STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000, AS AMENDED MAY 11, 2000
JNL SERIES TRUST
================================================================================
This Statement of Additional Information (the "SAI") is not a
prospectus. It contains information in addition to and more detailed than set
forth in the Prospectus and should be read in conjunction with the JNL Series
Trust Prospectus dated May 1, 2000 (the "Prospectus"). Not all Series described
in this SAI may be available for investment. The Prospectus may be obtained at
no charge by calling (800) 766-4683, or writing JNL Series Trust, P.O. Box
378002, Denver, Colorado 80237-8002.
================================================================================
TABLE OF CONTENTS
General Information and History .............................. 2
Common Types of Investments and Management Practices ......... 2
Additional Risk Considerations ............................... 14
Investment Restrictions Applicable to all Series ............. 18
Trustees and Officers of the Trust ........................... 25
Performance .................................................. 28
Investment Adviser and Other Services ........................ 34
Purchases, Redemptions and Pricing of Shares ................. 47
Additional Information ....................................... 48
Tax Status ................................................... 50
Financial Statements ......................................... 51
Appendix A - Ratings of Investments .......................... A-1
<PAGE>
GENERAL INFORMATION AND HISTORY
The JNL Series Trust (the "Trust") is an open-end management investment
company organized under the laws of the Commonwealth of Massachusetts, by a
Declaration of Trust dated June 1, 1994. The Trust offers shares in separate
Series, each with its own investment objective.
COMMON TYPES OF INVESTMENTS AND MANAGEMENT PRACTICES
This section describes some of the types of securities a Series may
hold in its portfolio and the various kinds of investment practices that may be
used in day-to-day portfolio management. A Series may invest in the following
securities or engage in the following practices to the extent that such
securities and practices are consistent with the Series' investment objective(s)
and policies described in the Prospectus and in this SAI.
ASSET-BACKED SECURITIES. A Series may invest in asset-backed securities, which
include mortgage-backed securities. Asset-backed securities represent interests
in pools of consumer loans and most are structured as pass-through securities.
The credit quality of most asset-backed securities depends primarily on the
credit quality of the assets underlying such securities, how well the entity
issuing the security is insulated from the credit risk of the originator or any
other affiliated entities, and the amount and quality of any credit support
provided to the securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets, which in turn may be affected by a variety of economic and
other factors. As a result, the yield on any asset-backed security is difficult
to predict with precision and actual yield to maturity may be more or less than
the anticipated yield to maturity. A sub-adviser considers estimated prepayment
rates in calculating the average weighted maturities of the Series. Unscheduled
prepayments are more likely to accelerate during periods of declining long-term
interest rates. In the event of a prepayment during a period of declining
interest rates, a Series may be required to invest the unanticipated proceeds at
a lower interest rate. Prepayments during such periods will also limit a Series'
ability to participate in as large a market gain as may be experienced with a
comparable security not subject to prepayment.
Asset-backed securities may be classified as pass-through certificates
or collateralized obligations. Pass-through certificates are asset-backed
securities that represent an undivided fractional ownership interest in an
underlying pool of assets. Pass-through certificates usually provide for
payments of principal and interest received to be passed through to their
holders, usually after deduction for certain costs and expenses incurred in
administering the pool. Because pass-through certificates represent an ownership
interest in the underlying assets, the holders thereof directly bear the risk of
any defaults by the obligors on the underlying assets not covered by any credit
support.
Asset-backed securities issued in the form of debt instruments, also
known as collateralized obligations, are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Such assets are most often trade, credit card or
automobile receivables. The assets collateralizing such asset-backed securities
are pledged to a trustee or custodian for the benefit of the holders hereof.
Such issuers generally hold no assets other than those underlying the
asset-backed securities and any credit support provided. As a result, although
payments on such asset-backed securities are obligations of the issuers, in the
event of defaults on the underlying assets not covered by any credit support,
the issuing entities are unlikely to have sufficient assets to satisfy their
obligations on the related asset-backed securities.
BANK OBLIGATIONS. A Series may invest in bank obligations, which include
certificates of deposit, bankers' acceptances, and other short-term debt
obligations. Certificates of deposit are short-term obligations of commercial
banks. A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with international commercial transactions.
Certificates of deposit may have fixed or variable rates. The Series may invest
in U.S. banks, foreign branches of U.S. banks, U.S. branches of foreign banks,
and foreign branches of foreign banks.
BORROWING AND LENDING. A Series may borrow money from banks for temporary or
emergency purposes in amounts up to 25% of its total assets. To secure
borrowings, a Series may mortgage or pledge securities in amounts up to 15% of
its net assets.
CASH POSITION. A Series may hold a certain portion of its assets in repurchase
agreements and money market securities maturing in one year or less that are
rated in one of the two highest rating categories by a nationally recognized
statistical rating organization. For temporary, defensive purposes, a Series may
invest without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments,
and serves as a short-term defense during periods of unusual market volatility.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). A Series may invest in CMOs, which
are bonds that are collateralized by whole loan mortgages or mortgage
pass-through securities. The bonds issued in a CMO transaction are divided into
groups, and each group of bonds is referred to as a "tranche." Under the
traditional CMO structure, the cash flows generated by the mortgages or mortgage
pass-through securities in the collateral pool are used to first pay interest
and then pay principal to the CMO bondholders. The bonds issued under a CMO
structure are retired sequentially as opposed to the pro rata return of
principal found in traditional pass-through obligations. Subject to the various
provisions of individual CMO issues, the cash flow generated by the underlying
collateral (to the extent it exceeds the amount required to pay the stated
interest) is used to retire the bonds. Under the CMO structure, the repayment of
principal among the different tranches is prioritized in accordance with the
terms of the particular CMO issuance. The "fastest-pay" tranche of bonds, as
specified in the prospectus for the issue, would initially receive all principal
payments. When that tranche of bonds is retired, the next tranche, or tranches,
in the sequence, as specified in the prospectus, receive all of the principal
payments until they are retired. The sequential retirement of bonds groups
continues until the last tranche, or group of bonds, is retired. Accordingly,
the CMO structure allows the issuer to use cash flows of long maturity,
monthly-pay collateral to formulate securities with short, intermediate and long
final maturities and expected average lives. Depending on the type of CMOs in
which the Series invests, the investment may be subject to a greater or lesser
risk of prepayment than other types of mortgage-related securities.
The primary risk of any mortgage security is the uncertainty of the
timing of cash flows. For CMOs, the primary risk results from the rate of
prepayments on the underlying mortgages serving as collateral. An increase or
decrease in prepayment rates (resulting primarily from a decrease or increase in
mortgage interest rates) will affect the yield, average life, and price of CMOs.
The prices of certain CMOs, depending on their structure and the rate of
prepayments, can be volatile. Some CMOs may also not be as liquid as other
securities.
COMMERCIAL PAPER. A Series may invest in commercial paper. Commercial paper are
short-term promissory notes issued by corporations primarily to finance
short-term credit needs. Certain notes may have floating or variable rates.
COMMON AND PREFERRED STOCKS. A Series may invest in common and/or preferred
stocks. Stocks represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common stocks in
its claim on income for dividend payments and on assets should the company be
liquidated. After other claims are satisfied, common stockholders participate in
company profits on a pro rata basis; profits may be paid out in dividends or
reinvested in the company to help it grow. Increases and decreases in earnings
are usually reflected in a company's stock price, so common stocks generally
have the greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, a Series may purchase
preferred stock where the issuer has omitted, or is in danger of omitting,
payment of its dividend. Such investments would be made primarily for their
capital appreciation potential. Although common and preferred stocks have a
history of long-term growth in value, their prices tend to fluctuate in the
short term, particularly those of smaller companies.
CONVERTIBLE SECURITIES AND WARRANTS. A Series may invest in debt or preferred
equity securities convertible into or exchangeable for equity securities.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stocks but lower than non-convertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower current income
with options and other features. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants (generally, two or more years).
CATASTROPHE BONDS. Catastrophe bonds are fixed income securities for which the
return of principal and payment of interest is contingent on the non-occurrence
of a specific trigger event, such as a hurricane or an earthquake. If a trigger
event causes losses exceeding a specific amount in the geographic region and
time period specified in a bond, a Series investing in the bond may lose a
portion or all of its principal invested in the bond. If no trigger event
occurs, the Series will recover its principal plus interest. Catastrophe bonds
may also expose the Series to certain unanticipated risks including, but not
limited to, issuer (credit) default, adverse regulatory or jurisdictional
interpretation, and adverse tax consequences.
<PAGE>
DIVERSIFICATION. Certain of the Series are diversified companies, as such term
is defined under the Investment Company Act of 1940, as amended (the "1940
Act"). A Series that is a diversified company under the 1940 Act will have at
least 75% of the value of its total assets represented by:
o cash and cash items (including receivables),
o Government securities,
o securities of other investment companies, and
o other securities limited in respect to any one issuer to not more than
5% of the value of the Series' total assets and to not more than 10% of
the outstanding voting securities of such issuer.
These percentage limitations are measured at the time that a Series
acquires a security, and a Series will not lose its diversification status if
the Series' holdings exceed these percentages because of post-acquisition
changes in security prices.
EQUITY SWAPS. Equity swap contracts offer an opportunity to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment is restricted for legal reasons or is otherwise
impracticable. The counterparty to an equity swap contract will typically be a
bank, investment banking firm or broker/dealer. The counterparty will generally
agree to pay the Series the amount, if any, by which the notional amount of the
equity swap contract would have increased in value had it been invested in the
particular stocks, plus the dividends that would have been received on those
stocks. The Series will agree to pay to the counterparty a floating rate of
interest on the notional amount of the equity swap contract plus the amount, if
any, by which that notional amount would have decreased in value had it been
invested in such stocks. Therefore, the return to the Series on any equity swap
contract should be the gain or loss on the notional amount plus dividends on the
stocks less the interest paid by the Series on the notional amount.
The Series will enter into equity swaps only on a net basis, which
means that the two payment streams are netted out, with the Series receiving or
paying, as the case may be, only the net amount of the two payments. Payments
may be made at the conclusion of an equity swap contract or periodically during
its term. Equity swaps do not involve the delivery of securities or other
underlying assets. Accordingly, the risk of loss with respect to equity swaps is
limited to the net amount of payments that is contractually obligated to be
made. If the other party to an equity swap defaults, the Series' risk of loss
consists of the net amount of payments that such Series is contractually
entitled to receive, if any. The net amount of the excess, if any, of the
Series' obligations over its entitlements with respect to each equity swap will
be accrued on a daily basis and an amount of cash or liquid assets, having an
aggregate net asset value at least equal to such accrued excess will be
maintained in a segregated account by the Series' custodian. Inasmuch as these
transactions are entered into for hedging purposes or are offset by segregated
cash or liquid assets, as permitted by applicable law, the Series will not treat
them as being subject to the Series' borrowing restrictions.
FIXED-INCOME SECURITIES. A Series may invest in fixed-income securities of
companies which meet the investment criteria for the Series. The price of
fixed-income securities fluctuates with changes in interest rates, generally
rising when interest rates fall and falling when interest rates rise. Prices of
longer-term securities generally increase or decrease more sharply than those of
shorter-term securities in response to interest rate changes.
FOREIGN CURRENCY TRANSACTIONS. A Series will normally conduct its foreign
currency exchange transactions either on a spot (i.e., cash), basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A Series will
generally not enter into a forward contract with a term of greater than one
year.
There are certain markets where it is not possible to engage in
effective foreign currency hedging. This may be true, for example, for the
currencies of various countries where the foreign exchange markets are not
sufficiently developed to permit hedging activity to take place.
FOREIGN SECURITIES. A Series may invest in foreign securities. Investors should
realize that investing in foreign securities involves certain special
considerations which are not typically associated with investing in U.S.
securities. These include non-U.S. dollar-denominated securities traded
principally outside the U.S. and U.S. dollar-denominated securities traded in
the U.S. (such as American Depositary Receipts). Such investments increase a
Series' diversification and may enhance return, but they also involve some
special risks such as exposure to potentially adverse local political and
economic developments; nationalization and exchange controls; potentially lower
liquidity and higher volatility; possible problems arising from accounting,
disclosure, settlement, and regulatory practices that differ from U.S.
standards; and the chance that fluctuations in foreign exchange rates will
decrease the investment's value (favorable changes can increase its value). In
addition, foreign securities purchased by the Series, may be subject to foreign
government taxes, higher custodian fees, higher brokerage commissions and
dividend collection fees. Foreign government securities are issued or guaranteed
by a foreign government, province, instrumentality, political subdivision or
similar unit thereof.
FUTURES AND OPTIONS. Futures contracts are often used to manage risk, because
they enable the investor to buy or sell an asset in the future at an agreed upon
price. Options give the investor the right, but not the obligation, to buy or
sell an asset at a predetermined price in the future. A Series may buy and sell
futures contracts (and options on such contracts) to manage its exposure to
changes in securities prices and foreign currencies and as an efficient means of
adjusting overall exposure to certain markets. A Series may purchase or sell
call and put options on securities, financial indices, and foreign currencies,
and may invest in futures contracts on foreign currencies and financial indices,
including interest rates or an index of U.S. Government securities, foreign
government securities or equity or fixed-income securities.
Futures contracts and options may not always be successful hedges;
their prices can be highly volatile; using them could lower a Series' total
return; and the potential loss from the use of futures can exceed the Series'
initial investment in such contracts. These instruments may also be used for
non-hedging purposes such as increasing a Series' income.
The Series' use of commodity futures and commodity options trading
should not be viewed as providing a vehicle for shareholder participation in a
commodity pool. Rather, in accordance with regulations adopted by the Commodity
Futures Trading Commission (CFTC), a Series will employ such techniques only for
(1) hedging purposes, or (2) otherwise, to the extent that aggregate initial
margin and required premiums do not exceed 5 percent of the Series' net assets.
Foreign government securities are issued or guaranteed by a foreign
government, province, instrumentality, political subdivision or similar unit
thereof.
HIGH-YIELD BONDS. A Series may invest its assets in fixed-income securities
offering high current income that are in the lower-rated categories of
recognized rating agencies or, if not rated, considered to be of comparable
quality. These lower-rated fixed-income securities are considered, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally will
involve more credit risk than securities in the higher rated categories.
High-yield bonds are commonly referred to as "junk bonds."
High-yield securities frequently are issued by corporations in the
growth stage of their development. They may also be issued in connection with a
corporate reorganization or a corporate takeover. Companies that issue such
high-yielding securities often are highly leveraged and may not have available
to them more traditional methods of financing. Therefore, the risk associated
with acquiring the securities of such issuers generally is greater than is the
case with higher rated securities. For example, during an economic downturn or
recession, highly leveraged issuers of high-yield securities may experience
financial stress. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected by specific
corporate developments, or the issuer's inability to meet specific projected
business forecasts, or the unavailability of additional financing. Adverse
publicity and investor perceptions regarding lower rated bonds, whether or not
based upon fundamental analysis, may also depress the price for such securities.
The risk of loss from default by the issuer is significantly greater for the
holders of high-yield securities because such securities are generally unsecured
and are often subordinated to other creditors of the issuer.
HYBRID INSTRUMENTS. A Series may purchase hybrid instruments, which combine the
elements of futures contracts or options with those of debt, preferred equity or
a depository instrument. Often these hybrid instruments are indexed to the price
of a commodity, a particular currency, or a domestic or foreign debt or equity
securities index. Hybrid instruments may take a variety of forms, including, but
not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity.
ILLIQUID SECURITIES. A Series may hold illiquid investments. Illiquid
investments are investments that cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the price at which they
are valued. Illiquid investments generally include: repurchase agreements not
terminable within seven days; securities for which market quotations are not
readily available; restricted securities not determined to be liquid in
accordance with guidelines established by the Trust's Board of Trustees;
over-the-counter (OTC) options and, in certain instances, their underlying
collateral; and securities involved in swap, cap, collar and floor transactions.
INFLATION-INDEXED BONDS. A Series may purchase inflation-indexed bonds.
Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. Such bonds generally
are issued at an interest rate lower than typical bonds, but are expected to
retain their principal value over time. The interest rate on these bonds is
fixed at issuance, but over the life of the bond the interest may be paid on an
increasing principal value, which has been adjusted for inflation.
Inflation-indexed securities issued by the U.S. Treasury have
maturities of ten years, although it is anticipated that securities with other
maturities will be issued in the future. The securities pay interest on a
semi-annual basis, equal to a fixed percentage of the inflation-adjusted
principal amount.
If the periodic adjustment rate measuring inflation falls, the
principal value of inflation-indexed bonds will be adjusted downward, and
consequently the interest payable on these securities (calculated with respect
to a smaller principal amount) will be reduced. Repayment of the original bond
principal upon maturity (as adjusted for inflation) is guaranteed in the case of
U.S. Treasury inflation-indexed bonds, even during a period of deflation.
However, the current market value of the bonds is not guaranteed, and will
fluctuate. The Series may also invest in other inflation related bonds which may
or may not provide a similar guarantee. If a guarantee of principal is not
provided, the adjusted principal value of the bond repaid at maturity may be
less than the original principal.
The value of inflation-indexed bonds is expected to change in response
to changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if inflation were to rise at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
The periodic adjustment of U.S. inflation-index bonds is tied to the
Consumer Price-Index for Urban Consumers (CPI-U), which is calculated monthly by
the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost of living, made up of components such as housing, food, transportation
and energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
Any increase in the principal amount of an inflation-indexed bond will
be considered taxable ordinary income, even though investors do not receive
their principal until maturity.
INVESTMENT COMPANIES. A Series may invest in investment companies to the extent
permitted under the 1940 Act. As a shareholder in an investment company, the
Series would bear its pro rata share of that investment company's expenses,
which could result in duplication of certain fees, including management and
administrative fees.
A Series may invest cash balances into investment companies managed by
a common investment adviser or its affiliates. A Series' investments in any such
fund will not be subject to any additional fees, including management and
administrative fees.
MORTGAGE-BACKED SECURITIES. A Series may invest in mortgage-backed securities.
Mortgage-backed securities are securities representing an interest in a pool of
mortgages. The mortgages may be of a variety of types, including adjustable
rate, conventional 30-year, fixed-rate, graduated payment, and 15-year.
Principal and interest payments made on the mortgages in the underlying mortgage
pool of a mortgage-backed security held by a Series are passed through to the
Series. This is in contrast to traditional bonds where principal is normally
paid back at maturity in a lump sum. Unscheduled prepayments of principal
shorten the securities' weighted average life and may lower their total return.
(When a mortgage in the underlying mortgage pool is prepaid, an unscheduled
principal prepayment is passed through to the Series. This principal is returned
to the Series at par. As a result, if a mortgage security were trading at a
discount, its total return would be increased by prepayments). The value of
these securities also may change because of changes in the market's perception
of the creditworthiness of the issuer. In addition, the mortgage securities
market in general may be adversely affected by changes in governmental
regulation or tax policies.
MORTGAGE DOLLAR ROLLS. A Series may enter into mortgage dollar rolls in which a
Series sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, a
Series foregoes principal and interest paid on the mortgage-backed securities. A
Series is compensated by the interest earned on the cash proceeds of the initial
sale and from negotiated fees paid by brokers offered as an inducement to the
Series to "roll over" its purchase commitments. A Series may only enter into
covered rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position which matures on or before the forward
settlement date of the dollar roll transaction. At the time a Series enters into
a mortgage "dollar roll", it will establish an account with its custodian bank
in which it will maintain cash, U.S. Government securities or other liquid
assets equal in value to its obligations in respect of dollar rolls, and
accordingly, such dollar rolls will not be considered borrowings. Mortgage
dollar rolls involve the risk that the market value of the securities the Series
is obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a mortgage dollar roll files
for bankruptcy or becomes insolvent, the Series' use of proceeds of the dollar
roll may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Series' obligation to repurchase the
securities.
PARTICIPATIONS AND ASSIGNMENTS. A Series may invest in fixed- and floating-rate
loans (Loans) arranged through private negotiations between a corporate borrower
or a foreign sovereign entity and one or more financial institutions (Lenders).
A Series may invest in such Loans in the form of participations in Loans
(Participations) and assignments of all or a portion of Loans from third parties
(Assignments). Participations typically will result in a Series having a
contractual relationship only with the Lender, not with the borrower. A Series
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection with
purchasing Participations, a Series generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the borrower, and a Series may not
benefit directly from any collateral supporting the Loan in which it has
purchased the Participation. As a result, a Series will assume the credit risk
of both the borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender selling a Participation, a Series may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. A Series will acquire Participations only
if the Lender interpositioned between a Series and the borrower is determined by
the sub-adviser to be creditworthy. When a Series purchases Assignments from
Lenders, a Series will acquire direct rights against the borrower on the Loan,
except that under certain circumstances such rights may be more limited than
those held by the assigning Lender.
A Series may have difficulty disposing of Assignments and
Participations. Because the market for such instruments is not highly liquid, a
Series anticipates that such instruments could be sold only to a limited number
of institutional investors. The lack of a highly liquid secondary market may
have an adverse impact on the value of such instruments and will have an adverse
impact on a Series' ability to dispose of particular Assignments or
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower. A Series currently treats investments
in Participations and Assignments as illiquid for purposes of its limitation on
investment in illiquid securities. However, the Trustees may in the future adopt
guidelines for determining whether Assignments and Loan Participations are
liquid or illiquid.
PASSIVE FOREIGN INVESTMENT COMPANIES. A Series may purchase the securities of
passive foreign investment companies. A passive foreign investment company, in
general, is a foreign corporation of which either at least 75% of its income is
passive or an average of at least 50% of its assets produce, or are held for the
production of, passive income. In addition to bearing their proportionate share
of the Trust's expenses (management fees and operating expenses), shareholders
will also indirectly bear similar expenses of such investment companies.
PORTFOLIO TURNOVER. To a limited extent, a Series may engage in short-term
transactions if such transactions further its investment objective. A Series may
sell one security and simultaneously purchase another of comparable quality or
simultaneously purchase and sell the same security to take advantage of
short-term differentials in bond yields or otherwise purchase individual
securities in anticipation of relatively short-term price gains. The rate of
portfolio turnover will not be a determining factor in the purchase and sale of
such securities. Increased portfolio turnover necessarily results in
correspondingly higher costs including brokerage commissions, dealer mark-ups
and other transaction costs on the sale of securities and reinvestment in other
securities, and may result in the acceleration of taxable gains.
REAL ESTATE INVESTMENT TRUSTS (REITS). REITs are pooled investment vehicles
whose assets consist primarily of interests in real estate and real estate
loans. The REITs in which a Series may invest include equity REITs, which own
real estate properties and realize income from rents and gain or loss from the
sale of real estate interests, and mortgage REITs, which make construction,
development and long-term mortgage loans and realize income from interest
payments on loans. The value of an equity REIT may be affected by changes in the
value of the underlying property, while a mortgage REIT may be affected by the
quality of the credit extended. The performance of both types of REITs depends
upon conditions in the real estate industry, management skills and the amount of
cash flow. The risks associated with REITs include defaults by borrowers, heavy
cash flow dependency, self-liquidation, failure to qualify as a "pass-through"
entity under the Federal tax law, failure to qualify as an exempt entity under
the 1940 Act, and the fact that REITs are not diversified. REITs (especially
mortgage REITs) are subject to interest rate risk.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. A Series may invest in
repurchase or reverse repurchase agreements. A repurchase agreement involves the
purchase of a security by a Series and a simultaneous agreement (generally by a
bank or dealer) to repurchase that security from the Series at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A repurchase agreement may be considered a loan collateralized by the
underlying security. The Series must take physical possession of the security or
receive written confirmation of the purchase and a custodial or safekeeping
receipt from a third party or be recorded as the owner of the security through
the Federal Reserve Book Entry System.
The Series may invest in open repurchase agreements which vary from the
typical agreement in the following respects: (1) the agreement has no set
maturity, but instead matures upon 24 hours' notice to the seller; and (2) the
repurchase price is not determined at the time the agreement is entered into,
but is instead based on a variable interest rate and the duration of the
agreement. In addition, a Series, together with other registered investment
companies having management agreements with a common investment adviser or its
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repurchase
agreements.
When a Series invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or a broker-dealer, in
return for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests or for other temporary or emergency purposes without
the necessity of selling portfolio securities or to earn additional income on
portfolio securities, such as Treasury bills and notes.
SHORT SALES. A Series may sell securities short. A short sale is the sale of a
security the Series does not own. It is "against the box" if at all times when
the short position is open the Series owns an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. To the extent that a
Series engages in short sales that are not "against the box," it must maintain
asset coverage in the form of assets determined to be liquid by the sub-adviser
in accordance with procedures established by the Board of Trustees, in a
segregated account, or otherwise cover its position in a permissible manner. If
the value of the security goes up, the Series will have to buy it back at a loss
to make good on the borrowing.
SHORT-TERM CORPORATE DEBT SECURITIES. A Series may invest in short-term
corporate debt securities. These are non-convertible corporate debt securities
(e.g., bonds and debentures) which have one year or less remaining to maturity.
Corporate notes may have fixed, variable, or floating rates.
STANDARD & POOR'S DEPOSITORY RECEIPTS (SPDRS). SPDRs are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust, a trust
which has been established to accumulate and hold a portfolio of common stocks
that is intended to track the price performance and dividend yield of the S&P
500 Index. The SPDR trust is sponsored by a subsidiary of the American Stock
Exchange. SPDRs may be used for several reasons including but not limited to:
facilitating the handling of cash flows or trading, or reducing transaction
costs. The use of SPDRs would introduce additional risk to a Series as the price
movement of the instrument does not perfectly correlate with the price action of
the underlying index.
STRIPPED MORTGAGE-BACKED SECURITIES. A Series may purchase stripped
mortgage-backed securities, which may be considered derivative mortgage-backed
securities, which may be issued by agencies or instrumentalities of the U.S.
Government or by private entities. Stripped mortgage-backed securities have
greater volatility than other types of mortgage-backed securities. Stripped
mortgage-backed securities are structured with two or more classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. In the most extreme case, one class will receive all of the
interest (IOs, or interest-only securities), while the other class will receive
all of the principal (POs, or principal-only securities). The yield to maturity
of such mortgage-backed securities that are purchased at a substantial discount
or premium are extremely sensitive to changes in interest rates as well as to
the rate of principal payments (including prepayments) on the related underlying
mortgage assets.
As interest rates rise and fall, the value of IOs tends to move in the
same direction as interest rates. The value of the other mortgage-backed
securities described herein, like other debt instruments, will tend to move in
the opposite direction compared to interest rates. Under the Internal Revenue
Code of 1986, as amended (Code), POs may generate taxable income from the
current accrual of original issue discount, without a corresponding distribution
of cash to the Series.
The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to recoup fully its
initial investment in an IO class of a stripped mortgage-backed security, even
if the IO class is rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the price on a PO class will be affected
more severely than would be the case with a traditional mortgage-backed
security.
SUPRANATIONAL AGENCY SECURITIES. A Series may invest in securities issued or
guaranteed by certain supranational entities, such as the International
Development Bank.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are issued or guaranteed
as to principal and interest by U.S. Government agencies or instrumentalities.
These include securities issued by the Federal National Mortgage Association
(Fannie Mae), Government National Mortgage Association (Ginnie Mae), Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration, Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank, Farm
Credit Banks, the Small Business Association, Student Loan Marketing
Association, and the Tennessee Valley Authority. Some of these securities, such
as those issued by Ginnie Mae, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of Fannie Mae, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government agencies or instrumentalities in the future, other than as
set forth above, since it is not obligated to do so by law.
U.S. GOVERNMENT OBLIGATIONS. U.S. Government obligations include bills, notes,
bonds, and other debt securities issued by the U.S. Treasury. These are direct
obligations of the U.S. Government and differ mainly in the length of their
maturities.
VARIABLE RATE SECURITIES. Variable rate securities provide for a periodic
adjustment in the interest rate paid on the obligations. The terms of such
obligations must provide that interest rates are adjusted periodically based
upon some appropriate interest rate adjustment index as provided in the
respective obligations. The adjustment intervals may be regular and range from
daily up to annually, or may be event based, such as on a change in the prime
rate.
WARRANTS. A Series may invest in warrants. Warrants have no voting rights, pay
no dividends and have no rights with respect to the assets of the corporation
issuing them. Warrants basically are options to purchase equity securities at a
specific price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them. Warrants differ
from call options in that warrants are issued by the issuer of the security
which may be purchased on their exercise, whereas call options may be written or
issued by anyone. The prices of warrants do not necessarily move parallel to the
prices of the underlying securities.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT CONTRACTS. A Series may purchase
securities on a when-issued or delayed delivery basis (When-Issueds) and may
purchase securities on a forward commitment basis (Forwards). Any or all of the
Series' investments in debt securities may be in the form of When-Issueds and
Forwards. The price of such securities, which may be expressed in yield terms,
is fixed at the time the commitment to purchase is made, but delivery and
payment take place at a later date. Normally, the settlement date occurs within
90 days of the purchase for When-Issueds, but may be substantially longer for
Forwards. During the period between PURCHASE and settlement, no payment is made
by the Series to the issuer and no interest accrues to the Series. The purchase
of these securities will result in a loss if their value declines prior to the
settlement date. This could occur, for example, if interest rates increase prior
to settlement. The longer the period between purchase and settlement, the
greater the risks. At the time the Series makes the commitment to purchase these
securities, it will record the transaction and reflect the value of the security
in determining its net asset value. The Series will maintain cash and/or liquid
assets with its custodian bank at least equal in value to commitments for them
during the time between the purchase and the settlement. Therefore, the longer
this period, the longer the period during which alternative investment options
are not available to the Series (to the extent of the securities used for
cover). Such securities either will mature or, if necessary, be sold on or
before the settlement date.
ZERO COUPON AND PAY-IN-KIND BONDS. Unless otherwise stated herein, a Series may
invest up to 10% of its assets in zero coupon bonds or strips. Zero coupon bonds
do not make regular interest payments; rather, they are sold at a discount from
face value. Principal and accreted discount (representing interest accrued but
not paid) are paid at maturity. Strips are debt securities that are stripped of
their interest after the securities are issued, but otherwise are comparable to
zero coupon bonds. The market value of strips and zero coupon bonds generally
fluctuates in response to changes in interest rates to a greater degree than
interest-paying securities of comparable term and quality. A Series may also
purchase pay-in-kind bonds. Pay-in-kind bonds pay all or a portion of their
interest in the form of debt or equity securities.
Zero coupon and pay-in-kind bonds tend to be subject to greater price
fluctuations in response to changes in interest rates than are ordinary
interest-paying debt securities with similar maturities. The value of zero
coupon securities appreciates more during periods of declining interest rates
and depreciates more during periods of rising interest rates than ordinary
interest-paying debt securities with similar maturities. Zero coupon securities
and pay-in-kind bonds may be issued by a wide variety of corporate and
governmental issuers.
Current federal income tax law requires the holder of a zero coupon
security, certain pay-in-kind bonds and certain other securities acquired at a
discount (such as Brady Bonds) to accrue income with respect to these securities
prior to the receipt of cash payments. Accordingly, to avoid liability for
federal income and excise taxes, a Series may be required to distribute income
accrued with respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements.
ADDITIONAL RISK CONSIDERATIONS
EMERGING MARKETS. The considerations noted below under "Foreign Securities" may
be intensified in the case of investment in developing countries. Investments in
securities of issuers in emerging markets countries may involve a high degree of
risk and many may be considered speculative. These investments carry all of the
risks of investing in securities of foreign issuers to a heightened degree.
These heightened risks include: (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) limitations on daily price changes and the small current size of the
markets for securities of emerging markets issuers and the currently low or
nonexistent volume of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict a Series'
investment opportunities including limitations on aggregate holdings by foreign
investors and restrictions on investing in issuers or industries deemed
sensitive to relevant national interests; and (iv) the absence of developed
legal structures governing private or foreign investment and private property.
In addition, emerging market economies may be based on only a few industries,
may be highly vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates.
FOREIGN SECURITIES. Investments in foreign securities, including those of
foreign governments, involve risks that are different in some respects from
investments in securities of U.S. issuers, such as the risk of fluctuations in
the value of the currencies in which they are denominated, a heightened risk of
adverse political and economic developments and, with respect to certain
countries, the possibility of expropriation, nationalization or confiscatory
taxation or limitations on the removal of funds or other assets of a Series.
Securities of some foreign issuers in many cases are less liquid and more
volatile than securities of comparable domestic issuers. There also may be less
publicly available information about foreign issuers than domestic issuers, and
foreign issuers generally are not subject to the uniform accounting, auditing
and financial reporting standards, practices and requirements applicable to
domestic issuers. Certain markets may require payment for securities before
delivery. A Series may have limited legal recourse against the issuer in the
event of a default on a debt instrument. Delays may be encountered in settling
securities transactions in certain foreign markets and a Series will incur costs
in converting foreign currencies into U.S. dollars. Bank custody charges are
generally higher for foreign securities. The Series which invest primarily in
foreign securities are particularly susceptible to such risks. American
Depositary Receipts do not involve the same direct currency and liquidity risks
as foreign securities.
The share price of a Series that invests in foreign securities will
reflect the movements of both the prices of the portfolio securities and the
currencies in which such securities are denominated. A Series' foreign
investments may cause changes in a Series' share price that have a low
correlation with movement in the U.S. markets. Because most of the foreign
securities in which a Series invests will be denominated in foreign currencies,
or otherwise will have values that depend on the performance of foreign
currencies relative to the U.S. dollar, the relative strength of the U.S. dollar
may be an important factor in the performance of a Series, depending on the
extent of the Series' foreign investments.
A Series may employ certain strategies in order to manage exchange rate
risks. For example, a Series may hedge some or all of its investments
denominated in or exposed to a foreign currency against a decline in the value
of that currency. A Series may enter into contracts to sell that foreign
currency for U.S. dollars (not exceeding the value of a Series' assets
denominated in or exposed to that currency) or by participating in options or
futures contracts with respect to such currency (position hedge). A Series could
also hedge that position by selling a second currency, which is expected to
perform similarly to the currency in which portfolio investments are
denominated, for U.S. dollars (proxy hedge). A Series may also enter into a
forward contract to sell the currency in which the security is denominated for a
second currency that is expected to perform better relative to the U.S. dollar
if the sub-adviser believes there is a reasonable degree of correlation between
movements in the two currencies (cross hedge). A Series may also enter into a
forward contract to sell a currency in which portfolio securities are
denominated in exchange for a second currency in order to manage its currency
exposure to selected countries. In addition, when a Series anticipates
purchasing securities denominated in or exposed to a particular currency, the
Series may enter into a forward contract to purchase or sell such currency in
exchange for the dollar or another currency (anticipatory hedge).
These strategies minimize the effect of currency appreciation as well
as depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may adversely impact a Series' performance if the sub-adviser's projection of
future exchange rates is inaccurate.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. The use of futures, options,
forward contracts, and swaps (derivative instruments) exposes a Series to
additional investment risks and transaction costs. If a sub-adviser seeks to
protect a Series against potential adverse movements in the securities, foreign
currency or interest rate markets using these instruments, and such markets do
not move in a direction adverse to the Series, that Series could be left in a
less favorable position than if such strategies had not been used. Risks
inherent in the use of futures, options, forward contracts and swaps include:
(i) the risk that interest rates, securities prices and currency markets will
not move in the directions anticipated; (ii) imperfect correlation between the
price of derivative instruments and movements in the prices of the securities,
interest rates or currencies being hedged; (iii) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (iv) the possible absence of a liquid secondary market for any
particular instrument at any time; and (v) the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences.
HIGH-YIELD/HIGH-RISK BONDS. Lower-rated bonds involve a higher degree of credit
risk, which is the risk that the issuer will not make interest or principal
payments when due. In the event of an unanticipated default, a Series would
experience a reduction in its income, a decline in the market value of the
securities so affected and a decline in the value of its shares. More careful
analysis of the financial condition of issuers of lower-rated securities is
therefore necessary. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
could adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing.
The market prices of lower-rated securities are generally less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic or political changes, or individual developments
specific to the issuer. Periods of economic or political uncertainty and change
can be expected to result in volatility of prices of these securities. Since the
last major economic recession, there has been a substantial increase in the use
of high-yield debt securities to fund highly leveraged corporate acquisitions
and restructurings, so past experience with high-yield securities in a prolonged
economic downturn may not provide an accurate indication of future performance
during such periods. Lower-rated securities also may have less liquid markets
than higher-rated securities, and their liquidity as well as their value may be
more severely affected by adverse economic conditions. Many high-yield bonds do
not trade frequently. When they do trade, their price may be substantially
higher or lower than had been expected. A lack of liquidity also means that
judgment may play a bigger role in valuing the securities. Adverse publicity and
investor perceptions as well as new or proposed laws may also have a greater
negative impact on the market for lower rated bonds.
A Series may also invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated securities, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country, because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly. Because of the size and perceived demand of the issue, among other
factors, certain municipalities may not incur the costs of obtaining a rating.
The sub-adviser will analyze the credit- worthiness of the issuer, as well as
any financial institution or other party responsible for payments on the
security, in determining whether to purchase unrated municipal bonds. (See
Appendix A for a description of bond rating categories).
HIGH-YIELD FOREIGN SOVEREIGN DEBT SECURITIES. Investing in fixed and floating
rate high-yield foreign sovereign debt securities will expose the Series
investing in such securities to the direct or indirect consequences of
political, social or economic changes in the countries that issue the
securities. (See "Foreign Securities.") The ability and willingness of sovereign
obligors in developing and emerging market countries or the governmental
authorities that control repayment of their external debt to pay principal and
interest on such debt when due may depend on general economic and political
conditions within the relevant country. Countries such as those in which a
Series may invest have historically experienced, and may continue to experience,
high rates of inflation, high interest rates, exchange rate trade difficulties
and extreme poverty and unemployment. Many of these countries are also
characterized by political uncertainty or instability. Additional factors which
may influence the ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, and its government's policy towards
the International Monetary Fund, the World Bank and other international
agencies.
HYBRID INSTRUMENTS. The risks of investing in hybrid instruments reflect a
combination of the risks of investing in securities, options, futures and
currencies, including volatility and lack of liquidity. Reference is made to the
discussion of futures, options, and forward contracts herein for a discussion of
these risks. Further, the prices of the hybrid instrument and the related
commodity or currency may not move in the same direction or at the same time.
Hybrid instruments may bear interest or pay preferred dividends at below market
(or even relatively nominal) rates. Alternatively, hybrid instruments may bear
interest at above market rates but bear an increased risk of principal loss. In
addition, because the purchase and sale of hybrid instruments could take place
in an over-the-counter or in a private transaction between the Series and the
seller of the hybrid instrument, the creditworthiness of the counter-party to
the transaction would be a risk factor which the Series would have to consider.
Hybrid instruments also may not be subject to regulation of the Commodity
Futures Trading Commission, which generally regulates the trading of commodity
futures by U.S. persons, the Securities and Exchange Commission, which regulates
the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
SECURITIES LENDING. Lending securities enables a Series to earn additional
income, but could result in a loss or delay in recovering these securities. The
borrower of a Series' portfolio securities must maintain acceptable collateral
with that Series' custodian in an amount, marked to market daily, at least equal
to the market value of the securities loaned, plus accrued interest and
dividends. Acceptable collateral is limited to cash, U.S. government securities
and irrevocable letters of credit that meet certain guidelines. A Series may
reinvest any cash collateral in money market investments or other short-term
liquid investments. A Series will retain authority to terminate any of its loans
at any time. A Series may pay reasonable fees in connection with a loan and may
pay the borrower or placing broker a negotiated portion of the interest earned
on the reinvestment of cash held as collateral. A Series will receive amounts
equivalent to any dividends, interest or other distributions on the securities
loaned. A Series will regain record ownership of loaned securities to exercise
beneficial rights, such as voting and subscription rights, when regaining such
rights is considered to be in the Series' interest.
<PAGE>
INVESTMENT RESTRICTIONS APPLICABLE TO ALL SERIES
FUNDAMENTAL POLICIES. Each Series is subject to certain fundamental policies and
restrictions that may not be changed without shareholder approval. Shareholder
approval means approval by the lesser of (i) more than 50% of the outstanding
voting securities of the Trust (or a particular Series if a matter affects just
that Series), 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 affected Series) are present or represented by proxy. Unless
otherwise indicated, all restrictions apply at the time of investment.
(1) Each Series, except the JNL/Janus Capital Growth Series, JNL/S&P
Conservative Growth Series I, JNL/S&P Moderate Growth Series I, JNL/S&P
Aggressive Growth Series I, JNL/S&P Very Aggressive Growth Series I, JNL/S&P
Equity Growth Series I, JNL/S&P Equity Aggressive Growth Series I, JNL/S&P
Conservative Growth Series II, JNL/S&P Moderate Growth Series II, JNL/S&P
Aggressive Growth Series II, JNL/S&P Very Aggressive Growth Series II, JNL/S&P
Equity Growth Series II, JNL/S&P Equity Aggressive Growth Series II, JNL/S&P
Conservative Growth Series, JNL/S&P Moderate Growth Series, JNL/S&P Aggressive
Growth Series, Lazard/JNL Small Cap Value Series and Lazard/JNL Mid Cap Value
Series, shall be a "diversified company," as such term is defined under the 1940
Act.
(2) No Series may invest more than 25% of the value of their respective
assets in any particular industry (other than U.S. Government securities),
except the PPM America/JNL Money Market Series. The telecommunications industry
is comprised of several services which are considered separate industries by the
sub-advisers. Services can include cellular, long distance, paging and
messaging, satellite or data and internet. As the telecommunications industry
continues to expand, there will be more service industries created.
(3) No Series may invest directly in real estate or interests in real
estate; however, the Series may own debt or equity securities issued by
companies engaged in those businesses.
(4) No Series may purchase or sell physical commodities other than
foreign currencies unless acquired as a result of ownership of securities (but
this limitation shall not prevent the Series from purchasing or selling options,
futures, swaps and forward contracts or from investing in securities or other
instruments backed by physical commodities).
(5) No Series may lend any security or make any other loan if, as a
result, more than 33 1/3% of the Series' total assets would be lent to other
parties (but this limitation does not apply to purchases of commercial paper,
debt securities or repurchase agreements).
(6) No Series may act as an underwriter of securities issued by others,
except to the extent that a Series may be deemed an underwriter in connection
with the disposition of portfolio securities of such Series.
(7) No Series may invest more than 15% of a Series' net assets (10% in
the case of the PPM America/JNL Money Market Series and the JNL/Alger Growth
Series) in illiquid securities. This limitation does not apply to securities
eligible for resale pursuant to Rule 144A of the Securities Act of 1933 or
Commercial Paper issued in reliance upon the exemption from registration
contained in Section 4(2) of that Act, which have been determined to be liquid
in accordance with guidelines established by the Board of Trustees.
(8) The Series will not issue senior securities except that they may
borrow money for temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 25% of the value of their respective
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of a Series' total assets by
reason of a decline in net assets, the Series will reduce its borrowings within
three business days to the extent necessary to comply with the 25% limitation.
This policy shall not prohibit reverse repurchase agreements, deposits of assets
to margin or guarantee positions in futures, options, swaps and forward
contracts, or the segregation of assets in connection with such contracts.
OPERATING POLICIES. The Trustees have adopted additional investment restrictions
for the Series. These restrictions are operating policies of the Series and may
be changed by the Trustees without shareholder approval. The additional
investment restrictions adopted by the Trustees to date include the following:
For each Series, to the extent applicable:
(a) The Series intend to comply with the CFTC regulations limiting
a Series' investments in futures and options for non-hedging
purposes.
For the JNL/Alger Growth Series:
(a) At least 85% of the Series' net assets, under normal market
conditions, will be invested in equity securities and at least
65% of its total assets will be invested in the equity
secuities of companies that, at the time their securities are
purchased by the Series, have a market capitalization of $1
billion or more.
(b) The Series may hold up to 15% of its net assets in money
market instruments and repurchase agreements.
For the JNL/Alliance Growth Series:
(a) The Series may invest up to 25% of its total assets in foreign
securities.
For the JNL/Eagle Core Equity Series:
(a) At least 65% of the Series' total assets, under normal market
conditions, will be invested in U.S. common stocks.
(b) The Series may invest up to 35% of its assets in
non-investment grade securities.
(c) The Series may invest up to 25% of its total assets in foreign
securities.
For the JNL/Eagle SmallCap Equity Series:
(a) At least 65% of its total assets will be invested, under
normal market conditions, in the equity securities of
companies that, at the time their securities are purchased by
the Series, have a market capitalization under $1 billion.
(b) The Series may invest up to 5% of its assets in non-investment
grade securities.
For the JNL/J.P. Morgan Enhanced S&P 500 Stock Index Series:
(a) At least 65% of its total assets will be invested, under
normal market conditions, in stocks.
For the JNL/J.P. Morgan International & Emerging Markets Series:
(a) At least 65% of its total assets will be invested, under
normal market conditions, in equity securities of foreign
issuers.
(b) The Series may invest up to 10% of its total assets in shares
of investment companies and up to 5% of its total assets in
any one investment company as long as that investment does not
represent more than 3% of the total voting stock of the
acquired investment company.
For each of the JNL/Janus Aggressive Growth Series, JNL/Janus Capital Growth
Series and JNL/Janus Global Equities Series:
(a) The Series may not invest more than 35% of its net assets in
high-yield/high-risk bonds.
(b) The Series may not invest more than 25% of its assets in
mortgage- and asset-backed securities.
(c) The Series may not invest more than 10% of its assets in zero
coupon bonds.
For the JNL/Janus Balanced Series and JNL/Janus Growth & Income Series:
(a) The Series may not invest more than 35% of its net assets in
high-yield/high-risk bonds.
(b) The Series may not invest more than 10% of its assets in zero
coupon bonds.
For the JNL/PIMCO Total Return Bond Series:
(a) At least 65% of its total assets will be invested, under
normal market conditions, in fixed-income securities.
(b) The Series may invest up to 10% of its assets in
non-investment grade fixed-income securities rated at least B
by Moody's or S&P.
(c) The Series may invest up to 20% of its assets in securities
denominated in foreign currencies. A minimum of 75% of
currency exposure will be hedged.
(d) The Series may invest up to 10% of its assets in securities of
issuers based in emerging markets.
(e) The Series may not invest more than 5% of its net assets in
any combination of inverse floater, interest-only or
principal-only securities.
(f) The Series may not enter into a swap agreement with a party if
the net amount owed or to be received under existing contracts
with that party would exceed 5% of the Series' assets.
For the JNL/Putnam Growth Series:
(a) The Series may invest up to 20% of its net assets in foreign
securities.
JNL/Putnam International Equity Series:
(a) The Series normally invests at least 65% of its total assets
in equity securities of companies located in three countries
other than the U.S. Companies are located outside the U.S. if
(1) the are not organized under U.S. law, (2) their principal
office is outside the U.S., (3) their securities are
principally traded outside the U.S., (4) 50% or more of total
revenues come from outside the U.S. or (5) 50% or more of
assets are outside the U.S.
For the JNL/Putnam Value Equity Series:
(a) At least 65% of its total assets will be invested, under
normal market conditions, in equity securities.
(b) The Series may invest up to 25% of its total assets in the
common stocks of foreign issuers.
For the JNL International Index Series:
(a) The Series may hold up to 25% of its value in MSCI E.A.FE.
futures contracts.
For the JNL Russell 2000 Index Series:
(a) The Series may hold up to 5% of its value in Russell 2000
Index futures contracts.
For the JNL S&P 500 Index Series:
(a) The Series may hold up to 25% of its value in S&P 500 Index
futures contracts.
For the Lazard/JNL Mid Cap Value Series:
(a) At least 80% of its total assets will generally be invested in
the equity securities of undervalued medium size companies.
(b) The Series may invest up to 15% of its total assets in foreign
securities.
For the Lazard/JNL Small Cap Value Series:
(a) At least 80% of its total assets will generally be invested in
the equity securities of small U.S. companies in the range of
the Russell 2000 Index.
(b) The Series does not currently intend to invest more than 10%
of its total assets in the securities of unseasoned companies.
For the PPM America/JNL Balanced Series:
(a) At least 25% of its assets will be invested, under normal
market conditions, in fixed-income senior securities.
(b) The Series may invest up to 35% of its net assets in
non-investment grade securities rated at least Ca by Moody's
Investors Services, Inc. (Moody's) or CC by Standard & Poor's,
a division of The McGraw-Hill Companies, Inc. (S&P).
For the PPM America/JNL High Yield Bond Series:
(a) At least 65% of its total assets will be invested, under
normal market conditions, in bonds rated Ba or below by
Moody's or BB or below by S&P, or if unrated, of comparable
quality.
(b) The Series may invest up to 10% of its total assets in bonds
rated C by Moody's or D by S&P.
(c) The Series may invest up to 25% of its assets in foreign
securities.
For the PPM America/JNL Money Market Series:
(a) The Series may not invest more than 5% of its assets in the
securities of any one issuer or invest more than 5% of its
assets in securities (other than U.S. Government securities
and repurchase agreements on such securities) that have not
been rated in the highest category by the requisite rating
agencies or, if unrated, have not been deemed to be of
comparable quality, as determined in accordance with Rule 2a-7
under the 1940 Act.
(b) The Series may invest more than 25% of its total assets in the
domestic banking industry. There are no limitations on
investments in U.S. Government securities, including
obligations issued or guaranteed by its agencies or
instrumentalities.
For the Salomon Brothers/JNL Balanced Series:
(a) The Series currently expects that at least 40% of its total
assets will be invested, under normal market conditions, in
equity securities.
(b) The Series may invest up to 20% of its net assets in
nonconvertible fixed-income securities rated Ba or lower by
Moody's or BB or lower by S&P or, if unrated, are determined
to be of comparable quality.
(c) The Series may invest up to 20% of its total assets in foreign
securities.
(d) The Series may not invest more than 10% of its assets in
repurchase agreements maturing in more than 7 days.
For the Salomon Brothers/JNL Global Bond Series:
(a) The Series does not currently intend to invest more than 75%
of its assets in medium- or lower-rated securities.
(b) The Series may invest up to 20% of its assets in common stock,
convertible securities, warrants, preferred stock or other
equity securities when consistent with the Series' objectives.
(c) To maintain liquidity, the Series may invest up to 20% of its
assets in high-quality, short-term money market instruments.
(d) The Series may not make loans of its portfolio securities with
a value in excess of 25% of its total assets.
For the Salomon Brothers/JNL High Yield Bond Series:
(a) At least 80% of its total assets will be invested, under
normal market conditions, in non-investment grade fixed-income
securities.
(b) The Series may invest up to 35% of its total assets in the
securities of foreign issuers and up to 5% of its total assets
in foreign governmental issuers in any one country.
(c) The Series may invest up to 10% of its total assets in either
(i) equipment lease certificates, equipment trust certificates
and conditional sales contracts or (ii) limited partnership
interests.
(d) The Series may invest up to 10% of its total assets in common
stock, convertible securities, warrants or other equity
securities when consistent with its objective.
(e) To maintain liquidity, the Series may invest up to 20% of its
assets in cash and/or U.S. dollar-denominated debt securities
(short term investments in securities for the forward
settlement of trades shall not count for purposes of this
policy).
For the Salomon Brothers/JNL U.S. Government & Quality Bond Series:
(a) At least 65% of its total assets will be invested, under
normal market conditions, in: U.S. Treasury obligations;
obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government; mortgage-backed
securities guaranteed by Ginnie Mae that are supported by the
full faith and credit of the U.S. Government; mortgage-backed
securities guaranteed by agencies or instrumentalities of the
U.S. Government which are supported by their own credit but
not the full faith and credit of the U.S. Government; and
collateralized mortgage obligations issued by private issuers
for which the underlying mortgage-backed securities serving as
collateral are backed either by (i)the credit alone of the
U.S. Government agency or instrumentality which issues or
guarantees them or (ii) the full faith and credit of the U.S.
Government.
(b) The Series may invest up to 35% of its assets in U.S.
dollar-denominated securities rated AAA, AA, A or BBB by S&P
or Aaa, Aa, A or Baa by Moody's, or if unrated, determined to
be of comparable quality.
(c) The Series may not invest more than 10% of its total assets in
obligations of foreign issuers.
(d) The Series may not make loans of its portfolio securities with
a value in excess of 25% of its total assets.
For the T. Rowe Price/JNL Established Growth Series:
(a) The Series may invest up to 30% of its total assets (excluding
reserves) in foreign securities.
For the T. Rowe Price/JNL Mid-Cap Growth Series:
(a) At least 65% of its total assets will be invested, under
normal market conditions, in mid-cap (as defined in the
Prospectus) common stocks with above-average growth potential.
(b) The Series may invest up to 25% of its total assets (excluding
reserves) in foreign securities.
For the T. Rowe Price/JNL Value Series:
(a) The Series may invest up to 25% of its total assets (excluding
reserves) in foreign securities.
INSURANCE LAW RESTRICTIONS. In connection with the Trust's agreement to sell
shares to the separate accounts, Jackson National Financial Services, LLC (JNFS)
and the insurance companies may enter into agreements, required by certain state
insurance departments, under which JNFS may agree to use its best efforts to
assure and to permit insurance companies to monitor that each Series of the
Trust complies with the investment restrictions and limitations prescribed by
state insurance laws and regulations applicable to the investment of separate
account assets in shares of mutual funds. If a Series failed to comply with such
restrictions or limitations, the insurance company would take appropriate action
which might include ceasing to make investments in the Series or withdrawing
from the state imposing the limitation. Such restrictions and limitations are
not expected to have a significant impact on the Trust's operations.
TRUSTEES AND OFFICERS OF THE TRUST
The officers of the Trust manage its day to day operations and are
responsible to the Trust's Board of Trustees. The trustees set broad policies
for each Series and choose the Trust's officers. The following is a list of the
trustees and officers of the Trust and a statement of their present positions
and principal occupations during the past five years.
For purposes of this section, the term "Fund Complex" includes each of the
following investment companies: JNL Series Trust, JNL Variable Fund LLC, JNL
Variable Fund III LLC, JNL Variable Fund V LLC, JNLNY Variable Fund I LLC, and
JNLNY Variable Fund II LLC. Each of the Trustees is also a Trustee or Manager of
each of the other funds in the Fund Complex and each of the Trust's officers is
also an officer of one or more of the funds in the Fund Complex.
ANDREW B. HOPPING* (Age 41), 5901 Executive Drive, Lansing, Michigan 48911
Trustee of the Trust and Member of the Board of Managers of each of the other
funds in the Fund Complex
President and Chief Executive Officer of the Trust and each of the other funds
in the Fund Complex
JNL Series Trust, Vice President (8/96 to 8/97)
JNL Series Trust, Treasurer (8/96 to 8/97)
JNL Series Trust, Chief Financial Officer (8/96 to 8/97)
Jackson National Life Distributors, Inc., Treasurer (1/98 to present)
Jackson National Financial Services, LLC, President and Managing Board Member
(3/98 to present)
Jackson National Life Insurance Company, Executive Vice President
(7/98 to present)
Jackson National Life Insurance Company, Chief Financial Officer
(12/97 to present)
Jackson National Life Insurance Company, Senior Vice President (6/94 to 7/98)
National Planning Corporation, Vice President (5/98 to 7/98)
Jackson National Life Distributors, Inc., Chief Financial Officer and Vice
President (7/97 to present)
National Planning Corporation, Director (6/97 to present)
Jackson National Financial Services, Inc., Chief Executive Officer and President
(7/97 to 5/98)
Countrywide Credit, Executive Vice President (3/92 to 6/94)
JOSEPH FRAUENHEIM (Age 65), 1405 Cambridge, Lansing, MI 48911
Trustee of the Trust and Member of the Board of Managers of each of the other
funds in the Fund Complex
Consultant (1991 to present)
ROBERT A. FRITTS* (Age 51) 5901 Executive Drive, Lansing, Michigan 48911
Trustee of the Trust and Member of the Board of Managers of each of the other
funds in the Fund Complex
Vice President, Treasurer and Chief Financial Officer of the Trust and each of
the other funds in the Fund Complex
JNL Series Trust, Assistant Treasurer (2/96 to 8/97)
JNL Series Trust, Assistant Secretary (12/94 to 2/96)
Jackson National Life Insurance Company, Vice President and Controller
(8/82 to present)
THOMAS J. MEYER (Age 53) 5901 Executive Drive, Lansing, Michigan 48911
Vice President, Secretary and Counsel of the Trust and each of the other funds
in the Fund Complex
Jackson National Life Insurance Company, Senior Vice President (7/98 to present)
Jackson National Life Insurance Company, Secretary (9/94 to present)
Jackson National Life Insurance Company, General Counsel (3/85 to present)
Jackson National Life Insurance Company, Vice President (3/85 to 7/98)
RICHARD MCLELLAN (Age 58), 1191 Carriageway North, East Lansing, MI 48823
Trustee of the Trust and Member of the Board of Managers of each of the other
funds in the Fund Complex
Dykema Gossett PLLC, Attorney
PETER MCPHERSON (Age 59), 1 Abbott Road, East Lansing, MI 48824
Trustee of the Trust and Member of the Board of Managers of each of the other
funds in the Fund Complex
Michigan State University, President (10/93 to present)
MARK D. NERUD (Age 33) 225 West Wacker Drive, Suite 1200, Chicago, IL 60606
Vice President and Assistant Treasurer of the Trust and each of the other funds
in the Fund Complex
Jackson National Financial Services, LLC, Chief Financial Officer
(3/98 to present)
Jackson National Financial Services, LLC, Managing Board Member
(3/98 to present)
National Planning Corporation, Vice President (5/98 to present)
Jackson National Life Distributors, Inc., Chief Operating Officer
(7/97 to present)
Jackson National Financial Services, Inc., Director (1/98 to 5/98)
Jackson National Financial Services, Inc., Chief Operating Officer
(6/97 to 5/98)
Jackson National Financial Services, Inc., Treasurer (6/97 to 5/98)
Jackson National Life Insurance Company, Vice President - Fund Accounting &
Administration (1/00 to present)
Jackson National Life Insurance Company, Assistant Vice President - Mutual Fund
Operations (4/97 to 12/99)
Jackson National Life Insurance Company, Assistant Controller (10/96 to 4/97)
Jackson National Life Insurance Company, Senior Manager - Mutual Fund Operations
(4/96 to 10/96)
Voyageur Asset Management Company, Manager - Mutual Fund Accounting
(5/93 to 4/96)
SUSAN S. MIN (Age 28), 5901 Executive Drive, Lansing, MI 48911
Assistant Secretary of the Trust and each of the other funds in the Fund Complex
Jackson National Financial Services, LLC, Secretary
Jackson National Life Insurance Company, Senior Attorney (1/00 to present)
Goldman, Sachs & Co., Associate (10/99 to 12/99)
Van Eck Associates Corporation, Staff Attorney (9/97 to 10/99)
- -----------
*Trustees who are interested persons as defined in the Investment Company Act of
1940.
As of January 20, 2000, the officers and trustees of the Trust, as a
group, owned less than 1% of the then outstanding shares of the Trust. To the
extent required by applicable law, Jackson National Life Insurance Company will
solicit voting instructions from owners of variable insurance or variable
annuity contracts. All shares of each Series of the Trust will be voted by
Jackson National Life Insurance Company in accordance with voting instructions
received from such variable contract owners. Jackson National Life Insurance
Company will vote all of the shares which it is entitled to vote in the same
proportion as the voting instructions given by variable contract owners, on the
issues presented, including shares which are attributable to Jackson National
Life Insurance Company's interest in the Trust.
The trustees who are "interested persons" and officers as designated
above receive no compensation from the Trust. Disinterested Trustees will be
paid $5,000 for each meeting of the Board of Trustees that they attend. The fees
to the disinterested Trustees are divided among the funds in the Fund Complex
based on their relative size.
For the year ended December 31, 1999, the disinterested Trustees received the
following fees from the Trust for service as Trustee:
PENSION OR RETIREMENT BENEFITS
AGGREGATE COMPENSATION ACCRUED AS PART OF
FROM THE ADVISER TRUST EXPENSES
TRUSTEE
Joseph Frauenheim $16,000 $0
Richard McLellan $16,000 0
Peter McPherson $16,000 0
PERFORMANCE
A Series' historical performance may be shown in the form of total
return and yield. These performance measures are described below. Performance
advertised for a Series may or may not reflect the effect of any charges that
are imposed under a variable annuity contract (Contract) that is funded by the
Trust. Such charges, described in the prospectus for the Contract, will have the
effect of reducing a Series' performance.
Standardized average annual total return and non-standardized total
return measure both the net investment income generated by, and the effect of
any realized and unrealized appreciation or depreciation of, the underlying
investments of a Series. Yield is a measure of the net investment income per
share earned over a specific one month or 30-day period (seven-day period for
the PPM America/JNL Money Market Series) expressed as a percentage of the net
asset value.
A Series' standardized average annual total return quotation is
computed in accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission (SEC). Standardized average annual total
return shows the percentage rate of return of a hypothetical initial investment
of $1,000 for the most recent one-, five- and ten-year periods, or for a period
covering the time the Series has been in existence if the Series has not been in
existence for one of the prescribed periods. Because average annual total
returns tend to smooth out variations in the Series' returns, you should
recognize that they are not the same as actual year-by-year results. The
standardized average annual total return for a Series for a specific period is
found by first taking a hypothetical $1,000 investment (initial investment) in
the Series' shares on the first day of the period, adjusting to deduct the
applicable charges, if any, and computing the redeemable value of that
investment at the end of the period. The redeemable value is then divided by the
initial investment, and this quotient is taken to the Nth root (N representing
the number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Series have been reinvested at net asset
value on the reinvestment dates during the period.
The standardized average annual total return for each Series for the
periods indicated was as follows:
<TABLE>
<CAPTION>
One-Year Period Commencement of
Ended December 31, Operations to
1999 December 31, 1999
--------------------- ---------------------
<S> <C> <C>
JNL/Alger Growth Series** ............................................ 33.80% 27.08%
JNL/Alliance Growth Series**** ....................................... 28.23% 33.64%
JNL/Eagle Core Equity Series*** ...................................... 23.55% 23.96%
JNL/Eagle SmallCap Equity Series*** .................................. 19.27% 19.09%
JNL/J.P. Morgan International & Emerging Markets Series**** .......... 38.02% 18.38%
JNL/J.P. Morgan Enhanced S&P 500 Stock Index Series**** .............. N/A 6.85%
JNL/Janus Aggressive Growth Series* .................................. 94.43% 42.10%
JNL/Janus Capital Growth Series* ..................................... 124.19% 44.09%
JNL/Janus Global Equities Series* .................................... 64.58% 36.45%
JNL/Janus Growth & Income Series****** ............................... 4.98% -2.64%
JNL/PIMCO Total Return Bond Series**** ............................... -0.26% 2.92%
JNL/Putnam Growth Series* ............................................ 29.41% 30.51%
JNL/Putnam International Equity Series******* ........................ 32.11% 14.78%
JNL/Putnam Value Equity Series* ...................................... -1.04% 16.96%
JNL/S&P Conservative Growth Series I***** ............................ 19.52% 13.85%
JNL/S&P Moderate Growth Series I***** ................................ 26.74% 18.75%
JNL/S&P Aggressive Growth Series I***** .............................. 35.38% 25.02%
JNL/S&P Very Aggressive Growth Series I***** ......................... 48.86% 33.84%
JNL/S&P Equity Growth Series I***** .................................. 43.19% 27.72%
JNL/S&P Equity Aggressive Growth Series I***** ....................... 45.25% 29.67%
JNL/S&P Conservative Growth Series II***** ........................... 16.14% 6.14%
JNL/S&P Moderate Growth Series II***** ............................... 22.77% 14.10%
JNL/S&P Aggressive Growth Series II***** ............................. 28.66% 16.11%
JNL/S&P Very Aggressive Growth Series II***** ........................ 42.42% 28.44%
JNL/S&P Equity Growth Series II***** ................................. 36.29% 19.99%
JNL/S&P Equity Aggressive Growth Series II***** ...................... 39.61% 23.92%
Lazard/JNL Mid Cap Value Series**** .................................. 4.77% -1.78%
Lazard/JNL Small Cap Value Series**** ................................ 1.96% -6.27%
PPM America/JNL Balanced Series* ..................................... -0.11% 11.64%
PPM America/JNL Money Market Series* ................................. 4.67% 4.93%
PPM America/JNL High-Yield Bond Series* .............................. 1.09% 8.32%
Salomon Brothers/JNL Balanced Series**** ............................. 0.09% 3.23%
Salomon Brothers/JNL Global Bond Series* ............................. 1.87% 7.79%
Salomon Brothers/JNL High-Yield Bond Series**** ...................... -1.76% -0.25%
Salomon Brothers/JNL U.S. Government & Quality Bond Series* .......... -2.50% 5.42%
T. Rowe Price/JNL Established Growth Series* ......................... 21.77% 26.74%
T. Rowe Price/JNL Mid-Cap Growth Series* ............................. 24.01% 25.27%
</TABLE>
* Commenced operations on May 15, 1995.
** Commenced operations on October 16, 1995.
*** Commenced operations on September 16, 1996.
**** Commenced operations on March 2, 1998. Performance figures are not
annualized.
***** The JNL/S&P Conservative Growth Series I commenced operations on
April 9, 1998; the JNL/S&P Moderate Growth Series I commenced operations on
April 8, 1998; the JNL/S&P Aggressive Growth Series I commenced operations on
April 8, 1998; the JNL/S&P Very Aggressive Growth Series I commenced operations
on April 1, 1998; the JNL/S&P Equity Growth Series I commenced operations on
April 13, 1998; the JNL/S&P Equity Aggressive Growth Series I commenced
operations on April 15, 1998; the JNL/S&P Conservative Growth Series II
commenced operations on April 13, 1998; the JNL/S&P Moderate Growth Series II
commenced operations on April 13, 1998; the JNL/S&P Aggressive Growth Series II
commenced operations on April 13, 1998; the JNL/S&P Very Aggressive Growth
Series II commenced operations on April 13, 1998; the JNL/S&P Equity Growth
Series II commenced operations on April 13, 1998; the JNL/S&P Equity Aggressive
Growth Series II commenced operations on April 13, 1998 and the JNL/J.P. Morgan
Enhanced S&P 500 Index Series commenced operations on May 16, 1999. Performance
figures are not annualized.
****** Commenced operations on March 2, 1998. As of the effective date
of this Statement of Additional Information, Janus Capital Corporation (Janus)
has replaced Goldman Sachs Asset Management as the sub-adviser to this Series.
In addition, certain investment policies, practices and strategies have been
changed to reflect the management style of Janus, the new sub-adviser. The
Advisory fees have also been changed. Given these changes, the performance
information shown below is not indicative in any manner of how the Series will
perform in the future.
******* Commenced operations on May 15, 1995. As of the effective date
of this Statement of Additional Information, Putnam Investment Management, Inc.
has replaced Rowe-Price Fleming International, Inc. as the sub-adviser to this
Series. Therefore, the performance information shown below is not indicative in
any manner of how the Series will perform in the future.
The JNL/S&P Conservative Growth Series, the JNL/S&P Moderate Growth
Series, the JNL/S&P Aggressive Growth Series, the JNL Enhanced Intermediate Bond
Index Series, the JNL International Index Series, the JNL Russell 2000 Index
Series, the JNL S&P 500 Index Series, and the JNL S&P MidCap Index Series were
not in operation in 1999. Prior to May 1, 1997, the PPM America/JNL Balanced
Series was the JNL/Phoenix Investment Counsel Balanced Series and was
sub-advised by Phoenix Investment Counsel Inc., the JNL/Putnam Growth Series was
the JNL/Phoenix Investment Counsel Growth Series and was sub-advised by Phoenix
Investment Counsel, Inc., and the JNL/Putnam Value Equity Series was the PPM
America/JNL Value Equity Series and was sub-advised by PPM America, Inc.
A Series' performance may be affected by risks specific to certain
types of investments, such as foreign securities, derivative investments,
non-investment grade debt securities, initial public offerings (IPOs) or
companies with relatively small market capitalizations. IPOs and other
investment techniques may have magnified performance impact on a Series with a
small asset base. A Series may not experience similar performance as its assets
grow.
The standardized average annual total return quotations will be current
to the last day of the calendar quarter preceding the date on which an
advertisement is submitted for publication. The standardized average annual
total return will be based on rolling calendar quarters and will cover at least
periods of one, five and ten years, or a period covering the time the Series has
been in existence, if it has not been in existence for one of the prescribed
periods.
Non-standardized total return may also be advertised. Non-standardized
total return may be for periods other than those required to be presented or may
otherwise differ from standardized average annual total return. Non-standardized
total return for a specific period is calculated by first taking an investment
(initial investment) in the Series' shares on the first day of the period and
computing the end value of that investment at the end of the period. The total
return percentage is then determined by subtracting the initial investment from
the ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Series have been reinvested at net asset
value on the reinvestment dates during the period. Non-standardized total return
may also be shown as the increased dollar value of the hypothetical investment
over the period.
Quotations of standardized average annual total return and
non-standardized total return are based upon historical earnings and will
fluctuate. Any quotation of performance, therefore, should not be considered a
guarantee of future performance. Factors affecting the performance of a Series
include general market conditions, operating expenses and investment management.
The yield for a Series other than the PPM America/JNL Money Market
Series is computed in accordance with a standardized method prescribed by the
rules of the SEC. The yield is calculated by assuming that the income generated
by the investment during that 30-day period is generated each 30-day period over
a 12-month period and is shown as a percentage of the investment. Under this
method, yield is computed by dividing the net investment income per share earned
during the specified one month or 30-day period by the offering price per share
on the last day of the period, according to the following formula:
a-b 6
YIELD = 2[(---+1) -1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the offering price (net asset value) per share on the last day of
the period.
The yield for the 30-day period ended December 31, 1999, for each of
the referenced Series was as follows:
JNL/PIMCO Total Return Bond Series ................................ 6.10%
PPM America/JNL Balanced Series ................................... 3.83%
PPM America/JNL High-Yield Bond Series ............................ 10.21%
Salomon Brothers/JNL Balanced Series .............................. 2.96%
Salomon Brothers/JNL Global Bond Series ........................... 8.12%
Salomon Brothers/JNL High-Yield Bond Series ....................... 9.71%
Salomon Brothers/JNL U.S. Government & Quality Bond Series ........ 6.22%
In computing the foregoing yield, the Series follow certain
standardized accounting practices specified by SEC rules. These practices are
not necessarily consistent with those that the Series use to prepare annual and
interim financial statements in accordance with generally accepted accounting
principles.
The PPM America/JNL Money Market Series' yield is also computed in
accordance with a standardized method prescribed by rules of the SEC. This
Series' yield is a measure of the net dividend and interest income earned over a
specific seven-day period expressed as a percentage of the offering price of the
Series. The yield is an annualized figure, which means that it is assumed that
the Series generates the same level of net income over a 52-week period. Under
this method, the current yield quotation is based on a seven-day period and is
computed as follows. The first calculation is net investment income per share;
which is accrued interest on portfolio securities, plus or minus amortized
discount or premium, less accrued expenses. This number is then divided by the
price per share (expected to remain constant at $1.00) at the beginning of the
period (base period return). The result is then divided by 7 and multiplied by
365 and the resulting yield figure is carried to the nearest one-hundredth of
one percent. Realized capital gains or losses and unrealized appreciation or
depreciation of investments are not included in the calculation. The PPM
America/JNL Money Market Series' yield for the seven-day period ended December
31, 1999, was 5.37%.
The PPM America/JNL Money Market Series' effective yield is determined
by taking the base period return (computed as described above) and calculating
the effect of assumed compounding. The formula for the effective yield is: (base
period return + 1)365/7 - 1. The PPM America/JNL Money Market Series' effective
yield for the seven-day period ended December 31, 1999, was 5.52%.
A Series' performance quotations are based upon historical results and
are not necessarily representative of future performance. The Series' shares are
sold at net asset value. Returns and net asset value will fluctuate, except that
the PPM America/JNL Money Market Series seeks to maintain a $1.00 net asset
value per share. Factors affecting a Series' performance include general market
conditions, operating expenses and investment management. Shares of a Series are
redeemable at the then current net asset value, which may be more or less than
original cost.
The performance of the Series may be compared to the performance of
other mutual funds or mutual fund indices with similar objectives and policies
as reported by Lipper Analytical Services, Inc. (Lipper), CDA Investment
Technologies, Inc. (CDA) or Donoghue's Money Fund Report. Lipper and CDA
performance calculations are based upon changes in net asset value with all
dividends reinvested and do not include the effect of any sales charges. A
Series' performance may also be compared to that of the Consumer Price Index or
various unmanaged stock and bond indices including, but not limited to the
Consumer Price Index, the Standard & Poor's 500 Index, the Standard & Poor's
MidCap 400 Index, the Morgan Stanley Capital International All Country World
Free (ex-U.S.) Index, the Morgan Stanley Capital International World Index, the
Lehman Brothers Aggregate Bond Index, the Lehman Brothers High-Yield Index, the
Merrill Lynch Treasury Bill Index (3 month), the Salomon Smith Barney Broad
Investment Grade Bond Index, the Salomon Smith Barney High Yield Market Index,
the Salomon Brothers Treasury Index, the Russell 2000 Index, the Russell Midcap
Index, the Morgan Stanley Europe and Australasia, Far East Equity Index, the S&P
Micropal Asset Allocation USA Income Funds Sector Index, or the S&P Micropal
Asset Allocation USA Balanced Funds Sector Index,. No adjustments are made for
taxes payable on dividends. Lipper and CDA are widely recognized independent
mutual fund reporting services. Lipper and CDA indices are weighted performance
averages of other mutual funds with similar investment objectives.
From time to time, a Series also may quote information from
publications including, but not limited to, the following: Morningstar, Inc.,
The Wall Street Journal, Money Magazine, Forbes, Barron's, The New York Times,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indices of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit and other bank products, money market
funds and U.S. Treasury obligations. Certain of these alternative investments
may offer fixed rates of return and guaranteed principal, and may be insured.
Economic indicators may include, without limitation, indicators of market rate
trends and cost of funds, such as Federal Home Loan Bank Board 11th District
Cost of Funds Index (COFI).
The net asset values and returns of the Series will fluctuate. Shares
of a Series are redeemable by an investor at the then current net asset value,
which may be more or less than original cost.
A Series may periodically advertise tax-deferred compounding charts and
other hypothetical illustrations.
INVESTMENT ADVISER AND OTHER SERVICES
Jackson National Financial Services, LLC ("JNFS"), 5901 Executive
Drive, Lansing, Michigan 48911, is the investment adviser to the Trust. As
investment adviser, JNFS provides the Trust with professional investment
supervision and management. JNFS is a wholly owned subsidiary of Jackson
National Life Insurance Company, which is in turn wholly owned by Prudential
plc, a life insurance company in the United Kingdom.
JNFS acts as investment adviser to the Trust pursuant to an Amended
Investment Advisory and Management Agreement. Prior to July 1, 1998, Jackson
National Financial Services, Inc., an affiliate of JNFS, acted as investment
adviser to the Trust. Jackson National Financial Services, Inc. transferred the
Amended Investment Advisory and Management Agreement, all related investment
management duties and its related professional staff to JNFS on July 1, 1998,
with the approval of the Board of Trustees of the Trust.
The Amended Investment Advisory and Management Agreement continues in
effect for each Series from year to year after its initial two-year term so long
as its continuation is approved at least annually by (i) a majority of the
Trustees who are not parties to such agreement or interested persons of any such
party except in their capacity as Trustees of the Trust, and (ii) the
shareholders of the affected Series or the Board of Trustees. It may be
terminated at any time upon 60 days notice by either party, or by a majority
vote of the outstanding shares of a Series with respect to that Series, and will
terminate automatically upon assignment. Additional Series may be subject to a
different agreement. The Amended Investment Advisory and Management Agreement
provides that JNFS shall not be liable for any error of judgment, or for any
loss suffered by the Series in connection with the matters to which the
agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of JNFS in the performance of its obligations
and duties, or by reason of its reckless disregard of its obligations and duties
under the agreement. As compensation for its services, the Trust pays JNFS a fee
as described in the Prospectus. The fees paid by the Trust to Jackson National
Financial Services, Inc. pursuant to the Amended Investment Advisory and
Management Agreement for the fiscal year ended December 31, 1997 were
$7,264,087, and for the period from January 1, 1998 to June 30, 1998 were
$6,458,387. The fees paid by the Trust to JNFS pursuant to the Amended
Investment Advisory and Management Agreement from July 1, 1998 to December 31,
1998 and for the fiscal year ended December 31, 1999 were $7,786,576 and
$26,522,400, respectively.
In addition to providing the services described above, JNFS selects,
contracts with and compensates sub-advisers to manage the investment and
reinvestment of the assets of the Series of the Trust. JNFS monitors the
compliance of such sub-advisers with the investment objectives and related
policies of each Series and reviews the performance of such sub-advisers and
reports periodically on such performance to the Trustees of the Trust.
Alliance Capital Management L.P. (Alliance), with principal offices at
1345 Avenue of the Americas, New York, New York 10105, serves as sub-adviser to
the JNL/Alliance Growth Series. Alliance's clients are primarily major corporate
employee benefit funds, investment companies, foundations, endowment funds and
public employee retirement systems.
Eagle Asset Management, Inc. (Eagle), 880 Carillon Parkway, St.
Petersburg, Florida 33716, serves as sub-adviser to the JNL/Eagle Core Equity
Series and the JNL/Eagle SmallCap Equity Series. Eagle is a wholly owned
subsidiary of Raymond James Financial, Inc., which, together with its
subsidiaries, provides a wide range of financial services to retail and
institutional clients.
Fred Alger Management, Inc. (Alger Management), which is located at 1
World Trade Center, Suite 9333, New York, New York 10048, serves as sub-adviser
to the JNL/Alger Growth Series. Alger Management is generally engaged in the
business of rendering investment advisory services to institutions and, to a
lesser extent, individuals. Alger Management has been engaged in the business of
rendering investment advisory services since 1964. Alger Management is a wholly
owned subsidiary of Fred Alger & Company, Incorporated which in turn is a wholly
owned subsidiary of Alger Associates, Inc., a financial services holding
company. Fred M. Alger III and his brother, David D. Alger are majority
shareholders of Alger Associates, Inc. and may be deemed to control that company
and its subsidiaries.
J.P. Morgan Investment Management Inc. (J.P. Morgan), with principal
offices at 522 Fifth Avenue, New York, New York 10036, serves as sub-adviser to
the JNL/J.P. Morgan Enhanced S&P 500 Stock Index Series and the JNL/J.P. Morgan
International & Emerging Markets Series. J.P. Morgan is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated, a bank holding company that also
owns Morgan Guaranty Trust Company, J.P. Morgan Securities Inc. and J.P. Morgan
Futures Inc. J.P. Morgan and its affiliates offer a wide range of services to
governmental, institutional, corporate and individual customers and act as
investment advisor to individual and institutional customers.
Janus Capital Corporation (Janus Capital), a Colorado corporation with
principal offices at 100 Fillmore Street, Denver, Colorado 80206, serves as
sub-adviser to the JNL/Janus Aggressive Growth Series, the JNL/Janus Balanced
Series, the JNL/Janus Capital Growth Series, the JNL/Janus Global Equities
Series, and the JNL/Janus Growth & Income Series. Kansas City Southern
Industries, Inc. (KCSI) indirectly through its wholly-owned subsidiary, Stilwell
Financial, Inc., owns approximately 82% of the outstanding voting stock of Janus
Capital. KCSI is a publicly-traded holding company whose primary subsidiaries
are engaged in transportation 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 transportion
and financial services businesses. KCSI anticipates the separation to be
completed in the first half of 2000.
Lazard Asset Management (Lazard), 30 Rockefeller Plaza, New York, New
York 10112, serves as sub-adviser to the Lazard/JNL Mid Cap Value Series and the
Lazard/JNL Small Cap Value Series. Lazard is a division of Lazard Freres & Co.
LLC (Lazard Freres), a New York limited liability company, which is registered
as an investment adviser with the SEC and is a member of the New York, American
and Chicago Stock Exchanges. Lazard Freres provides its clients with a wide
variety of investment banking, brokerage and related services. Its clients are
both individuals and institutions.
Pacific Investment Management Company (PIMCO), located at 840 Newport
Center Drive, Suite 300, Newport Beach, California 92660, serves as sub-adviser
to the JNL/PIMCO Total Return Bond Series. PIMCO is an investment counseling
firm founded in 1971. PIMCO is a subsidiary of PIMCO Advisors L.P. (PIMCO
Advisors). The general partners of PIMCO Advisors are PIMCO Partners, G.P. and
PIMCO Advisors Holdings L.P. (PAH). PIMCO Partners, G.P. is a general
partnership between PIMCO Holding LLC, a Delaware limited liability company and
indirect wholly-owned subsidiary of Pacific Life Insurance Company, and PIMCO
Partners LLC, a California limited liability company controlled by the PIMCO
Managing Directors. PIMCO Partners, G.P. is the sole general partner of PAH. On
October 1, 1999, an Implementation and Merger Agreement ("Merger Agreement") was
entered into with Allianz of America ("Allianz"). The Merger Agreement provided
for the acquisition of 70% of PAH by Allianz through a merger of a subsidiary of
Allianz with and into PAH. PIMCO may, from time to time, seek research
assistance and rely on other management resources of its affiliated companies. A
portion of the sub-advisory fees received by PIMCO may be paid to those
affiliates in return for such services provided.
PPM America, Inc. (PPM), which is located at 225 West Wacker Drive,
Suite 1200, Chicago, Illinois 60606, serves as sub-adviser to the PPM
America/JNL Balanced Series, the PPM America/JNL High Yield Bond Series and the
PPM America/JNL Money Market Series. PPM, an affiliate of JNFS, is a wholly
owned subsidiary of Prudential Portfolio Managers Ltd., (PPM Ltd.) an investment
management company engaged in global money management, which is in turn wholly
owned by Prudential Corporation plc.
Putnam Investment Management, Inc. (Putnam), located at One Post Office
Square, Boston, Massachusetts 02109, serves as sub-adviser to the JNL/Putnam
Growth Series, the JNL/Putnam International Equity Series, the JNL/Putnam Value
Equity Series, and the JNL/Putnam Midcap Growth Series. Putnam has been managing
mutual funds since 1937. Putnam is a subsidiary of Putnam Investment, Inc.,
which is owned by Marsh & McLennan Companies, Inc., a publicly-owned holding
company whose principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.
Salomon Brothers Asset Management Inc (SBAM), located at 7 World Trade
Center, New York, New York 10048, serves as sub-adviser to the Salomon
Brothers/JNL Balanced Series, the Salomon Brothers/JNL Global Bond Series, the
Salomon Brothers/JNL High Yield Bond Series and the Salomon Brothers/JNL U.S.
Government & Quality Bond Series. SBAM is an indirect wholly owned subsidiary of
Citigroup Inc. SBAM was incorporated in 1987, and, together with affiliates in
London, Frankfurt, Tokyo and Hong Kong, SBAM provides a broad range of fixed
income and equity investment advisory services to various individual and
institutional clients located throughout the world and serves as sub-advisor to
various investment companies.
In connection with SBAM's service as sub-adviser to the Salomon
Brothers/JNL Global Bond Series, SBAM Limited, whose business address is
Victoria Plaza, 111 Buckingham Palace Road, London SW1W OSB, England, provides
certain sub-advisory services to SBAM relating to currency transactions and
investments in non-dollar denominated debt securities for the benefit of the
Series. SBAM Limited is compensated by SBAM at no additional expense to the
Trust. Like SBAM, SBAM Limited is an indirect, wholly owned subsidiary of
Citigroup Inc. SBAM Limited is a member of the Investment Management Regulatory
Organization Limited in the United Kingdom and is registered as an investment
adviser in the United States pursuant to the Investment Advisers Act of 1940, as
amended.
Standard & Poor's Investment Advisory Services, Inc. (SPIAS), located
at 25 Broadway, New York, New York 10004, serves as sub-adviser to the JNL/S&P
Conservative Growth Series I, JNL/S&P Moderate Growth Series I, JNL/S&P
Aggressive Growth Series I, JNL/S&P Very Aggressive Growth Series I, JNL/S&P
Equity Growth Series I, JNL/S&P Equity Aggressive Growth Series I, JNL/S&P
Conservative Growth Series II, JNL/S&P Moderate Growth Series II, JNL/S&P
Aggressive Growth Series II, JNL/S&P Very Aggressive Growth Series II, JNL/S&P
Equity Growth Series II, JNL/S&P Equity Aggressive Growth Series II, JNL/S&P
Conservative Growth Series, JNL/S&P Moderate Growth Series and JNL/S&P
Aggressive Growth Series. SPIAS was established in 1995 to provide investment
advice to the financial community. SPIAS is a subsidiary of The McGraw-Hill
Companies, Inc. and is affiliated with S&P. SPIAS operates independently of and
has no access to analysis or other information supplied or obtained by S&P in
connection with its ratings business, except to the extent such information is
made available by S&P to the general public.
T. Rowe Price Associates, Inc. (T. Rowe), located at 100 East Pratt
Street, Baltimore, Maryland 21202, serves as sub-adviser to the T. Rowe
Price/JNL Established Growth Series, the T. Rowe Price/JNL Mid-Cap Growth
Series, and the T. Rowe Price/JNL Value Series. T. Rowe was founded in 1937 by
the late Thomas Rowe Price, Jr.
As compensation for their services, the sub-advisers receive fees from
JNFS computed separately for each Series. The fee for each Series is stated as
an annual percentage of the net assets of such Series. The fees are calculated
based on the average net assets of each Series. The following is a schedule of
the management fees JNFS currently is obligated to pay the sub-advisers out of
the advisory fee it receives from the Series as described elsewhere in this SAI
and the Prospectus:
<TABLE>
<CAPTION>
SERIES ASSETS FEES
<S> <C> <C>
JNL/Alger Growth Series.............................. $0 to $300 million...................... .55%
$300 million to $500 million............ .50%
Over $500 million....................... .45%
JNL/Alliance Growth Series........................... $0 to $250 million...................... .35%
Over $250 million....................... .25%
JNL/Eagle Core Equity Series......................... $0 to $50 million....................... .45%
$50 million to $300 million............. .40%
Over $300 million....................... .30%
JNL/Eagle SmallCap Equity Series..................... $0 to $150 million...................... .50%
$150 million to $500 million............ .45%
Over $500 million....................... .40%
JNL/J.P. Morgan Enhanced S&P 500 Stock Index Series.. $0 to $25 million....................... .35%
Over $25 million........................ .30%
JNL/J.P. Morgan International & Emerging Markets Series.... $0 to $50 million....................... .55%
$50 million to $200 million............. .50%
$200 million to $350 million............ .45%
Over $350 million....................... .40%
JNL/Janus Aggressive Growth Series................... $0 to $100 million...................... .55%
$100 million to $500 million............ .50%
Over $500 million....................... .45%
JNL/Janus Balanced Series............................ $0 to $100 million...................... .55%
$100 million to $500 million............ .50%
Over $500 million....................... .45%
JNL/Janus Capital Growth Series...................... $0 to $100 million...................... .55%
$100 million to $500 million............ .50%
Over $500 million....................... .45%
JNL/Janus Global Equities Series..................... $0 to $100 million...................... .55%
$100 million to $500 million............ .50%
Over $500 million....................... .45%
JNL/Janus Growth & Income Series..................... $0 to $100 million...................... .55%
$100 million to $500 million............ .50%
Over $500 million....................... .45%
JNL/PIMCO Total Return Bond Series................... all assets.............................. .25%
JNL/Putnam Growth Series............................. $0 to $150 million...................... .50%
$150 million to $300 million............ .45%
Over $300 million....................... .35%
JNL/Putnam International Equity Series............... $0 to $150 million...................... .65%
$150 million to $300 million............ .55%
Over $300 million....................... .45%
JNL/Putnam Value Equity Series....................... $0 to $150 million...................... .50%
$150 million to $300 million............ .45%
Over $300 million....................... .35%
JNL/Putnam Midcap Growth Series...................... $0 to $250 million...................... .50%
Over $250 million...................... .45%
JNL/S&P Conservative Growth Series I................. $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Moderate Growth Series I..................... $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Aggressive Growth Series I................... $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Very Aggressive Growth Series I.............. $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Equity Growth Series I....................... $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Equity Aggressive Growth Series I............ $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Conservative Growth Series II................ $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Moderate Growth Series II.................... $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Aggressive Growth Series II.................. $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Very Aggressive Growth Series II............. $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Equity Growth Series II...................... $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Equity Aggressive Growth Series II........... $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Conservative Growth Index Series............. $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Moderate Growth Index Series................. $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL/S&P Aggressive Growth Index Series............... $0 to $500 million...................... .10%
Over $500 million....................... .075%
JNL Enhanced Intermediate Bond Index Series.......... all assets.............................. .20%
JNL International Index Series....................... all assets.............................. .15%
JNL Russell 2000 Index Series........................ all assets.............................. .05%
JNL S&P 500 Index Series............................. all assets.............................. .05%
JNL S&P MidCap Index Series.......................... all assets.............................. .05%
Lazard/JNL Mid Cap Value Series...................... $0 to $50 million....................... .55%
$50 million to $150 million............. .525%
$150 million to $300 million............ .475%
Over $300 million....................... .45%
Lazard/JNL Small Cap Value Series.................... $0 to $50 million....................... .625%
$50 million to $150 million............. .575%
$150 million to $300 million............ .525%
Over $300 million....................... .475%
PPM America/JNL Balanced Series...................... $0 to $50 million....................... .25%
$50 million to $150 million............. .20%
$150 million to $300 million............ .175%
$300 million to $500 million............ .15%
Over $500 million....................... .125%
PPM America/JNL High Yield Bond Series............... $0 to $50 million....................... .25%
$50 million to $150 million............. .20%
$150 million to $300 million............ .175%
$300 million to $500 million............ .15%
Over $500 million....................... .125%
PPM America/JNL Money Market Series.................. $0 to $50 million....................... .20%
$50 million to $150 million............. .15%
$150 million to $300 million............ .125%
$300 million to $500 million............ .10%
Over $500 million....................... .075%
Salomon Brothers/JNL Balanced Series................. $0 to $50 million....................... .35%
$50 million to $100 million............. .30%
Over $100 million....................... .25%
Salomon Brothers/JNL Global Bond Series.............. $0 to $50 million....................... .375%
$50 million to $150 million............. .35%
$150 million to $500 million............ .30%
Over $500 million....................... .25%
Salomon Brothers/JNL High Yield Bond Series.......... $0 to $50 million....................... .35%
$50 million to $100 million............. .30%
Over $100 million....................... .25%
Salomon Brothers/JNL U.S. Government & Quality Bond Series. $0 to $150 million...................... .225%
$150 million to $300 million............ .175%
$300 million to $500 million............ .15%
Over $500 million....................... .10%
T. Rowe Price/JNL Established Growth Series.......... $0 to $20 million....................... .45%
$20 million to $50 million.............. .40%
Over $50 million........................ .40%*
T. Rowe Price/JNL Mid-Cap Growth Series.............. $0 to $20 million....................... .60%
$20 million to $50 million.............. .50%
Over $50 million........................ .50%*
T. Rowe Price/JNL Value Series....................... $0 to $50 million....................... .50%
Over $50 million........................ .40%
</TABLE>
* When average net assets exceed this amount, the sub-advisory fee asterisked
is applicable to all amounts in this Series.
The sub-advisory fees payable by JNFS to a sub-adviser may be reduced
as agreed to by the parties from time to time. With respect to the Salomon
Brothers/JNL Global Bond Series and in connection with the advisory consulting
agreement between Salomon Brothers and SBAM Limited, Salomon Brothers will pay
SBAM Limited, as full compensation for all services provided under the advisory
consulting agreement, a portion of its investment management fee. The amount
payable to SBAM Limited will be equal to the fee payable under Salomon Brothers'
sub-advisory agreement multiplied by the portion of the assets of the Series
that SBAM Limited has been delegated to manage divided by the current value of
the net assets of the Series.
Subject to the supervision of JNFS and the Trustees pursuant to
investment sub-advisory agreements entered into between JNFS and each of the
sub-advisers, respectively, the sub-advisers invest and reinvest the Series'
assets consistent with the Series' respective investment objectives and
policies. The investment sub-advisory agreement continues in effect for each
Series from year to year after its initial two-year term so long as its
continuation is approved at least annually by a majority of the Trustees who are
not parties to such agreement or interested persons of any such party except in
their capacity as Trustees of the Series and by the shareholders of the affected
Series or the Board of Trustees. It may be terminated at any time upon 60 days
notice by either party, or by a majority vote of the outstanding shares of a
Series with respect to that Series, and will terminate automatically upon
assignment or upon the termination of the investment management agreement
between JNFS and the Series. Additional Series may be subject to a different
agreement. The sub-advisers are responsible for compliance with or have agreed
to use their best efforts to manage the Series to comply with the provisions of
Section 817(h) of the Code, applicable to each Series (relating to the
diversification requirements applicable to investments in underlying variable
annuity contracts).
The JNL/J.P. Morgan Enhanced S&P 500 Stock Index Series, JNL S&P 500
Index Series, and JNL S&P MidCap Index Series are not sponsored, endorsed, sold
or promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
(S&P). S&P makes no representation or warranty, express or implied, to the
owners of the Series or any member of public regarding the advisability of
investing in securities generally or in the Series particularly or the ability
of the S&P 500 Index or the S&P MidCap 400 Index to track general stock market
performance. S&P's only relationship to the Licensee is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index and the S&P MidCap
400 Index which are determined, composed and calculated by S&P without regard to
the Licensee or the Series. S&P has no obligation to take the needs of the
Licensee or the owners of the Series into consideration in determining,
composing or calculating the S&P 500 Index or the S&P MidCap 400 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Series or the timing of the issuance or sale of the Series or
in the determination or calculation of the equation by which the Series is to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Series.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
OWNERS OF THE SERIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
ADMINISTRATIVE FEE. Each Series, except the JNL International Index Series and
each of the JNL/S&P Series, pays to JNFS an Administrative Fee of .10% of the
average daily net assets of the Series. The JNLInternational Index Series pays
an Administrative Fee of .15%. The JNL/S&P Series do not pay an Administrative
Fee. In return for the fee, JNFS provides or procures all necessary
administrative functions and services for the operation of the Series. In
addition, JNFS, at its own expense, arranges for legal, audit, fund accounting,
custody, printing and mailing, and all other services necessary for the
operation of each Series. Prior to January 1, 1999, each Series paid all of its
own operating expenses. Each Series is responsible for trading expenses
including brokerage commissions, interest and taxes, and other non-operating
expenses.
CUSTODIAN AND TRANSFER AGENT. The custodian has custody of all securities and
cash of the Trust maintained in the United States and attends to the collection
of principal and income and payment for and collection of proceeds of securities
bought and sold by the Trust.
Boston Safe Deposit and Trust Company, One Boston Place, Boston,
Massachusetts 02108, acts as custodian for the JNL/Alger Growth Series,
JNL/Alliance Growth Series, JNL/Eagle Core Equity Series, JNL/Eagle SmallCap
Equity Series, JNL/J.P. Morgan Enhanced S&P 500 Stock Index Series, JNL/J.P.
Morgan International & Emerging Markets Series, JNL/Janus Aggressive Growth
Series, JNL/Janus Balanced Series, JNL/Janus Capital Growth Series, JNL/Janus
Global Equities Series JNL/Janus Growth & Income Series, JNL/PIMCO Total Return
Bond Series, JNL/Putnam Growth Series, JNL/Putnam International Equity Series,
JNL/Putnam Midcap Growth Series, JNL/Putnam Value Equity Series, JNL Enhanced
Intermediate Bond Index Series, JNL International Index Series, JNL Russell 2000
Index Series, JNL S&P 500 Index Series, JNL S&P MidCap Index Series, Lazard/JNL
Small Cap Value Series, Lazard/JNL Mid Cap Value Series, PPM America/JNL
Balanced Series, PPM America/JNL High Yield Bond Series, PPM America/JNL Money
Market Series, Salomon Brothers/JNL Balanced Series, Salomon Brothers/JNL Global
Bond Series, Salomon Brothers/JNL High Yield Bond Series, Salomon Brothers/JNL
U.S. Government & Quality Bond Series, T. Rowe Price/JNL Established Growth
Series, T. Rowe Price/JNL Midcaap Growth Series, T. Rowe Price/JNL Value Series,
JNL Enhanced Intermediate Bond Index Series, JNL/SSGA International Index
Series, JNL Russell 2000 Index Series, JNL S&P 500 Index Series, and JNL S&P
MidCap Index Series.
The Trust acts as custodian for the JNL/S&P Conservative Growth Series I,
JNL/S&P Moderate Growth Series I, JNL/S&P Aggressive Growth Series I, JNL/S&P
Very Aggressive Growth Series I, JNL/S&P Equity Growth Series I, JNL/S&P Equity
Aggressive Growth Series I, JNL/S&P Conservative Growth Series II, JNL/S&P
Moderate Growth Series II, JNL/S&P Aggressive Growth Series II, JNL/S&P Very
Aggressive Growth Series II, JNL/S&P Equity Growth Series II, JNL/S&P Equity
Aggressive Growth Series II, JNL/S&P Conservative Growth Series, JNL/S&P
Moderate Growth Series, and JNL/S&P Aggressive Growth Series.
JNFS is the transfer agent and dividend-paying agent for each Series of
the Trust.
INDEPENDENT ACCOUNTANTS. The Series' independent accountants,
PricewaterhouseCoopers LLP, 203 North LaSalle, Chicago, Illinois 60601, audit
and report on the Series' annual financial statements, and perform other
professional accounting, auditing and advisory services when engaged to do so by
the Series.
SERIES TRANSACTIONS AND BROKERAGE. Pursuant to the Sub-advisory Agreements, the
sub-advisers are responsible for placing all orders for the purchase and sale of
portfolio securities of the Trust. The sub-advisers have no formula for the
distribution of the Trust's brokerage business, their intention being to place
orders for the purchase and sale of securities with the primary objective of
obtaining the most favorable overall results for the Trust. The cost of
securities transactions for each portfolio will consist primarily of brokerage
commissions or dealer or underwriter spreads. Bonds and money market instruments
are generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the sub-advisers
will, where possible, deal directly with dealers who make a market in the
securities unless better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account.
In selecting brokers and dealers through whom to effect transactions,
the sub-advisers will give consideration to a number of factors, including
price, dealer spread or commission, if any, the reliability, integrity and
financial condition of the broker-dealer, size of the transaction and difficulty
of execution. Consideration of these factors by a sub-adviser, either in terms
of a particular transaction or the sub-adviser's overall responsibilities with
respect to the Trust and any other accounts managed by the sub-adviser, could
result in the Trust paying a commission or spread on a transaction that is in
excess of the amount of commission or spread another broker-dealer might have
charged for executing the same transaction. In selecting brokers and dealers,
the sub-advisers will also give consideration to the value and quality of any
research, statistical, quotation or valuation services provided by the broker or
dealer. In placing a purchase or sale order, a sub-adviser may use a broker
whose commission in effecting the transaction is higher than that of some other
broker if the sub-adviser determines in good faith that the amount of the higher
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either the particular
transaction or the sub-adviser's overall responsibilities with respect to the
Trust and any other accounts managed by the Sub-adviser. Brokerage and research
services provided by brokers and dealers include advice, either directly or
through publications or writings, as to the value of securities, the
advisability of purchasing or selling securities, the availability of securities
or purchasers or sellers of securities, and analyses and reports concerning
issuers, industries, securities, economic factors and trends and portfolio
strategy. Consistent with the foregoing considerations and the Rules of Fair
Practice of the NASD, a sub-adviser may consider the sale of shares of the
Series or variable insurance products that use the Series as investment
vehicles, or may consider or follow recommendations of JNFS that take such sales
into account, as factors in the selection of brokers to effect portfolio
transactions for a Series, subject to the requirements of best net price
available and most favorable execution. In this regard, JNFS may direct a
sub-adviser to try to effect a portion of a Series' transactions through
broker-dealers that give prominence to variable insurance products using the
Series as investment vehicles, to the extent consistent with best net price
available and most favorable execution.
To the extent research services are used by the sub-advisers in
rendering investment advice to the Trust, such services would tend to reduce the
sub-advisers' expenses. However, the sub-advisers do not believe that an exact
dollar value can be assigned to these services. Research services received by
the sub-advisers from brokers or dealers executing transactions for the Trust
will be available also for the benefit of other portfolios managed by the
sub-advisers.
The Trustees periodically review the Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Series and review commissions paid by the Series over a period of
time to determine if they are reasonable in relation to the benefit to the
Series.
Any portfolio transaction for a Series may be executed through brokers
that are affiliated with the Trust, JNFS and/or sub-adviser, if, in the
sub-adviser's judgment, the use of such affiliated brokers is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, the affiliated broker charges the Series a
commission rate consistent with those charged by the affiliated broker to
comparable unaffiliated customers in similar transactions. All transactions with
affiliated brokers will comply with Rule 17e-1 under the 1940 Act.
There may be occasions when portfolio transactions for the Trust are
executed as part of concurrent authorizations to purchase or sell the same
security for trusts or other accounts served by affiliated companies of JNFS or
the sub-advisers. Although such concurrent authorizations potentially could be
either advantageous or disadvantageous to the Trust, they are effected only when
JNFS and the sub-advisers believe that to do so is in the interest of the Trust.
When such concurrent authorizations occur the executions will be allocated in an
equitable manner.
During the periods indicated, the Series paid the following amounts in
brokerage commissions:
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, 1999 December 31, 1998 December 31, 1997
<S> <C> <C> <C>
JNL/Alger Growth Series*** $543,677 $300,075 $183,075
JNL/Alliance Growth Series***** 16,815 7,467 0
JNL/Eagle Core Equity Series**** 176,866 70,878 17,298
JNL/Eagle SmallCap Equity Series**** 38,923 59,117 33,313
JNL/J.P. Morgan International & Emerging
Markets Series***** 16,988 34,462 0
JNL/J.P. Morgan Enhanced S&P 500 Stock Index
Series* 3,495 0 0
JNL/Janus Aggressive Growth Series** 500,158 194,347 162,153
JNL/Janus Capital Growth Series** 277,576 209,026 147,014
JNL/Janus Global Equities Series** 559,149 487,399 453,347
JNL/Janus Growth & Income Series (formerly,
Goldman Sachs/JNL Growth & Income
Series)***** 23,133 12,650 0
JNL/PIMCO Total Return Bond Series***** 349 275 0
JNL/Putnam Growth Series** 323,736 169,997 181,765
JNL/Putnam International Equity Series
(formerly, T. Rowe Price/JNL International
Equity Investment Series)** 98,046 87,777 142,628
JNL/Putnam Value Equity Series** 475,590 249,514 139,522
Lazard/JNL Mid Cap Value Series***** 23,907 11,510 0
Lazard/JNL Small Cap Value Series***** 12,644 8,479 0
PPM America/JNL Balanced Series** 73,565 27,513 43,630
PPM America/JNL High Yield Bond Series** 0 4,823 0
PPM America/JNL Money Market Series** 0 0 0
Salomon Brothers/JNL Balanced Series***** 4,741 2,066 0
Salomon Brothers/JNL Global Bond Series** 0 32 0
Salomon Brothers/JNL High-Yield Bond Series***** 0 0 0
Salomon Brothers/JNL U.S. Government and
Quality Bond Series** 0 0 0
T. Rowe Price/JNL Established Growth Series** 420,664 239,877 114,988
T. Rowe Price/JNL Mid-Cap Growth Series** 350,062 195,160 164,887
</TABLE>
* Commenced operations on May 16, 1999.
** Commenced operations on May 15, 1995.
*** Commenced operations on October 16, 1995.
**** Commenced operations on September 16, 1996.
***** Commenced operations on March 2, 1998.
During the periods indicated, the Trust paid the following amounts in
brokerage commissions to affiliated broker/dealers:
<TABLE>
<CAPTION>
Period Ended December Period Ended December Period Ended
Name of Broker/Dealer 31, 1999 31, 1998 December 31, 1997
--------------------- -------- -------- -----------------
<S> <C> <C> <C>
Fred Alger & Co., Inc. ................... $629,057.11 $ 297,614.70 $ 181,990.33
Goldman Sachs ............................ 1,142.73 821.76 0.00
Jardine Fleming .......................... 551.77 0.00 0.00
Raymond James & Associates, Inc. ......... 7,281.60 4,700.00 4,306.92
Robert Fleming ........................... 2,426.04 9,558.28 34,696.52
Salomon Brothers Inc. .................... 264.00 178.00 0.00
</TABLE>
Each of the broker/dealers listed above is affiliated with the Trust
through a sub-adviser.
The percentage of the Trust's aggregate brokerage commissions paid to
affiliated broker/dealers during the period ended December 31, 1999 is as
follows:
Broker/Dealer Percentage of Aggregate Commissions
Fred Alger & Co., Inc. ................... 15.966%
Goldman Sachs ............................ 0.030%
Jardine Fleming .......................... 0.014%
Raymond James & Associates, Inc. ......... 0.185%
Robert Fleming ........................... 0.062%
Salomon Brothers Inc. .................... 0.007%
As of December 31, 1999, the following Series owned securities of one
of the Trust's regular broker/dealers:
<TABLE>
<CAPTION>
Amount of
Securities
Series Broker/Dealer Owned
<S> <C> <C>
JNL/Alger Growth Series Morgan Stanley & Co. Inc. 13,803,925
JNL/Alger Growth Series Merrill Lynch Pierce, Fenner & Smith 1,862,050
JNL/Alliance Growth Series CIT Group Holdings 202,800
JNL/Alliance Growth Series Goldman Sachs & Co. 178,956
JNL/Alliance Growth Series Merrill Lynch Pierce, Fenner & Smith 175,350
JNL/Alliance Growth Series Morgan Stanley & Co. Inc. 656,650
JNL/Janus Growth & Income Series (formerly, Goldman
Sachs/JNL Growth & Income Series) Morgan Stanley & Co. Inc. 57,100
JNL/J.P. Morgan Enhanced S&P 500 Stock Index CIT Group Holdings 4,225
JNL/J.P. Morgan Enhanced S&P 500 Stock Index Goldman, Sachs & Co. 27,314
JNL/J.P. Morgan Enhanced S&P 500 Stock Index Merrill Lynch Pierce, Fenner & Smith 25,885
JNL/PIMCO Total Return Bond Series Goldman, Sachs & Co. 116,438
JNL/PIMCO Total Return Bond Series Merrill Lynch Pierce, Fenner & Smith 252,123
JNL/PIMCO Total Return Bond Series Morgan Stanley & Co. Inc. 271,685
JNL/Putnam International Equity Series (formerly, Credit Suisse Group 373,702
T. Rowe Price/JNL International Equity Investment Series)
JNL/Putnam International Equity Series (formerly, T.
Rowe Price/JNL International Equity Investment Series) HSBC Securities 387,007
JNL/Putnam Value Equity Series J.P. Morgan Securities, Inc. 2,625,569
JNL/Putnam Value Equity Series Merrill Lynch Pierce, Fenner & Smith 1,987,718
Lazard/JNL Mid Cap Value Series CIT Group Holdings 80,275
Salomon Brothers/JNL Balanced Series Donaldson, Lufkin & Jenrette 48,563
Salomon Brothers/JNL Balanced Series Merrill Lynch Pierce, Fenner & Smith 70,875
Salomon Brothers/JNL Global Bond Series Merrill Lynch Pierce, Fenner & Smith 806,710
T. Rowe Price/JNL Established Growth Series HSBC Holdings 883,386
T. Rowe Price/JNL Established Growth Series Morgan Stanley & Co. Inc 2,398,200
T. Rowe Price/JNL Mid-Cap Growth Series CIT Group Inc. 1,719,575
</TABLE>
CODE OF ETHICS. To mitigate the possibility that a Series will be adversely
affected by personal trading of employees, the Trust, JNFS and the sub-advisers
have adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes
contain policies restricting securities trading in personal accounts of the
portfolio managers and others who normally come into possession of information
on portfolio transactions. These Codes comply, in all material respects, with
the recommendations of the Investment Company Institute. Employees subject to
the Code of Ethics may invest in securities for their own investment accounts,
including securities that may be purchased or held by the Trust.
PURCHASES, REDEMPTIONS AND PRICING OF SHARES
An insurance company may purchase shares of the Series at their
respective net asset values, using premiums received with respect to Contracts
issued by the company's separate accounts. These separate accounts are funded by
shares of the Trust.
All investments in the Trust are credited to the shareholder's account
in the form of full and FRACTIONAL shares of the designated Series (rounded to
the nearest 1/1000 of a share). The Trust does not issue share certificates.
As stated in the Prospectus, the net asset value (NAV) of a Series'
shares is determined once each day on which the New York Stock Exchange (NYSE)
is open (Business Day) at the close of the regular trading session of the
Exchange (normally 4:00 p.m., Eastern Time, Monday through Friday). The NAV of a
Series' shares is not determined on the days the NYSE is closed, which days
generally are New Year's Day, Martin Luther King Jr. holiday, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The per share NAV of a Series is determined by dividing the total value
of the securities and other assets, less liabilities, by the total number of
shares outstanding. In determining NAV, securities listed on the national
securities exchanges, the Nasdaq National Market and foreign markets are valued
at the closing prices on such markets, or if such price is lacking for the
trading period immediately preceding the time of determination, such securities
are valued at their current bid price. Securities that are traded on the
over-the-counter market are valued at their closing bid prices. Foreign
securities and currencies are converted to U.S. dollars using exchange rates in
effect at the time of valuation. A Series may determine the market value of
individual securities held by it, by using prices provided by one or more
professional pricing services which may provide market prices to other funds,
or, as needed, by obtaining market quotations from independent broker-dealers.
Short-term securities maturing within 60 days are valued on the amortized cost
basis.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on each Business Day. In addition, European and Far Eastern securities
trading generally or in a particular country or countries may not take place on
all Business Days. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not Business
Days and on which a Series' NAV is not calculated. A Series calculates NAV per
share, and therefore effects sales, redemptions and repurchases of its shares,
as of the close of the NYSE once on each day on which the NYSE is open. Such
calculation does not take place contemporaneously with the determination of the
prices of the majority of the foreign portfolio securities used in such
calculation.
For the PPM America/JNL Money Market Series, securities are valued at
amortized cost, which approximates market value, in accordance with Rule 2a-7
under the 1940 Act. The net income of the PPM America/JNL Money Market Series is
determined once each day, on which the NYSE is open, at the close of the regular
trading session of the NYSE (normally 4:00 p.m., Eastern time, Monday through
Friday). All the net income of the Series, so determined, is declared as a
dividend to shareholders of record at the time of such determination. Shares
purchased become entitled to dividends declared as of the first day following
the date of investment. Dividends are distributed in the form of additional
shares of the Series on the last business day of each month at the rate of one
share (and fraction thereof) of the Series for each one dollar (and fraction
thereof) of dividend income.
For this purpose, the net income of the PPM America/JNL Money Market
Series (from the time of the immediately preceding determination thereof) shall
consist of: (a) all interest income accrued on the portfolio assets of the
Series, (b) less all actual and accrued expenses, and (c) plus or minus net
realized gains and losses on the assets of the Series determined in accordance
with generally accepted accounting principles. Interest income includes discount
earned (including both original issue and market discount) on discount paper
accrued ratably to the date of maturity. Securities are valued at amortized cost
which approximates market, which the Trustees have determined in good faith
constitutes fair value for the purposes of complying with the 1940 Act.
Because the net income of the PPM America/JNL Money Market Series is
declared as a dividend each time the net income is determined, the net asset
value per share (i.e., the value of the net assets of the Series divided by the
number of shares outstanding) remains at one dollar per share immediately after
each such determination and dividend declaration. Any increase in the value of a
shareholder's investment in the Series, representing the reinvestment of
dividend income, is reflected by an increase in the number of shares of the
Series in its account. Pursuant to its objective of maintaining a fixed one
dollar share price, the Series will not purchase securities with a remaining
maturity of more than 397 days and will maintain a dollar-weighted average
portfolio maturity of 90 days or less.
The Trust may suspend the right of redemption for any Series only under
the following unusual circumstances: (a) when the NYSE is closed (other than
weekends and holidays) or trading is restricted; (b) when an emergency exists,
making disposal of portfolio securities or the valuation of net assets not
reasonably practicable; or (c) during any period when the Securities and
Exchange Commission has by order permitted a suspension of redemption for the
protection of shareholders.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES. The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest of each
Series and to divide or combine such shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in the
Trust. Each share of a Series represents an equal proportionate interest in that
Series with each other share. The Trust reserves the right to create and issue
any number of Series of shares. In that case, the shares of each Series would
participate equally in the earnings, dividends, and assets of the particular
Series. Upon liquidation of a Series, shareholders are entitled to share pro
rata in the net assets of such Series available for distribution to
shareholders.
VOTING RIGHTS. Shareholders are entitled to one vote for each share held. Except
for matters affecting a particular Series, as described below, all shares of the
Trust have equal voting rights and may be voted in the election of Trustees and
on other matters submitted to the vote of the shareholders. Shareholders'
meetings ordinarily will not be held unless required by the 1940 Act. As
permitted by Massachusetts law, there normally will be no shareholders' meetings
for the purpose of electing Trustees unless and until such time as fewer than a
majority of the Trustees holding office have been elected by shareholders. At
that time, the Trustees then in office will call a shareholders' meeting for the
election of Trustees. The Trustees must call a meeting of shareholders for the
purpose of voting upon the removal of any Trustee when requested to do so by the
record holders of 10% of the outstanding shares of the Trust. A Trustee may be
removed after the holders of record of not less than two-thirds of the
outstanding shares have declared that the Trustee be removed either by
declaration in writing or by votes cast in person or by proxy. Except as set
forth above, the Trustees shall continue to hold office and may appoint
successor Trustees, provided that immediately after the appointment of any
successor Trustee, at least two-thirds of the Trustees have been elected by the
shareholders. Shares do not have cumulative voting rights. Thus, holders of a
majority of the shares voting for the election of Trustees can elect all the
Trustees.
In matters affecting only a particular Series, the matter shall have
been effectively acted upon by a majority vote of that Series even though: (1)
the matter has not been approved by a majority vote of any other Series; or (2)
the matter has not been approved by a majority vote of the Trust.
Shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. The risk of a shareholder incurring any financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations. The Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides that notice of the disclaimer must be given in each agreement,
obligation or instrument entered into or executed by the Trust or Trustees. The
Declaration of Trust provides for indemnification of any shareholder held
personally liable for the obligations of the Trust and also provides for the
Trust to reimburse the shareholder for all legal and other expenses reasonably
incurred in connection with any such claim or liability.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust. The
Trustees may, however, amend the Declaration of Trust without the vote or
consent of shareholders to:
o designate Series of the Trust; or
o change the name of the Trust; or
o supply any omission, cure, correct, or supplement any ambiguous,
defective, or inconsistent provision to conform the Declaration of
Trust to the requirements of applicable federal or state regulations if
they deem it necessary.
If not terminated by the vote or written consent of a majority of its
outstanding shares, the Trust will continue indefinitely. Shares have no
pre-emptive or conversion rights. Shares are fully paid and non-assessable.
SHAREHOLDER INQUIRIES. All inquiries regarding the Trust should be directed to
the Trust at the telephone number or address shown on the back cover page of the
Prospectus.
TAX STATUS
The Trust's policy is to meet the requirements of Subchapter M of the
Internal Revenue Code. Each Series intends to distribute taxable net investment
income and capital gains to shareholders in amounts that will avoid federal
income or excise tax. In addition, each Series intends to comply with the
diversification requirements of Code Section 817(h) related to the tax-deferred
status of annuity and life insurance contracts issued by insurance company
separate accounts. If any Series failed to qualify for treatment as a regulated
investment company for any taxable year, (1) it would be taxed at corporate
rates on the full amount of its taxable income for that year without being able
to deduct the distributions it makes to its shareholders, (2) the shareholders
would treat all those distributions, including distributions of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), as
dividends (that is, ordinary income) to the extent of the Series' earnings and
profits, and (3) most importantly, each insurance company separate account
invested therein would fail to satisfy the diversification requirements of
Section 817(h), with the result that the variable annuity contracts supported by
that account would no longer be eligible for tax deferral. In addition, the
Series could be required to recognize unrealized gains, pay substantial taxes
and interest and make substantial distributions before requalifying for
regulated investment company treatment.
All income dividends and capital gain distributions, if any, on Series
shares are reinvested automatically in additional shares of the Series at the
NAV determined on the first Business Day following the record date, unless
otherwise requested by a shareholder.
Each Series is treated as a separate corporation for purpose of the
Code and, therefore, the assets, income, and distributions of each Series are
considered separately for purposes of determining whether or not the Series
qualifies as a regulated investment company.
<PAGE>
JNL SERIES TRUST
FINANCIAL STATEMENTS
The financial statements of the JNL Series Trust for the year ended December 31,
1999 are incorporated by reference from the Trust's Annual Reports to
shareholders which are available at no charge upon written or telephone request
to the Trust at the address and telephone number set forth on the front page of
this Statement of Additional Information.
<PAGE>
APPENDIX A -- RATINGS OF INVESTMENTS
MOODY'S INVESTORS SERVICE, INC.
COMMERCIAL PAPER RATINGS. The ratings Prime-1 and Prime-2 are the two highest
commercial paper ratings assigned by Moody's Investors Service, Inc. (Moody's).
Among the factors considered by it in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer-acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations. Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated Prime-1 or 2.
BOND RATINGS.
AAA. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA. Bonds which are 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. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal and
interest.
CA. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
STANDARD & POOR'S RATINGS SERVICES
ISSUE CREDIT RATINGS DEFINITIONS. A Standard & Poor's issue credit rating is a
current opinion of the creditworthiness of an obligor with respect to a specific
financial obligation, a specific class of financial obligations, or a specific
financial program (including ratings on medium-term note programs and commercial
paper programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation and takes into
account the currency in which the obligation is denominated. The issue credit
rating is not a recommendation to purchase, sell, or hold a financial
obligation, inasmuch as it does not comment as to market price or suitability
for a particular investor.
Issue credit ratings are based on current information furnished by the obligors
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any credit rating
and may, on occasion, rely on unaudited financial information. Credit ratings
may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term ratings
are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days - including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based, in varying
degrees, on the following considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not confirm exactly with the category definition.
AAA. An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA. An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A. An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB. An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB. An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B. An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC. An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC. An obligation rated CC is currently highly vulnerable to nonpayment.
C. The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
<PAGE>
D. An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-). The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
R. This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS.
A-1. A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2. A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3. A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B. A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C. A short-term obligation rated C is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D. A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
<PAGE>
LOCAL CURRENCY AND FOREIGN CURRENCY RISKS. Country risk considerations are a
standard part of Standard & Poor's analysis for credit ratings on any issuer or
issue. Currency of repayment is a key factor in this analysis. An obligor's
capacity to repay foreign currency obligations may be lower than its capacity to
repay obligations in its local currency due to the sovereign government's own
relatively lower capacity to repay external versus domestic debt. These
sovereign risk considerations are incorporated in the debt ratings assigned to
specific issues. Foreign currency issuer ratings are also distinguished from
local currency issuer ratings to identify those instances where sovereign risks
make them different for the same issuer.
