publications of general interest such as Forbes, Money, The Wall
Street Journal, Mutual Funds Magazine, Kiplinger's or Smart Money. The
Portfolio may also compare its performance to that of other selected
mutual funds (for example, peer groups created by Lipper or
Morningstar), mutual fund averages or recognized stock market
indicators, including, but not limited to, the S&P 500 Index, the Dow
Jones Industrial Average, and the NASDAQ composite. In addition, the
Portfolio may compare its total return or yield 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
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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 Janus
Capital 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
<TABLE>
<S> <C>
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, CCC, CC, C........... Predominantly speculative with respect to the 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.
</TABLE>
MOODY'S INVESTORS SERVICE, INC.
<TABLE>
<S> <C>
BOND RATING EXPLANATION
-----------------------------------------------------------------------------------------
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.
</TABLE>
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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 LOGO]
1-800-504-4440
Janus Retirement Advantage
c/o Western Reserve Life Assurance Co. of Ohio
Attn: Annuity Department
P.O. Box 9052
Clearwater, FL 33758-9052
JRASAI
