LOGO
Janus Aspen Series
Service Shares
Money Market Portfolio
100 Fillmore Street
Denver, CO 80206-4928
(800) 29JANUS
Statement of Additional Information
December 31, 1999
This Statement of Additional Information expands upon and
supplements the information contained in the current Prospectus
for the Service Shares (the "Shares") of Money Market
Portfolio. The Portfolio is each a separate series of Janus
Aspen Series, a Delaware trust.
The Service 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.
This SAI is not a Prospectus and should be read in conjunction
with the Prospectus dated December 31, 1999, 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. 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
or plan sponsor.
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LOGO
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Table of contents
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<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
Distribution and Shareholder Servicing Plan................. 23
Redemption of Shares........................................ 24
Dividends and Tax Status.................................... 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.................................................. 32
Description of Municipal Securities...................... 32
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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 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.
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(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 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.
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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.
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
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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 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
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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.
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 it 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
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market funds advised by Janus Capital to the extent consistent with
exemptive relief obtained from the SEC.
Reverse Repurchase Agreements
Reverse repurchase agreements are transactions in which the Portfolio
sells a security and simultaneously commits to repurchase that
security from the buyer at an agreed upon price on an agreed upon
future date. The resale price in a reverse repurchase agreement
reflects a market rate of interest that is not related to the coupon
rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase
rate. The Portfolio will use the proceeds of reverse repurchase
agreements only to satisfy unusually heavy redemption requests or for
other temporary or emergency purposes without the necessity of selling
portfolio securities.
Generally, a reverse repurchase agreement enables the Portfolio to
recover for the term of the reverse repurchase agreement all or most
of the cash invested in the portfolio securities sold and to keep the
interest income associated with those portfolio securities. Such
transactions are only advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost
of obtaining the cash otherwise. In addition, interest costs on the
money received in a reverse repurchase agreement may exceed the return
received on the investments made by the Portfolio with those monies.
When Issued and Delayed Delivery Securities
The Portfolio may purchase securities on a when-issued or delayed
delivery basis. The Portfolio will enter into such transactions only
when it has the intention of actually acquiring the securities. To
facilitate such acquisitions, the Portfolio's custodian will segregate
cash or high quality liquid assets in an amount at least equal to such
commitments. On delivery dates for such transactions, the Portfolio
will meet its obligations from maturities, sales of the segregated
securities or from other available sources of cash. If it chooses to
dispose of the right to acquire a when-issued security prior to its
acquisition, the Portfolio could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation.
At the time it makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Portfolio will record the
transaction as a purchase and thereafter reflect the value of such
securities in determining its net asset value.
Investment Company Securities
From time to time, the Portfolio may invest in securities of other
investment companies. The Portfolio is subject to the provisions of
Section 12(d)(1) of the 1940 Act. 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 debt obligations of domestic
issuers. 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.
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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 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.
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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 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.
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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.
The Service Shares commenced operations on January 1, 2000. The
returns shown for the Service Shares of the Money Market Portfolio
reflect the historical performance of a different class of shares (the
Institutional Shares) prior to January 1, 2000. The historical
performance of the Institutional Shares has been restated for purposes
of the Service Shares performance based on the Service Shares
estimated fees and expenses (ignoring any fee and expense limitations)
except where that restatement results in higher performance than the
actual historical performance of the Institutional Shares.
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.
10
<PAGE>
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. The Shares' yield is not fixed or guaranteed,
and an investment in the Portfolio is not insured. Accordingly, the
Shares' yield information may not necessarily be used to compare
Portfolio Shares with investment alternatives which, like money market
instruments or bank accounts, may provide a fixed rate of interest. In
addition, because investments in the Portfolio are not insured or
guaranteed, the yield information may not necessarily be used to
compare the Portfolio with investment alternatives which are insured
or guaranteed.
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 the distribution fee
described below, brokerage commissions, interest, taxes and
extraordinary expenses, exceed .50% of average daily net assets. Janus
Capital has agreed to continue such waivers until at least the next
annual renewal of the advisory agreements. Mortality risk, expense
risk and other charges imposed by participating insurance companies
are also excluded from the above expense limitation.
For the fiscal year ended December 31, 1998, the advisory fee was
$79,201. For the fiscal year ended December 31, 1997 and December 31,
1996, the advisory fees were $22,333 and $9,287, respectively. For the
fiscal years ended December 31, 1997 and December 31, 1996, Janus
Capital waived $2,184 and $9,287, respectively (the advisory fee
waivers by Janus Capital exceeded the advisory fees for 1996).
The Advisory Agreement is dated July 1, 1997 and will continue in
effect 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-advisor 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") owns approximately 82%
of the outstanding voting stock of Janus Capital, most of which it
acquired in 1984. KCSI is a publicly traded holding company whose
primary subsidiaries are engaged in transportation, information
processing and financial services. Thomas H. Bailey, President and
Chairman of the Board of Janus Capital, owns approximately 12% of its
voting stock and, by agreement with KCSI, selects a majority of Janus
Capital's Board.
KCSI has announced its intention to separate its transportation and
financial services businesses. KCSI anticipates the separation to be
completed in the first quarter 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 Janus Capital's policy regarding personal investing by
directors, officers and employees of Janus Capital and the Portfolio.
The policy requires investment personnel and officers of Janus
Capital, inside directors of Janus Capital and the Portfolio and other
designated persons deemed to have access to current trading
information to pre-clear all transactions in securities not otherwise
exempt under the policy. Requests for trading authority will be denied
when, among other reasons, the proposed personal transaction would be
contrary to the provisions of the policy or would be deemed to
adversely affect any transaction then known to be under consideration
for or to have been effected on behalf of any client account,
including the Portfolio.
In addition to the pre-clearance requirement described above, the
policy subjects investment personnel, officers and directors/Trustees
of Janus Capital and the Trust to various trading restrictions and
reporting obligations. All reportable transactions are required to be
reviewed for compliance with Janus Capital's policy. Those persons
also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to
exceptions authorized by Janus Capital.
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 related to the Shares, except for out-of-pocket costs.
Janus Distributors, Inc. ("Janus Distributors"), 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 (the "Exchange Act") 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 rate of $3.98 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."
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, 1998, December 31, 1997 and
December 31, 1996, the Portfolio did not incur any brokerage
commissions. The Portfolio generally buys and sells securities in
principal and agency transactions in which no commissions are paid.
However, the Portfolio may engage an agent and pay commissions for
such transactions if Janus Capital believes that the net result of the
transaction to the Portfolio will be no less favorable than that of
contemporaneously available principal transactions.
Janus Capital may use research products and services in servicing
other accounts in addition to the Portfolio. If Janus Capital
determines that any research product or service has a mixed use, such
that it also serves functions that do not assist in the investment
decision-making process, Janus Capital may allocate the costs of such
service or product accordingly. Only that portion of the product or
service that Janus Capital determines will assist it in the investment
decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus
Capital.
Janus Capital may consider sales of Portfolio shares or shares of
other Janus funds by a broker-dealer or the recommendation of a
broker-dealer to its customers that they purchase such shares as a
factor in the selection of broker-dealers to execute Portfolio
transactions. Janus Capital may also consider payments made by brokers
effecting transactions for a Portfolio i) to the Portfolio or ii) to
other persons on behalf of the Portfolio for services provided to the
Portfolio for which it would be obligated to pay. In placing portfolio
business with such broker-dealers, Janus Capital will seek the best
execution of each transaction.
When the 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, 1998, 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 ABN AMRO Securities, Inc. $4,920,000
CS First Boston $1,965,875
Goldman Sachs Group, L.P. $1,999,938
Morgan Stanley, Dean Witter, Discover & Co. $1,977,040
</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*#
100 Fillmore Street
Denver, CO 80206-4928
- --------------------------------------------------------------------------------
Trustee and Executive 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 (from inception until December
1999).
Gary O. Loo, Age 59 - Trustee#
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
- --------------------------------------------------------------------------------
Trustee of Janus Investment Fund. President and a Director of High
Valley Group, Inc., Colorado Springs, 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).
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).
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Executive Committee.
18
<PAGE>
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. Vice President of Janus Capital. Formerly (1994-1998) Executive
Vice President and Portfolio Manager of Janus Government Money Market
Fund.
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. and Janus Capital International, Ltd. 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.
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. Formerly (1992-1996),
Treasurer of Janus Investment Fund and Janus Aspen Series.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Executive Committee.
19
<PAGE>
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.
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
of Janus Distributors, Inc. Assistant Vice President of Janus Service
Corporation. Vice President and Assistant General Counsel of Janus
Capital.
- --------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
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.
20
<PAGE>
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 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, 1998 December 31, 1998**
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman and Trustee* $ 0 $ 0
James P. Craig, III, Trustee* $ 0 $ 0
William D. Stewart, Trustee $ 36 $82,000
Gary O. Loo, Trustee $ 73 $74,000
Dennis B. Mullen, Trustee $ 77 $82,000
Martin H. Waldinger, Trustee $ 40 $74,000
James T. Rothe, Trustee $ 75 $82,000
</TABLE>
* An interested person of the Portfolio and of Janus Capital. Compensated by
Janus Capital and not the Portfolio.
** As of December 31, 1998, 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) qualified plans.
Participating insurance companies and certain 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>
Distribution and Shareholder Servicing plan
Under a distribution and shareholder servicing plan ("Plan") adopted
in accordance with Rule 12b-1 under the Investment Company Act of 1940
(the "1940 Act"), the Shares may pay Janus Distributors, Inc., the
Trust's distributor, a fee at an annual rate of up to 0.25% of the
average daily net assets of the Shares of the Portfolio. Under the
terms of the Plan, the Trust is authorized to make payments to Janus
Distributors for remittance to insurance companies and qualified plan
service providers as compensation for distribution and shareholder
servicing performed by such service providers. The Plan is a
compensation type plan and permits the payment at an annual rate of up
to 0.25% of the average daily net assets of the Shares of a Portfolio
for recordkeeping and administrative services as well as activities
which are primarily intended to result in sales of the Shares,
including but not limited to preparing, printing and distributing
prospectuses, Statements of Additional Information, shareholder
reports, and educational materials to prospective and existing
contract owners and plan participants; responding to inquiries by
contract owners and plan participants; receiving and answering
correspondence; contract owner and participant level recordkeeping and
administrative services; and similar activities. On September 14,
1999, Trustees unanimously approved the Plan which became effective on
that date. The Plan and any Rule 12b-1 related agreement that is
entered into by the Portfolio or Janus Distributors in connection with
the Plan will continue in effect for a period of more than one year
only so long as continuance is specifically approved at least annually
by a vote of a majority of the Trustees, and of a majority of the
Trustees who are not interested persons (as defined in the 1940 Act)
of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or any related agreements ("12b-1
Trustees"). All material amendments to the Plan must be approved by a
majority vote of the Trustees, including a majority of the 12b-1
Trustees, at a meeting called for that purpose. In addition, the Plan
may be terminated at any time, without penalty, by vote of a majority
of the outstanding Shares of the Portfolio or by vote of a majority of
12b-1 Trustees.
23
<PAGE>
Redemption of Shares
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
its shares in kind under unusual circumstances, in order to protect
the interests of remaining shareholders, by delivery of securities
selected from its assets at its discretion. However, the Portfolio is
governed by Rule 18f-1 under the 1940 Act, which requires the
Portfolio to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Portfolio during any 90-day period
for any one shareholder. Should redemptions by any shareholder exceed
such limitation, 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 "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.
24
<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, because a class of shares of the Portfolio
are sold in connection with variable insurance contracts, the
Portfolio intends to comply with the diversification requirements of
Internal Revenue Code Section 817(h) related to the tax-deferred
status of insurance company separate accounts.
All income dividends 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 plans. See the
prospectus for the separate account of the related insurance company
or the plan documents for additional information.
25
<PAGE>
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 eleven series of
shares, known as "portfolios," in 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 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 that require a fee from Portfolio assets to procure
distribution and administrative services to contract owners and plan
participants. A second class of shares, Retirement Shares, is offered
only to qualified plans whose service providers require a fee from
Trust assets for providing certain services to plan participants. The
third class of shares, Institutional Shares, are offered only in
connection with investment in and payments under variable contracts
and life insurance contracts, as well as certain qualified retirement
plans.
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 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 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 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
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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 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 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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Financial statements
The following audited financial statements for Institutional Shares
and Retirement Shares for the period ended December 31, 1998 and the
unaudited Semiannual Report for Institutional Shares and Retirement
Shares for the period ended June 30, 1999 are hereby incorporated into
this Statement of Additional Information by reference to the
Portfolio's Annual Report dated December 31, 1998 and the Portfolios'
Semiannual Report dated June 30, 1999. A copy of each report
accompanies this Statement of Additional Information. The Service
Shares had not yet commenced operations as of June 30, 1999.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT AND SEMIANNUAL REPORT
Schedules of Investments as of December 31, 1998 and June 30, 1999
Statement of Operations for the period ended December 31, 1998 and
June 30, 1999
Statement of Assets and Liabilities as of December 31, 1998 and June
30, 1999
Statement of Changes in Net Assets for the periods ended December 31,
1998 and 1997 and for the six months ended June 30, 1999
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Report of Independent Accountants dated December 31, 1998
The portions of the Annual Report and Semiannual Report that are not
specifically listed above are not incorporated by reference into this
Statement of Additional Information and are not part of the
Registration Statement.
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Appendix A
DESCRIPTION OF SECURITIES RATINGS
Moody's and Standard & Poor's
MUNICIPAL AND CORPORATE BONDS AND MUNICIPAL LOANS
The two highest ratings of Standard & Poor's Ratings Services ("S&P")
for municipal and corporate bonds are AAA and AA. Bonds rated AAA have
the highest rating assigned by S&P to a debt obligation. Capacity to
pay interest and repay principal is extremely strong. Bonds rated AA
have a very strong capacity to pay interest and repay principal and
differ from the highest rated issues only in a small degree. The AA
rating may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within that rating category.
The two highest ratings of Moody's Investors Service, Inc. ("Moody's")
for municipal and corporate bonds are Aaa and Aa. Bonds rated Aaa are
judged by Moody's to be of the best quality. Bonds rated Aa are judged
to be of high quality by all standards. Together with the Aaa group,
they comprise what are generally known as high-grade bonds. Moody's
states that Aa bonds are rated lower than the best bonds because
margins of protection or other elements make long-term risks appear
somewhat larger than Aaa securities. The generic rating Aa may be
modified by the addition of the numerals 1, 2 or 3. The modifier 1
indicates that the security ranks in the higher end of the Aa rating
category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of such
rating category.
SHORT TERM MUNICIPAL LOANS
S&P's highest rating for short-term municipal loans is SP-1. S&P
states that short-term municipal securities bearing the SP-1
designation have a strong capacity to pay principal and interest.
Those issues rated SP-1 which are determined to possess a very strong
capacity to pay debt service will be given a plus (+) designation.
Issues rated SP-2 have satisfactory capacity to pay principal and
interest with some vulnerability to adverse financial and economic
changes over the term of the notes.
Moody's highest rating for short-term municipal loans is MIG-1/VMIG-1.
Moody's states that short-term municipal securities rated MIG-1/VMIG-1
are of the best quality, enjoying strong protection from established
cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Loans
bearing the MIG-2/VMIG-2 designation are of high quality, with margins
of protection ample although not so large as in the MIG-1/VMIG-1
group.
OTHER SHORT-TERM DEBT SECURITIES
Prime-1 and Prime-2 are the two highest ratings assigned by Moody's
for other short-term debt securities and commercial paper, and A-1 and
A-2 are the two highest ratings for commercial paper assigned by S&P.
Moody's uses the numbers 1, 2 and 3 to denote relative strength within
its highest classification of Prime, while S&P uses the numbers 1, 2
and 3 to denote relative strength within its highest classification of
A. Issuers rated Prime-1 by Moody's have a superior ability for
repayment of senior short-term debt obligations and have many of the
following characteristics: leading market positions in
well-established industries, high rates of return on funds employed,
conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and well
established access to a range of financial markets and assured sources
of alternate liquidity. Issuers rated Prime-2 by Moody's have a strong
ability for repayment of senior short-term debt obligations and
display many of the same characteristics displayed by issuers rated
Prime-1, but to a lesser degree. Issuers rated A-1 by S&P carry a
strong degree of safety regarding timely
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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
<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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IBCA, INC.
<TABLE>
<S> <C>
BOND RATING EXPLANATION
-----------------------------------------------------------------------------------------
A1+......................... Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.
A2.......................... Obligations supported by a good capacity for timely
repayment.
A3.......................... Obligations supported by a satisfactory capacity for timely
repayment.
B........................... Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
C........................... Obligations for which there is a high risk of default or
which are currently in default.
</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 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
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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 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.
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Tax-exempt bonds are also categorized according to whether the
interest is or is not includible in the calculation of alternative
minimum taxes imposed on individuals, according to whether the costs
of acquiring or carrying the bonds are or are not deductible in part
by banks and other financial institutions, and according to other
criteria relevant for Federal income tax purposes. Due to the
increasing complexity of Internal Revenue Code and related
requirements governing the issuance of tax-exempt bonds, industry
practice has uniformly required, as a condition to the issuance of
such bonds, but particularly for revenue bonds, an opinion of
nationally recognized bond counsel as to the tax-exempt status of
interest on the bonds.
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