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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7736
Janus Aspen Series
(Exact name of registrant as specified in charter)
151 Detroit Street, Denver, Colorado 80206
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
Stephanie Grauerholz-Lofton, 151 Detroit Street, Denver, Colorado 80206
(Name and address of agent for service)
(Name and address of agent for service)
Registrant’s telephone number, including area code: 303-333-3863
Date of fiscal year end: 12/31
Date of reporting period: 12/31/11
Item 1 — Reports to Shareholders
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
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Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s managers as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s managers may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s managers in the Management Commentary are just that: opinions. They are a reflection of the managers’ best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the managers’ opinions. These views are unique to each manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Balanced Portfolio (unaudited)
Portfolio Snapshot We believe a dynamic approach to asset allocation that leverages our bottom-up, fundamental equity and fixed income research will allow us to outperform our benchmark and peers over time. Our integrated equity and fixed income research team seeks an optimal balance of asset class opportunities across market cycles. | Marc Pinto co-portfolio manager | Gibson Smith co-portfolio manager |
Performance Overview
Janus Aspen Balanced Portfolio’s Institutional Shares and Service Shares returned 1.64% and 1.35%, respectively, for the 12-month period ended December 31, 2011, compared with a 4.99% return by the Balanced Index, an internally-calculated supplemental benchmark that combines the total returns from the S&P Index (55%) and the Barclays Capital U.S. Aggregate Bond Index (45%). The S&P 500 Index, the Portfolio’s primary benchmark, and the Barclays Capital U.S. Aggregate Bond Index, the Portfolio’s secondary benchmark, returned 2.11% and 7.84%, respectively.
Economic Overview
U.S. equities saw early gains for 2011 disappear during a sell-off in the third quarter. Indices recovered somewhat in the fourth quarter to finish the year with a modest gain. The volatile year began with political unrest in the Middle East and North Africa and a tragic earthquake and tsunami in Japan, where damaged nuclear reactors raised fears of radiation contamination. Strong corporate earnings, modestly improving economic data and U.S. Treasury plans to sell off some of its portfolio of mortgage-backed securities helped sentiment, enabling equities to reach their highs for the year in early May. Later during the second quarter, the smoldering European sovereign debt issue resurfaced on a potential default by Greece, violent protests over austerity measures in Athens and a ratings downgrade for Italy.
A first-ever ratings downgrade of U.S. debt sparked the third quarter sell-off followed by fears that European financial pressures could spread to U.S. banks. The U.S. Federal Reserve (Fed) also gave a downbeat assessment of the economic climate and presented a new plan to buy long-dated Treasuries, which disappointed investors who had hoped for more. Stocks rebounded in the fourth quarter on hopes of a European solution to the debt crisis and improving U.S. data in retail sales, unemployment, private sector jobs, manufacturing and housing starts. However, spiking government bond yields in Italy and Spain late in the year showed investors were not convinced of a lasting European debt solution. The failure of the U.S. government’s deficit reduction “super committee” also pressured equities late.
Volatility and headline risk were central themes for fixed income investors in 2011. As the year began, signs of stronger economic growth fueled investor appetite for riskier assets. The yield on 10-year U.S. Treasury securities rose to its highest point all year, at 3.75% in early February, while investment-grade and high-yield spreads narrowed. But the trend reversed in March and April, as investors sought safety amid political unrest in the Middle East and North Africa, earthquakes in Japan and New Zealand, and concern about European fiscal problems. In mid-March, rising inflation concerns briefly supported longer-term U.S. Treasury yields, but yields soon began a general decline that lasted throughout 2011.
The Treasury rally became especially pronounced from late July through September, as worry mounted that the U.S. economy might slip into a double-dip recession. Investors were troubled by below-expectation U.S. gross domestic product (GDP) growth, a manufacturing slowdown and persistently weak employment, housing and consumer spending figures. Concern about high government debt levels, both in the United States and Europe, only heightened this negative market sentiment. A high-stakes political standoff in Congress in July and August over raising the U.S. debt ceiling did nothing to improve the situation. Credit rating agency Standard & Poor’s subsequently lowered the United States’ sovereign credit rating to AA+ from AAA. The downgrade was followed, ironically, by a near stampede into U.S. Treasury securities, as the darkening global economic picture made Treasuries appear to be the safest haven available.
All eyes returned to Europe in the fall, as fiscal problems in the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) countries threatened to spiral out of control. By October, it appeared that European Union (EU) leaders would manage to contain euro-zone problems, and relieved investors briefly ventured out of Treasuries in
2 | DECEMBER 31, 2011
(unaudited)
search of higher yields. But uncertainty flooded back in November, as governments in first Greece and then Italy fell amid market pressure to implement fiscal reforms. The late-November failure of the U.S. Congressional “super committee” to reach a deal to cut $1.2 trillion from the U.S. deficit added to the general malaise.
In December, some headway was made in Europe, as EU leaders announced a plan in which most members would agree to stricter fiscal rules and the European Central Bank (ECB) served up a larger-than-expected $641 billion in 3-year loans. This injected some calm into the markets as volume wound down for the holidays, although investors remained concerned that credit ratings would be downgraded on one or more of the 17 euro zone countries.
Meanwhile, U.S. macroeconomic data continued to reflect a strengthening domestic economy, with signs of increased hiring and rising consumer confidence. Fears of a double-dip recession, which mounted over the summer as U.S. economic indicators weakened, had receded by the fourth quarter.
Portfolio Overview
The Portfolio underperformed the Balanced Index during the period, as both the equity and fixed income sleeves underperformed their respective benchmarks. The Portfolio was overweight equities until the third quarter, when we moved to a 52.9% weighting. We finished the period nearly equal weight at 54.4%. The weighting change in the fourth quarter reflected our more positive outlook on the U.S. economy.
Our equity sleeve underperformed the S&P 500 Index due largely to our holdings and underweight in energy followed by our holdings in consumer discretionary, information technology and financials. Relative contributors were led by our holdings in consumer staples, industrials and health care.
Individually, Morgan Stanley was the largest detractor. The diversified financial services company was hit in the third quarter by investor worries over balance sheet risk and rumors (which were false) that it had exposure to French banks. We reduced our position in the diversified financial services firm as the shares rebounded in the fourth quarter. We continue to like Morgan Stanley longer term based on its transformation to a wealth management company with the integration of its Smith Barney joint venture, but its investment banking business remains susceptible to regulatory and capital market headwinds.
Hess Corp. also weighed on performance. This integrated energy company, which is heavily leveraged to the price of oil, suffered from weak energy prices, during the second and third quarters. Hess remains an attractive holding in our opinion given its emphasis on oil over natural gas and its new discoveries off the coast of West Africa. We also believe the company’s properties off the coast of Brazil offer substantial reserve potential.
Contributors were led by tobacco company Philip Morris International. We continue to like the tobacco company for its pure international exposure, stable markets, minimal litigation risk and ability to implement price increases. Its cash generative business has historically also led to high dividend payouts and share repurchases.
CBS gained from a change in investor perceptions that the mass media company’s advertising revenues would not be as negatively impacted as many had feared during the third quarter, when concerns over a recession rose. In fact, there has been no sign of economic weakness in the company’s advertising rates.
The fixed income sleeve underperformed its benchmark, the Barclays Capital U.S. Aggregate Bond Index (Agg), during 2011. Corporate credit and Treasuries were the primary asset-class drivers of underperformance, while our underweight positioning in agency debt and MBS were the top positive asset classes. In terms of sectors, natural gas pipelines stood out as the top-performing sector. Banking was the worst-performing sector, although that was because we were overweight the sector that underperformed as a whole relative to the index. Security selection within banking was positive. We remained significantly overweight corporate credit at year’s end, at 70% of the sleeve, compared with the Agg’s 20% exposure.
The sleeve had a wide range of very strong credit performers, including Bank of America and Pernod-Ricard. However, the breadth of solid performers was heavily outweighed by underperformance in financials, which had a few extreme underperformers, including Jefferies Group.
Holding the number-one position in U.S. deposits and a large bank branch network, Bank of America is transitioning from being a serial acquirer to focusing on optimizing their existing business lines. As the U.S.’s largest originator and servicer of mortgages, Bank of America’s asset recovery is more sensitive to U.S. real estate and employment improvements. The company continues to improve its capital structure, running off term-debt at a $40-55 billion per year pace and we expect the deleveraging to continue for the next few years. Depending on one’s perspective, Bank of America’s
Janus Aspen Series | 3
Janus Aspen Balanced Portfolio (unaudited)
sensitivity to headline risk particularly of the mortgage or regulatory variety can provide attractive opportunities but also periodic volatility. It is also worth noting that the bank is making progress in reducing the mortgage risk within their business.
A French producer of distilled beverages, Pernod acquired Absolut Vodka from the Swedish government in 2008 resulting in a downgrade of the company by ratings agencies. The company has demonstrated its ability to utilize free cash flow for the benefit of bondholders and remains focused on deleveraging, in our view.
One of the last remaining independent – i.e. non-bank – brokers in the U.S., Jefferies Group invested heavily in expanding its business during the credit crisis. Growing the business to include commodities and advisory services, the company has increased its headcount by more than 15%. We believe this expansion of business interest bodes well for Jefferies as merger and acquisition activity increases in the incrementally improving economy. We also like the fact that their independent status frees the company from the constraints being imposed by regulators on many of their peers, potentially providing market share gains at an important time in the economic cycle. We believe investors overreacted in distancing themselves from the company in early November in the wake of the MF Global bankruptcy. Jefferies has a highly invested management team, a well structured long-term debt profile and disciplined policies regarding sovereign debt exposure. We like that the company moved quickly to demonstrate the transparency and liquidity of its own European sovereign debt holdings to assuage investor concerns following MF Global.
Individual detractors were led by DineEquity, which is in the process of transforming Applebee’s, a casual dining brand that it acquired in 2007, into a nearly 99% franchised system by selling most of its company-operated restaurants. This will bring Applebee’s business model into line with IHOP, DineEquity’s other brand, and potentially generate more stable cash flows with less risk. DineEquity also is actively engaged in paying down debt. We exited the position during the period.
We reduced our Treasury exposure in the sleeve to 4.5% at year end, compared with 8.2% at the beginning of the year. This was not a steady process. At certain points, notably in February and during the second quarter, we increased Treasury exposure in order to reduce portfolio risk as a result of our close monitoring of company fundamentals. We believe that a strategic allocation to Treasuries plays a critical defensive role during periods of uncertainty, and the flight-to-safety buying that drove longer-term Treasury yields lower throughout 2011 certainly underscored the security’s safe-haven appeal. However, in light of the U.S. government’s fiscal challenges we continue to monitor how this will play out going forward. In 2012, we expect interest rates to trade in a more range-bound fashion than they did in 2011, as discussed further below in the Outlook section. We balance our risk positions with Treasuries because we believe they offer an insurance policy against tail risk and market volatility. However, considering the high volatility in the market, we think this allocation needs to be actively managed, and we expect to reduce our allocation to take advantage of opportunities as the market presents them.
We maintained zero exposure to U.S. government agency debt throughout 2011. We have long argued that since the 2008-09 financial crisis, U.S. government agencies, agency mortgages and U.S. Treasuries have converged and now move as one large U.S. government sector. We believe that corporate credit represents a better alternative, offering the best risk-adjusted returns. Our focus on security selection also offers a more effective way of capturing alpha (outperformance versus the benchmark) within corporate credit, in our opinion.
That said, we did increase our exposure to select agency MBS during 2011, as MBS spreads moved significantly wider and presented good risk/reward opportunities in our opinion. We began the year with a zero weight to mortgages – an area we had avoided since the third quarter of 2009 – but re-established and then increased our allocation as the year progressed; as of December 31, 2011, agency MBS accounted for 6.8% of the sleeve. It’s worth noting that increasing our exposure to MBS was not a broad macroeconomic decision, but consistent with our investment process it was the result of seeking opportunities through close analysis of valuations and individual security fundamentals. Broadly speaking, when the U.S. government placed Fannie Mae and Freddie Mac into conservatorship in 2008, mortgage spreads tightened significantly compared with Treasuries, offering little potential for outperformance. The evolving dynamics within the mortgage market also made it difficult to model duration extension risk. However, over the past year both factors have eased. Particularly encouraging from our standpoint was the Fed’s announcement in September that it would reinvest maturing MBS paydowns into newly issued MBS, effectively changing the Fed from a net seller to a net buyer in the MBS market. We continue to focus on pre-pay-protected issues such as low-loan balance and seasoned pools to manage the interest rate risk inherent in the sector. Although we remain underweight MBS compared with the Agg, we stand ready to increase our
4 | DECEMBER 31, 2011
(unaudited)
allocation if it appears likely that the Fed will buy additional MBS as part of a potential third round of quantitative easing (QE3).
We also established small positions in commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) during the year, as we perceived fresh opportunities in those markets. We believe that there is opportunity for spread tightening in CMBS as the market slowly and haltingly returns to life following the financial crisis. As for the ABS and commercial ABS markets, we believe our bottom-up research approach gives us an edge over other investors in this market, in being able to better gauge specific company risk. The global ABS market also is growing as more European banks, facing a credit squeeze in euro-denominated debt, are beginning to issue ABS in U.S. dollars. The credit culture in many other countries is very creditor friendly, making this an underappreciated space in our opinion. Although our allocation in the sector is not large, we believe that global ABS in general offers good relative value – high credit quality at an attractive yield. As of December 31, 2011, ABS accounted for 0.2% of the sleeve.
Given the high levels of market volatility and economic uncertainty, we believe that individual security selection will be the most important driver of returns for bond investors. As always, we will continue to focus on opportunities that offer the best risk-adjusted returns.
Please see “Notes to Financial Statements” for a discussion of derivatives used by the Portfolio.
Outlook
We believe European leaders understand the severity of the region’s sovereign debt problems and will prevent a European repeat of the 2008 financial crisis that we experienced in the U.S., although we remain watchful of their actions. In the U.S., we see modest improvement in the economy. Further progress in both consumer and business confidence hinges on actions in Washington D.C. and possibly the 2012 election. Companies are being cautious in their spending on new capacity, which should lead to higher cash generation and benefit shareholders in higher dividends. We think it’s no coincidence that the some of the best performing stocks have been dividend payers that have grown. An example is Philip Morris International, which rose 20% in the fourth quarter and boasts a 4% dividend yield.
Overall, we are cautiously optimistic and foresee modest economic growth. The probability of a U.S. recession has declined, but the lack of policy direction in Washington demands a slightly more cautious sleeve. Therefore, we have placed a greater emphasis on companies with more predictable earnings growth and that are less cyclically exposed. We are also identifying companies with strong cash generation, which would enable them to repay debt and repurchase shares even if growth in earnings and cash flow is more muted than they have been historically.
Largely because the U.S. economy is being held hostage to decisions in Europe and Washington, our fixed income team expects another year of subpotential growth. We forecast U.S. gross domestic product growth of 2% in 2012, barring a worsening of the euro zone crisis and assuming that Congress extends long-term unemployment benefits and the payroll tax break until the end of the year; both are currently scheduled to expire at the end of February.
Given current high levels of productivity, we expect that hiring will continue to rise slowly as companies seek to meet essential demand. However, the modest pace will likely keep the unemployment rate elevated and fluctuating around the 9% level throughout the year. Excess slack in the labor market combined with slow economic growth should keep inflation from moving much higher. In our opinion, the core Consumer Price Index (CPI) will continue to rise through the first half of 2012, peaking at 2.5% before descending back below 2%. Core CPI’s recent rise has been due largely to artificial factors, including a supply/demand imbalance in the housing rental market that has pushed up owners’ equivalent rent (OER), a major component of core CPI. We believe this imbalance will correct itself. Meanwhile, producer input prices have been dropping, reducing the amount of price pressure in the pipeline.
A low-inflation environment would give the Fed room to continue its accommodative short-term interest rate policy. The Fed has said that it plans to keep short-term interest rates near zero through late 2014. We believe there is a 50% chance that the Fed will initiate QE3 in 2012, by buying mortgage-backed securities, if market conditions warrant. In our view the likelihood of QE3 is heavily dependent on the outcome in Europe, and may be necessary if we see continued dysfunction in Washington.
We expect global economic growth to slow to roughly 2.1% in 2012, with Europe the most challenged region worldwide. In our view Europe will be in recession next year, with growth of negative 0.5% to negative 1%. Policy risk remains high in all regions of the world. We expect inflation to decline globally as commodity prices level out and the pace of growth slows.
We believe that Treasury yields will remain relatively range-bound in 2012 due to the continued headline risk
Janus Aspen Series | 5
Janus Aspen Balanced Portfolio (unaudited)
from Europe, political deadlock in Washington and automatic $1.2 trillion in government spending cuts scheduled to begin in January 2013. However, we think that rates could be at the higher end of the range by the end of 2012, partly because by that point we should be on a path to stronger economic growth. The front end of the curve is anchored by current Fed policy, while the five-year Treasury is the pivot point and stands to benefit if the Fed implements QE3. We believe that the 10-year and 30-year Treasury have little upside left, as they enjoyed a remarkable rally in 2011 but will be vulnerable to inflation concerns the longer the Fed’s accommodative policy continues.
Against this backdrop, we continue to believe that corporate credit offers some of the best risk-adjusted returns in the market. We entered 2011 with a similar belief. The last year was highly volatile for credit, especially financials, which had a big impact on the market. Yet underlying fundamentals continue to improve. Profit margins are high and companies are accumulating cash on balance sheets (more than $2 trillion by some estimates). Moreover, we think there is a newfound conservatism resonating across management teams and boards in the United States and Europe. Management teams are being more careful and have not been committing capital to their businesses – beyond replacement levels – as growth remains slow and uncertainty remains high. We think this will continue through 2012, fueling more free cash flow, liquidity in the system and ultimately support for credit spreads in both investment-grade and high-yield bonds.
Thank you for investing in Janus Aspen Balanced Portfolio.
6 | DECEMBER 31, 2011
(unaudited)
Janus Aspen Balanced Portfolio At A Glance
5 Top Performers – Equity Holdings
Contribution | ||||
Philip Morris International, Inc. | 1.24% | |||
CBS Corp. – Class B | 0.93% | |||
MasterCard, Inc. – Class A | 0.74% | |||
Bristol-Myers Squibb Co. | 0.73% | |||
Apple, Inc. | 0.53% |
5 Bottom Performers – Equity Holdings
Contribution | ||||
Morgan Stanley | –0.99% | |||
Hess Corp. | –0.76% | |||
Ford Motor Co. | –0.73% | |||
Oracle Corp. | –0.65% | |||
Freeport-McMoRan Copper & Gold, Inc. – Class B | –0.59% |
5 Top Performers – Sectors*
Portfolio | Portfolio Weighting | S&P 500® | ||||||||||
Contribution | (Average % of Equity) | Index Weighting | ||||||||||
Industrials | 0.70% | 9.34% | 10.86% | |||||||||
Consumer Staples | 0.58% | 7.40% | 10.87% | |||||||||
Health Care | 0.50% | 12.65% | 11.44% | |||||||||
Telecommunication Services | –0.20% | 0.84% | 3.05% | |||||||||
Materials | –0.37% | 6.78% | 3.59% |
5 Bottom Performers – Sectors*
Portfolio | Portfolio Weighting | S&P 500® | ||||||||||
Contribution | (Average % of Equity) | Index Weighting | ||||||||||
Energy | –1.93% | 11.07% | 12.54% | |||||||||
Consumer Discretionary | –0.91% | 18.84% | 10.61% | |||||||||
Information Technology | –0.75% | 18.56% | 18.76% | |||||||||
Financials | –0.65% | 14.52% | 14.81% | |||||||||
Utilities | –0.59% | 0.00% | 3.48% |
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. | ||
* | Based on sector classification according to the Global Industry Classification Standard codes, which are the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
Janus Aspen Series | 7
Janus Aspen Balanced Portfolio (unaudited)
5 Largest Equity Holdings – (% of Net Assets)
As of December 31, 2011
Apple, Inc. Computers | 1.9% | |||
Oracle Corp. Enterprise Software/Services | 1.7% | |||
Philip Morris International, Inc. Tobacco | 1.7% | |||
Union Pacific Corp. Transportation – Railroad | 1.6% | |||
CBS Corp. – Class B Television | 1.6% | |||
8.5% |
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Emerging markets comprised 1.3% of total net assets.
Top Country Allocations – Long Positions (% of Investment Securities)
As of December 31, 2011
8 | DECEMBER 31, 2011
(unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||
One | Five | Ten | Since | Total Annual Fund | |||||||
Year | Year | Year | Inception* | Operating Expenses | |||||||
Janus Aspen Balanced Portfolio – Institutional Shares | 1.64% | 5.23% | 5.97% | 9.68% | 0.58% | ||||||
Janus Aspen Balanced Portfolio – Service Shares | 1.35% | 4.96% | 5.70% | 9.53% | 0.83% | ||||||
S&P 500® Index | 2.11% | –0.25% | 2.92% | 7.67% | |||||||
Barclays Capital U.S. Aggregate Bond Index | 7.84% | 6.50% | 5.78% | 6.14% | |||||||
Balanced Index | 4.99% | 3.14% | 4.56% | 7.28% | |||||||
Lipper Quartile – Institutional Shares | 1st | 1st | 1st | 1st | |||||||
Lipper Ranking – Institutional Shares based on total returns for Variable Annuity Mixed-Asset Target Allocation Moderate Funds | 53/219 | 1/122 | 4/61 | 1/21 | |||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio’s performance may be affected by risks that include those associated with non-investment grade debt securities, investments in specific industries or countries, and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), real estate investment trusts (“REITs”), and derivatives. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
See important disclosures on the next page.
Janus Aspen Series | 9
Janus Aspen Balanced Portfolio (unaudited)
The Portfolio invests in REITs, which may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographic region. REITs may be subject to risks including, but not limited to: legal, political, liquidity, and interest rate risks, a decline in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrowers. To the extent the Portfolio invests in foreign REITs, the Portfolio may be subject to fluctuations in currency rates or political or economic conditions in a particular country.
The Portfolio may invest in derivatives which can be highly volatile and involve additional risks than if the underlying securities were held directly by the Portfolio. Such risks include gains or losses which, as a result of leverage, can be substantially greater than the derivatives’ original cost. There is also a possibility that derivatives may not perform as intended which can reduce opportunity for gains or result in losses by offsetting positive returns in other securities the Portfolio owns.
Portfolios that invest in bonds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds owned by the Portfolio. Unlike owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond portfolios. The return of principal is not guaranteed due to net asset value fluctuation that is caused by changes in the price of specific bonds held in the Portfolio and selling of bonds within the Portfolio by the portfolio managers.
The Portfolio invests in mortgage-backed securities. Mortgage-backed securities are subject to prepayment risk (early payoff of mortgages during periods of declining interest rates) and extension risk (extending the duration of mortgage-backed securities during periods of rising interest rates). These risks may increase the volatility of these securities and affect total returns.
High-yield/high-risk bonds, also known as “junk” bonds, involve a greater risk of default and price volatility than investment grade bonds. High-yield/high-risk bonds can experience sudden and sharp price swings which will affect net asset value.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Returns shown for Service Shares for periods prior to December 31, 1999 are derived from the historical performance of Institutional Shares, adjusted to reflect the higher operating expenses of Service Shares.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Institutional Share class only; other classes may have different performance characteristics.
September 30, 1993 is the date used to calculate the since-inception Lipper ranking, which is slightly different from when the Portfolio began operations since Lipper provides fund rankings as of the last day of the month.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the indices. The indices are unmanaged and are not available for direct investment; therefore, their performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
* | The Portfolio’s inception date – September 13, 1993 |
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 960.30 | $ | 2.87 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,022.28 | $ | 2.96 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 959.10 | $ | 4.10 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.02 | $ | 4.23 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.58% for Institutional Shares and 0.83% for Service Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
10 | DECEMBER 31, 2011
Janus Aspen Balanced Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Asset-Backed/Commercial Mortgage-Backed Securities – 1.3% | ||||||||||
$1,465,000 | Bear Stearns Commercial Mortgage Securities 5.5370%, 10/12/41 | $ | 1,644,706 | |||||||
1,350,807 | CLI Funding LLC 4.9400%, 10/15/26 (144A),‡ | 1,324,931 | ||||||||
1,284,000 | Commercial Mortgage Pass Through Certificates 5.8137%, 12/10/49‡ | 1,433,233 | ||||||||
1,282,000 | FREMF Mortgage Trust 4.7268%, 1/25/21 (144A),‡ | 1,101,065 | ||||||||
809,000 | FREMF Mortgage Trust 5.1587%, 4/25/21 (144A),‡ | 723,324 | ||||||||
1,157,000 | FREMF Mortgage Trust 4.9329%, 7/25/21‡ | 1,011,218 | ||||||||
640,000 | FREMF Mortgage Trust 4.7507%, 10/25/21 (144A),‡ | 541,385 | ||||||||
1,806,000 | FREMF Mortgage Trust 4.7705%, 4/25/44 (144A),‡ | 1,669,522 | ||||||||
2,009,000 | FREMF Mortgage Trust 4.8868%, 7/25/44 (144A),‡ | 1,859,954 | ||||||||
1,333,000 | GS Mortgage Securities Corp. II 5.5600%, 11/10/39 | 1,463,505 | ||||||||
627,000 | JPMorgan Chase Commercial Mortgage Securities Corp. 3.3638%, 11/13/16 (144A),‡ | 633,320 | ||||||||
2,050,000 | JPMorgan Chase Commercial Mortgage Securities Corp. 3.6620%, 7/5/24 (144A) | 2,102,064 | ||||||||
890,000 | JPMorgan Chase Commercial Mortgage Securities Corp. 5.6330%, 12/5/27 (144A) | 1,011,892 | ||||||||
883,000 | JPMorgan Chase Commercial Mortgage Securities Corp. 5.8748%, 4/15/45‡ | 991,018 | ||||||||
1,315,000 | Morgan Stanley Capital I 3.8840%, 2/15/16 (144A) | 1,381,836 | ||||||||
1,000,000 | Oxbow Resources LLC 4.9690%, 5/1/36 (144A) | 1,017,800 | ||||||||
701,000 | SLM Student Loan Trust 4.3700%, 4/17/28 (144A) | 711,827 | ||||||||
807,000 | SLM Student Loan Trust 2.7783%, 1/15/43 (144A),‡ | 772,639 | ||||||||
Total Asset-Backed/Commercial Mortgage-Backed Securities (cost $21,359,976) | 21,395,239 | |||||||||
Bank Loans – 0.3% | ||||||||||
Auction House – Art Dealer – 0.1% | ||||||||||
1,211,910 | KAR Auction Services, Inc. 5.0000%, 5/19/17‡ | 1,193,223 | ||||||||
Electric – Generation – 0.1% | ||||||||||
1,265,437 | AES Corp. 4.2500%, 6/1/18‡ | 1,259,591 | ||||||||
Food – Miscellaneous/Diversified – 0.1% | ||||||||||
2,267,914 | Del Monte Foods Co. 4.5000%, 3/8/18‡ | 2,148,849 | ||||||||
Telecommunication Equipment – 0% | ||||||||||
812,858 | CommScope, Inc. 5.0000%, 1/14/18‡ | 805,135 | ||||||||
Total Bank Loans (cost $5,538,195) | 5,406,798 | |||||||||
Common Stock – 54.3% | ||||||||||
Aerospace and Defense – 1.4% | ||||||||||
318,275 | Boeing Co. | 23,345,471 | ||||||||
Agricultural Chemicals – 1.0% | ||||||||||
112,350 | Mosaic Co. | 5,665,811 | ||||||||
178,014 | Syngenta A.G. (ADR) | 10,492,145 | ||||||||
16,157,956 | ||||||||||
Apparel Manufacturers – 0.7% | ||||||||||
176,055 | Coach, Inc. | 10,746,397 | ||||||||
Athletic Footwear – 1.3% | ||||||||||
209,579 | NIKE, Inc. – Class B | 20,197,128 | ||||||||
Automotive – Cars and Light Trucks – 0.4% | ||||||||||
158,600 | Daimler A.G. | 6,956,196 | ||||||||
Beverages – Wine and Spirits – 0.3% | ||||||||||
56,820 | Brown-Forman Corp. – Class B | 4,574,578 | ||||||||
Cable/Satellite Television – 2.1% | ||||||||||
244,638 | DIRECTV – Class A* | 10,460,721 | ||||||||
365,160 | Time Warner Cable, Inc. – Class A | 23,213,221 | ||||||||
33,673,942 | ||||||||||
Casino Hotels – 1.4% | ||||||||||
310,270 | Las Vegas Sands Corp.* | 13,257,837 | ||||||||
965,140 | MGM Mirage* | 10,066,410 | ||||||||
23,324,247 | ||||||||||
Chemicals – Diversified – 2.1% | ||||||||||
556,045 | E.I. du Pont de Nemours & Co. | 25,455,740 | ||||||||
254,650 | LyondellBasell Industries N.V. | 8,273,579 | ||||||||
33,729,319 | ||||||||||
Commercial Banks – 2.6% | ||||||||||
499,605 | CIT Group, Inc.* | 17,421,226 | ||||||||
147,200 | ICICI Bank, Ltd. (ADR) | 3,890,496 | ||||||||
393,805 | Itau Unibanco Holding S.A. (ADR) | 7,309,021 | ||||||||
588,227 | Standard Chartered PLC** | 12,868,950 | ||||||||
41,489,693 | ||||||||||
Commercial Services – Finance – 1.7% | ||||||||||
42,470 | MasterCard, Inc. – Class A | 15,833,665 | ||||||||
614,461 | Western Union Co. | 11,220,058 | ||||||||
27,053,723 | ||||||||||
Computer Services – 0.6% | ||||||||||
150,980 | Cognizant Technology Solutions Corp.* | 9,709,524 | ||||||||
Computers – 1.9% | ||||||||||
76,181 | Apple, Inc.* | 30,853,305 | ||||||||
Computers – Integrated Systems – 0.5% | ||||||||||
176,275 | Teradata Corp.* | 8,551,100 | ||||||||
Computers – Memory Devices – 0.8% | ||||||||||
352,250 | NetApp, Inc.* | 12,776,108 | ||||||||
Cosmetics and Toiletries – 0.5% | ||||||||||
66,220 | Estee Lauder Cos., Inc. – Class A | 7,437,830 | ||||||||
Diversified Banking Institutions – 0.6% | ||||||||||
590,941 | Morgan Stanley | 8,940,937 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 11
Janus Aspen Balanced Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
E-Commerce/Products – 1.2% | ||||||||||
663,404 | eBay, Inc.* | $ | 20,121,043 | |||||||
Electronic Components – Miscellaneous – 1.0% | ||||||||||
516,135 | TE Connectivity, Ltd. (U.S. Shares) | 15,902,119 | ||||||||
Electronic Components – Semiconductors – 0.1% | ||||||||||
233,535 | ON Semiconductor Corp.* | 1,802,890 | ||||||||
Electronic Connectors – 0.5% | ||||||||||
178,563 | Amphenol Corp. – Class A | 8,104,975 | ||||||||
Enterprise Software/Services – 1.7% | ||||||||||
1,070,715 | Oracle Corp. | 27,463,840 | ||||||||
Finance – Other Services – 0.9% | ||||||||||
555,127 | NYSE Euronext | 14,488,815 | ||||||||
Food – Confectionary – 0.6% | ||||||||||
163,705 | Hershey Co. | 10,113,695 | ||||||||
Investment Management and Advisory Services – 0.8% | ||||||||||
939,125 | Blackstone Group L.P. | 13,157,141 | ||||||||
Life and Health Insurance – 0.3% | ||||||||||
573,199 | Prudential PLC** | 5,682,684 | ||||||||
Machinery – General Industrial – 0.3% | ||||||||||
49,050 | Roper Industries, Inc. | 4,260,974 | ||||||||
Medical – Biomedical and Genetic – 1.5% | ||||||||||
245,768 | Celgene Corp.* | 16,613,917 | ||||||||
196,680 | Gilead Sciences, Inc.* | 8,050,112 | ||||||||
24,664,029 | ||||||||||
Medical – Drugs – 4.2% | ||||||||||
94,465 | Allergan, Inc. | 8,288,359 | ||||||||
490,274 | Bristol-Myers Squibb Co. | 17,277,256 | ||||||||
201,830 | Endo Pharmaceuticals Holdings, Inc.* | 6,969,190 | ||||||||
659,980 | Pfizer, Inc. | 14,281,967 | ||||||||
128,110 | Shire PLC (ADR)** | 13,310,629 | ||||||||
164,078 | Valeant Pharmaceuticals International, Inc. | 7,660,802 | ||||||||
67,788,203 | ||||||||||
Medical – Generic Drugs – 1.0% | ||||||||||
753,895 | Mylan, Inc.* | 16,178,587 | ||||||||
Metal – Copper – 0.7% | ||||||||||
294,393 | Freeport-McMoRan Copper & Gold, Inc. – Class B | 10,830,718 | ||||||||
Metal Processors and Fabricators – 0.4% | ||||||||||
35,775 | Precision Castparts Corp. | 5,895,362 | ||||||||
Multimedia – 0.5% | ||||||||||
163,095 | Viacom, Inc. – Class B | 7,406,144 | ||||||||
Oil – Field Services – 0.3% | ||||||||||
87,625 | Baker Hughes, Inc. | 4,262,080 | ||||||||
Oil Companies – Exploration and Production – 1.7% | ||||||||||
394,530 | Canadian Natural Resources, Ltd. | 14,743,586 | ||||||||
127,158 | Occidental Petroleum Corp. | 11,914,705 | ||||||||
26,658,291 | ||||||||||
Oil Companies – Integrated – 3.0% | ||||||||||
229,205 | Chevron Corp. | 24,387,412 | ||||||||
345,585 | Hess Corp. | 19,629,228 | ||||||||
163,670 | Petroleo Brasileiro S.A. (ADR) | 4,067,199 | ||||||||
48,083,839 | ||||||||||
Pharmacy Services – 1.0% | ||||||||||
345,005 | Express Scripts, Inc. – Class A* | 15,418,273 | ||||||||
Pipelines – 0.9% | ||||||||||
323,765 | Enterprise Products Partners L.P. | 15,016,221 | ||||||||
Retail – Auto Parts – 0.6% | ||||||||||
28,555 | AutoZone, Inc.* | 9,279,518 | ||||||||
Retail – Discount – 0.7% | ||||||||||
130,505 | Costco Wholesale Corp. | 10,873,677 | ||||||||
Retail – Major Department Stores – 0.5% | ||||||||||
171,630 | Nordstrom, Inc. | 8,531,727 | ||||||||
Retail – Restaurants – 0.9% | ||||||||||
143,735 | McDonald’s Corp. | 14,420,933 | ||||||||
Super-Regional Banks – 1.1% | ||||||||||
674,115 | U.S. Bancorp. | 18,234,811 | ||||||||
Telephone – Integrated – 0.7% | ||||||||||
292,054 | CenturyLink, Inc. | 10,864,409 | ||||||||
Television – 1.6% | ||||||||||
945,261 | CBS Corp. – Class B | 25,654,384 | ||||||||
Tobacco – 2.5% | ||||||||||
460,350 | Altria Group, Inc. | 13,649,378 | ||||||||
339,830 | Philip Morris International, Inc.** | 26,669,858 | ||||||||
40,319,236 | ||||||||||
Toys – 1.1% | ||||||||||
621,075 | Mattel, Inc. | 17,241,042 | ||||||||
Transportation – Railroad – 2.1% | ||||||||||
97,402 | Canadian National Railway Co. (U.S. Shares) | 7,651,901 | ||||||||
242,933 | Union Pacific Corp. | 25,736,322 | ||||||||
33,388,223 | ||||||||||
Total Common Stock (cost $736,589,935) | 871,625,337 | |||||||||
Corporate Bonds – 31.4% | ||||||||||
Advertising Services – 0.2% | ||||||||||
$1,493,000 | WPP Finance UK 8.0000%, 9/15/14** | 1,663,066 | ||||||||
1,072,000 | WPP Finance UK 4.7500%, 11/21/21 (144A),** | 1,064,190 | ||||||||
2,727,256 | ||||||||||
Aerospace and Defense – Equipment – 0.3% | ||||||||||
2,619,000 | Exelis, Inc. 4.2500%, 10/1/16 (144A) | 2,642,571 | ||||||||
2,735,000 | Exelis, Inc. 5.5500%, 10/1/21 (144A) | 2,855,395 | ||||||||
5,497,966 | ||||||||||
Agricultural Chemicals – 0.5% | ||||||||||
3,965,000 | CF Industries, Inc. 6.8750%, 5/1/18 | 4,539,925 | ||||||||
1,498,000 | CF Industries, Inc. 7.1250%, 5/1/20 | 1,771,385 | ||||||||
1,020,000 | Incitec Pivot, Ltd. 4.0000%, 12/7/15 (144A) | 1,040,858 | ||||||||
666,000 | Mosaic Co. 3.7500%, 11/15/21 | 672,922 | ||||||||
672,000 | Mosaic Co. 4.8750%, 11/15/41 | 694,660 | ||||||||
8,719,750 |
See Notes to Schedule of Investments and Financial Statements.
12 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Airlines – 0.1% | ||||||||||
$1,807,000 | Southwest Airlines Co. 5.1250%, 3/1/17 | $ | 1,904,426 | |||||||
Apparel Manufacturers – 0.1% | ||||||||||
899,000 | Hanesbrands, Inc. 4.1455%, 12/15/14‡ | 894,505 | ||||||||
Beverages – Non-Alcoholic – 0.3% | ||||||||||
3,930,000 | Coca-Cola Co. 1.5000%, 11/15/15 | 3,983,613 | ||||||||
Beverages – Wine and Spirits – 0.9% | ||||||||||
9,472,000 | Pernod-Ricard S.A. 5.7500%, 4/7/21 (144A) | 10,686,320 | ||||||||
4,004,000 | Pernod-Ricard S.A. 4.4500%, 1/15/22 (144A) | 4,194,530 | ||||||||
14,880,850 | ||||||||||
Brewery – 0.1% | ||||||||||
2,154,000 | Anheuser-Busch InBev Worldwide, Inc. 1.5000%, 7/14/14 | 2,169,395 | ||||||||
Building – Residential and Commercial – 0.1% | ||||||||||
1,302,000 | MDC Holdings, Inc. 5.3750%, 12/15/14 | 1,347,174 | ||||||||
Building Products – Cement and Aggregate – 0.2% | ||||||||||
374,000 | CRH America, Inc. 4.1250%, 1/15/16 | 373,404 | ||||||||
398,000 | CRH America, Inc. 5.7500%, 1/15/21 | 405,765 | ||||||||
2,334,000 | Hanson, Ltd. 6.1250%, 8/15/16** | 2,369,010 | ||||||||
3,148,179 | ||||||||||
Cable/Satellite Television – 0.1% | ||||||||||
1,808,000 | Comcast Corp. 5.1500%, 3/1/20 | 2,056,115 | ||||||||
Chemicals – Diversified – 0.6% | ||||||||||
2,936,000 | Lyondell Chemical Co. 8.0000%, 11/1/17 | 3,207,580 | ||||||||
2,011,742 | Lyondell Chemical Co. 11.0000%, 5/1/18 | 2,197,828 | ||||||||
3,867,000 | LyondellBasell Industries N.V. 6.0000%, 11/15/21 (144A) | 4,012,013 | ||||||||
9,417,421 | ||||||||||
Chemicals – Specialty – 0.6% | ||||||||||
1,820,000 | Ashland, Inc. 9.1250%, 6/1/17 | 2,029,300 | ||||||||
3,250,000 | Ecolab, Inc. 3.0000%, 12/8/16 | 3,361,832 | ||||||||
2,743,000 | Ecolab, Inc. 4.3500%, 12/8/21 | 2,929,220 | ||||||||
781,000 | Ecolab, Inc. 5.5000%, 12/8/41 | 865,459 | ||||||||
9,185,811 | ||||||||||
Coatings and Paint Products – 0.3% | ||||||||||
2,702,000 | RPM International, Inc. 6.1250%, 10/15/19 | 2,936,877 | ||||||||
2,163,000 | Sherwin-Williams Co. 3.1250%, 12/15/14 | 2,279,211 | ||||||||
5,216,088 | ||||||||||
Commercial Banks – 1.8% | ||||||||||
861,000 | Abbey National Treasury Services PLC 2.0022%, 4/25/14**,‡ | 783,840 | ||||||||
5,121,000 | American Express Bank FSB 5.5000%, 4/16/13 | 5,352,741 | ||||||||
6,628,000 | Bank of Montreal 2.6250%, 1/25/16 (144A) | 6,841,859 | ||||||||
2,963,000 | CIT Group, Inc. 5.2500%, 4/1/14 (144A) | 2,951,889 | ||||||||
2,273,000 | Credit Suisse New York 5.0000%, 5/15/13 | 2,331,659 | ||||||||
2,225,000 | HSBC Bank USA 4.8750%, 8/24/20 | 2,064,658 | ||||||||
2,462,000 | Standard Chartered PLC 3.2000%, 5/12/16 (144A),** | 2,409,138 | ||||||||
2,560,000 | SVB Financial Group 5.3750%, 9/15/20 | 2,622,666 | ||||||||
2,796,000 | Zions Bancorp. 7.7500%, 9/23/14 | 2,964,571 | ||||||||
28,323,021 | ||||||||||
Commercial Services – Finance – 0.1% | ||||||||||
1,958,000 | Western Union Co. 3.6500%, 8/22/18 | 2,007,518 | ||||||||
Computer Services – 0.1% | ||||||||||
978,000 | International Business Machines Corp. 2.9000%, 11/1/21 | 1,008,165 | ||||||||
Computers – Memory Devices – 0.2% | ||||||||||
2,128,000 | Seagate Technology 10.0000%, 5/1/14 (144A) | 2,407,300 | ||||||||
Consulting Services – 0.6% | ||||||||||
1,622,000 | Verisk Analytics, Inc. 4.8750%, 1/15/19 | 1,636,436 | ||||||||
7,806,000 | Verisk Analytics, Inc. 5.8000%, 5/1/21 | 8,403,112 | ||||||||
10,039,548 | ||||||||||
Containers – Paper and Plastic – 0.1% | ||||||||||
659,000 | Sonoco Products Co. 4.3750%, 11/1/21 | 682,574 | ||||||||
1,145,000 | Sonoco Products Co. 5.7500%, 11/1/40 | 1,223,425 | ||||||||
1,905,999 | ||||||||||
Data Processing and Management – 0.2% | ||||||||||
1,666,000 | Fiserv, Inc. 3.1250%, 10/1/15 | 1,706,654 | ||||||||
816,000 | Fiserv, Inc. 3.1250%, 6/15/16 | 830,846 | ||||||||
816,000 | Fiserv, Inc. 4.7500%, 6/15/21 | 853,729 | ||||||||
3,391,229 | ||||||||||
Diversified Banking Institutions – 1.9% | ||||||||||
3,225,000 | Bank of America Corp. 4.5000%, 4/1/15 | 3,112,080 | ||||||||
1,730,000 | Citigroup, Inc. 5.6250%, 8/27/12 | 1,756,128 | ||||||||
819,000 | Citigroup, Inc. 5.5000%, 4/11/13 | 836,136 | ||||||||
5,295,000 | Citigroup, Inc. 5.0000%, 9/15/14 | 5,240,504 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 13
Janus Aspen Balanced Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Diversified Banking Institutions – (continued) | ||||||||||
$1,000,000 | Citigroup, Inc. 4.8750%, 5/7/15 | $ | 987,732 | |||||||
690,000 | Citigroup, Inc. 4.5000%, 1/14/22 | 663,796 | ||||||||
664,000 | Goldman Sachs Group, Inc. 3.7000%, 8/1/15 | 650,523 | ||||||||
2,028,000 | Goldman Sachs Group, Inc. 3.6250%, 2/7/16 | 1,959,500 | ||||||||
1,608,000 | Goldman Sachs Group, Inc. 5.2500%, 7/27/21 | 1,568,668 | ||||||||
2,400,000 | JPMorgan Chase & Co. 6.0000%, 1/15/18 | 2,677,630 | ||||||||
2,299,000 | JPMorgan Chase & Co. 4.2500%, 10/15/20 | 2,315,146 | ||||||||
833,000 | Morgan Stanley 5.3000%, 3/1/13 | 843,196 | ||||||||
1,044,000 | Morgan Stanley 4.0000%, 7/24/15 | 979,013 | ||||||||
1,200,000 | Morgan Stanley 3.4500%, 11/2/15 | 1,104,829 | ||||||||
3,469,000 | Morgan Stanley 5.6250%, 9/23/19 | 3,212,568 | ||||||||
803,000 | Royal Bank of Scotland PLC 3.9500%, 9/21/15** | 752,976 | ||||||||
2,338,000 | Royal Bank of Scotland PLC 4.3750%, 3/16/16** | 2,230,436 | ||||||||
30,890,861 | ||||||||||
Diversified Financial Services – 1.1% | ||||||||||
1,104,000 | General Electric Capital Corp. 4.8000%, 5/1/13 | 1,155,758 | ||||||||
1,580,000 | General Electric Capital Corp. 5.9000%, 5/13/14 | 1,730,340 | ||||||||
5,971,000 | General Electric Capital Corp. 6.0000%, 8/7/19 | 6,858,458 | ||||||||
4,409,000 | General Electric Capital Corp. 5.5000%, 1/8/20 | 4,851,187 | ||||||||
2,682,000 | General Electric Capital Corp. 4.6500%, 10/17/21 | 2,799,115 | ||||||||
17,394,858 | ||||||||||
Diversified Minerals – 0.3% | ||||||||||
985,000 | Teck Resources, Ltd. 7.0000%, 9/15/12 | 1,022,475 | ||||||||
870,000 | Teck Resources, Ltd. 9.7500%, 5/15/14 | 1,022,397 | ||||||||
2,150,000 | Teck Resources, Ltd. 10.2500%, 5/15/16 | 2,472,500 | ||||||||
4,517,372 | ||||||||||
Diversified Operations – 0.4% | ||||||||||
1,373,000 | Danaher Corp. 2.3000%, 6/23/16 | 1,427,080 | ||||||||
4,261,000 | Tyco Electronics Group S.A. 6.0000%, 10/1/12 | 4,410,514 | ||||||||
541,000 | Tyco International Finance S.A. 4.1250%, 10/15/14 | 576,593 | ||||||||
6,414,187 | ||||||||||
Diversified Operations – Commercial Services – 0.1% | ||||||||||
1,650,000 | ARAMARK Corp. 8.5000%, 2/1/15 | 1,691,250 | ||||||||
Electric – Generation – 0% | ||||||||||
531,000 | AES Corp. 7.7500%, 10/15/15 | 577,462 | ||||||||
Electric – Integrated – 1.5% | ||||||||||
1,314,000 | CMS Energy Corp. 1.3531%, 1/15/13‡ | 1,300,860 | ||||||||
2,507,000 | CMS Energy Corp. 4.2500%, 9/30/15 | 2,533,820 | ||||||||
1,884,000 | CMS Energy Corp. 5.0500%, 2/15/18 | 1,879,294 | ||||||||
788,000 | Florida Power Corp. 3.1000%, 8/15/21 | 806,252 | ||||||||
1,675,000 | Great Plains Energy, Inc. 4.8500%, 6/1/21 | 1,755,784 | ||||||||
339,000 | Pacific Gas & Electric Co. 3.2500%, 9/15/21 | 343,988 | ||||||||
6,436,000 | PPL Energy Supply LLC 4.6000%, 12/15/21 | 6,526,741 | ||||||||
1,152,000 | PPL WEM Holdings PLC 3.9000%, 5/1/16 (144A),** | 1,154,773 | ||||||||
1,564,000 | Public Service Co. of Colorado 3.2000%, 11/15/20 | 1,622,367 | ||||||||
336,000 | San Diego Gas & Electric Co. 3.0000%, 8/15/21 | 345,543 | ||||||||
1,870,000 | Virginia Electric and Power Co. 5.1000%, 11/30/12 | 1,942,376 | ||||||||
671,000 | Wisconsin Electric Power Co. 2.9500%, 9/15/21 | 683,888 | ||||||||
2,796,000 | Xcel Energy, Inc. 4.7000%, 5/15/20 | 3,151,153 | ||||||||
24,046,839 | ||||||||||
Electronic Components – Semiconductors – 0.7% | ||||||||||
2,754,000 | National Semiconductor Corp. 6.1500%, 6/15/12 | 2,821,506 | ||||||||
4,281,000 | National Semiconductor Corp. 3.9500%, 4/15/15 | 4,624,315 | ||||||||
2,523,000 | National Semiconductor Corp. 6.6000%, 6/15/17 | 3,098,928 | ||||||||
1,311,000 | Texas Instruments, Inc. 2.3750%, 5/16/16 | 1,365,630 | ||||||||
11,910,379 | ||||||||||
Electronic Connectors – 0.3% | ||||||||||
3,892,000 | Amphenol Corp. 4.7500%, 11/15/14 | 4,170,161 | ||||||||
Electronic Measuring Instruments – 0.2% | ||||||||||
823,000 | Agilent Technologies, Inc. 2.5000%, 7/15/13 | 830,773 | ||||||||
2,065,000 | FLIR Systems, Inc. 3.7500%, 9/1/16 | 2,057,221 | ||||||||
2,887,994 | ||||||||||
Electronics – Military – 0.4% | ||||||||||
3,565,000 | L-3 Communications Corp. 6.3750%, 10/15/15 | 3,654,125 | ||||||||
883,000 | L-3 Communications Corp. 5.2000%, 10/15/19 | 895,733 | ||||||||
2,571,000 | L-3 Communications Corp. 4.7500%, 7/15/20 | 2,540,276 | ||||||||
7,090,134 |
See Notes to Schedule of Investments and Financial Statements.
14 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Enterprise Software/Services – 0.2% | ||||||||||
$2,025,000 | BMC Software, Inc. 7.2500%, 6/1/18 | $ | 2,335,212 | |||||||
Finance – Auto Loans – 0.9% | ||||||||||
1,646,000 | Ford Motor Credit Co. LLC 7.5000%, 8/1/12 | 1,698,868 | ||||||||
1,346,000 | Ford Motor Credit Co. LLC 8.0000%, 6/1/14 | 1,465,077 | ||||||||
5,961,000 | Ford Motor Credit Co. LLC 3.8750%, 1/15/15 | 5,938,753 | ||||||||
2,084,000 | Ford Motor Credit Co. LLC 6.6250%, 8/15/17 | 2,268,557 | ||||||||
2,616,000 | Ford Motor Credit Co. LLC 5.0000%, 5/15/18 | 2,622,783 | ||||||||
13,994,038 | ||||||||||
Finance – Consumer Loans – 0.2% | ||||||||||
690,000 | John Deere Capital Corp. 3.9000%, 7/12/21 | 751,066 | ||||||||
3,256,000 | SLM Corp. 6.2500%, 1/25/16 | 3,166,391 | ||||||||
3,917,457 | ||||||||||
Finance – Credit Card – 0.2% | ||||||||||
2,698,000 | American Express Co. 6.8000%, 9/1/66‡ | 2,684,510 | ||||||||
Finance – Investment Bankers/Brokers – 1.0% | ||||||||||
1,581,000 | Jefferies Group, Inc. 3.8750%, 11/9/15 | 1,399,185 | ||||||||
2,887,000 | Jefferies Group, Inc. 5.1250%, 4/13/18 | 2,540,560 | ||||||||
2,790,000 | Jefferies Group, Inc. 8.5000%, 7/15/19 | 2,831,850 | ||||||||
1,874,000 | Lazard Group LLC 7.1250%, 5/15/15 | 2,012,275 | ||||||||
453,000 | Lazard Group LLC 6.8500%, 6/15/17 | 475,184 | ||||||||
2,746,000 | Raymond James Financial, Inc. 4.2500%, 4/15/16 | 2,805,371 | ||||||||
2,098,000 | TD Ameritrade Holding Corp. 4.1500%, 12/1/14 | 2,217,353 | ||||||||
1,191,000 | TD Ameritrade Holding Corp. 5.6000%, 12/1/19 | 1,287,767 | ||||||||
15,569,545 | ||||||||||
Finance – Mortgage Loan Banker – 0.2% | ||||||||||
2,957,000 | Northern Rock Asset Management PLC 5.6250%, 6/22/17 (144A),** | 3,109,285 | ||||||||
Food – Meat Products – 0.5% | ||||||||||
74,000 | Smithfield Foods, Inc. 7.7500%, 5/15/13 | 78,440 | ||||||||
6,467,000 | Tyson Foods, Inc. 6.8500%, 4/1/16 | 7,097,532 | ||||||||
7,175,972 | ||||||||||
Food – Miscellaneous/Diversified – 0.4% | ||||||||||
2,065,000 | Corn Products International, Inc. 3.2000%, 11/1/15 | 2,133,556 | ||||||||
301,000 | Del Monte Corp. 7.6250%, 2/15/19 | 288,960 | ||||||||
410,000 | Kellogg Co. 4.2500%, 3/6/13 | 425,726 | ||||||||
1,642,000 | Kellogg Co. 3.2500%, 5/21/18 | 1,726,771 | ||||||||
1,998,000 | Kraft Foods, Inc. 5.3750%, 2/10/20 | 2,305,394 | ||||||||
6,880,407 | ||||||||||
Food – Retail – 0.1% | ||||||||||
1,831,000 | Delhaize Group 5.8750%, 2/1/14 | 1,987,316 | ||||||||
Hotels and Motels – 0.1% | ||||||||||
1,202,000 | Hyatt Hotels Corp. 5.7500%, 8/15/15 (144A) | 1,287,189 | ||||||||
443,000 | Starwood Hotels & Resorts Worldwide, Inc. 6.7500%, 5/15/18 | 500,590 | ||||||||
1,787,779 | ||||||||||
Investment Management and Advisory Services – 0.4% | ||||||||||
944,000 | Ameriprise Financial, Inc. 7.3000%, 6/28/19 | 1,132,058 | ||||||||
777,000 | Ameriprise Financial, Inc. 5.3000%, 3/15/20 | 836,099 | ||||||||
3,436,000 | Ameriprise Financial, Inc. 7.5180%, 6/1/66‡ | 3,461,770 | ||||||||
1,575,000 | FMR LLC 6.4500%, 11/15/39 (144A) | 1,689,463 | ||||||||
7,119,390 | ||||||||||
Life and Health Insurance – 0% | ||||||||||
542,000 | Prudential Financial, Inc. 4.7500%, 6/13/15 | 573,005 | ||||||||
Linen Supply & Related Items – 0.2% | ||||||||||
1,157,000 | Cintas Corp. No. 2 2.8500%, 6/1/16 | 1,186,553 | ||||||||
1,211,000 | Cintas Corp. No. 2 4.3000%, 6/1/21 | 1,300,825 | ||||||||
2,487,378 | ||||||||||
Medical – Biomedical and Genetic – 0.2% | ||||||||||
432,000 | Bio-Rad Laboratories, Inc. 8.0000%, 9/15/16 | 473,040 | ||||||||
1,624,000 | Gilead Sciences, Inc. 4.4000%, 12/1/21 | 1,719,316 | ||||||||
1,333,000 | Gilead Sciences, Inc. 5.6500%, 12/1/41 | 1,475,848 | ||||||||
3,668,204 | ||||||||||
Medical – HMO – 0% | ||||||||||
344,000 | Health Care Service Corp. 4.7000%, 1/15/21 (144A) | 369,571 | ||||||||
Medical Instruments – 0.4% | ||||||||||
1,159,000 | Boston Scientific Corp. 4.5000%, 1/15/15 | 1,216,270 | ||||||||
2,452,000 | Boston Scientific Corp. 6.0000%, 1/15/20 | 2,737,263 | ||||||||
1,657,000 | Boston Scientific Corp. 7.0000%, 11/15/35 | 1,908,756 | ||||||||
5,862,289 | ||||||||||
Medical Products – 0.1% | ||||||||||
1,689,000 | CareFusion Corp. 4.1250%, 8/1/12 | 1,714,663 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 15
Janus Aspen Balanced Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Money Center Banks – 0.2% | ||||||||||
$3,573,000 | Lloyds TSB Bank PLC 4.8750%, 1/21/16** | $ | 3,482,189 | |||||||
Multi-Line Insurance – 1.0% | ||||||||||
3,167,000 | American International Group, Inc. 4.2500%, 9/15/14 | 3,075,562 | ||||||||
1,726,000 | American International Group, Inc. 5.4500%, 5/18/17 | 1,649,435 | ||||||||
3,356,000 | American International Group, Inc. 6.4000%, 12/15/20 | 3,386,976 | ||||||||
3,400,000 | American International Group, Inc. 8.1750%, 5/15/58‡ | 3,026,000 | ||||||||
1,967,000 | MetLife, Inc. 2.3750%, 2/6/14 | 1,994,446 | ||||||||
1,033,000 | MetLife, Inc. 6.7500%, 6/1/16 | 1,190,055 | ||||||||
1,176,000 | MetLife, Inc. 7.7170%, 2/15/19 | 1,474,640 | ||||||||
15,797,114 | ||||||||||
Oil – Field Services – 0.6% | ||||||||||
1,606,000 | Korea National Oil Corp. 4.0000%, 10/27/16 (144A) | 1,649,258 | ||||||||
3,274,000 | Schlumberger Investment S.A. 1.9500%, 9/14/16 (144A) | 3,312,525 | ||||||||
3,123,000 | Schlumberger Investment S.A. 3.3000%, 9/14/21 (144A) | 3,208,374 | ||||||||
1,637,000 | Weatherford International, Ltd. 5.1250%, 9/15/20 | 1,701,134 | ||||||||
9,871,291 | ||||||||||
Oil and Gas Drilling – 0.4% | ||||||||||
4,629,000 | Nabors Industries, Inc. 5.0000%, 9/15/20 | 4,719,270 | ||||||||
1,289,000 | Rowan Cos., Inc. 5.0000%, 9/1/17 | 1,354,427 | ||||||||
6,073,697 | ||||||||||
Oil Companies – Exploration and Production – 0.5% | ||||||||||
3,470,000 | Anadarko Petroleum Corp. 6.4500%, 9/15/36 | 3,956,150 | ||||||||
1,362,000 | Occidental Petroleum Corp. 1.7500%, 2/15/17 | 1,379,502 | ||||||||
777,000 | Occidental Petroleum Corp. 3.1250%, 2/15/22 | 797,082 | ||||||||
358,000 | Petrohawk Energy Corp. 7.2500%, 8/15/18 | 402,750 | ||||||||
1,972,000 | Petrohawk Energy Corp. 6.2500%, 6/1/19 | 2,169,200 | ||||||||
8,704,684 | ||||||||||
Oil Companies – Integrated – 0.6% | ||||||||||
3,409,000 | BP Capital Markets PLC 3.1250%, 10/1/15** | 3,570,665 | ||||||||
2,318,000 | BP Capital Markets PLC 2.2480%, 11/1/16** | 2,332,782 | ||||||||
1,542,000 | BP Capital Markets PLC 4.5000%, 10/1/20** | 1,698,314 | ||||||||
1,608,000 | BP Capital Markets PLC 3.5610%, 11/1/21** | 1,674,063 | ||||||||
9,275,824 | ||||||||||
Oil Refining and Marketing – 0.3% | ||||||||||
164,000 | Frontier Oil Corp. 8.5000%, 9/15/16 | 174,660 | ||||||||
1,871,000 | Motiva Enterprises LLC 5.7500%, 1/15/20 (144A) | 2,174,422 | ||||||||
572,000 | Sunoco Logistics Partners Operations L.P. 4.6500%, 2/15/22 | 584,809 | ||||||||
1,301,000 | Sunoco Logistics Partners Operations L.P. 6.1000%, 2/15/42 | 1,392,254 | ||||||||
4,326,145 | ||||||||||
Paper and Related Products – 0.3% | ||||||||||
925,000 | International Paper Co. 4.7500%, 2/15/22 | 983,231 | ||||||||
2,842,000 | International Paper Co. 6.0000%, 11/15/41 | 3,085,312 | ||||||||
4,068,543 | ||||||||||
Pharmacy Services – 0.4% | ||||||||||
4,212,000 | Aristotle Holding, Inc. 4.7500%, 11/15/21 (144A) | 4,358,455 | ||||||||
1,460,000 | Express Scripts, Inc. 3.1250%, 5/15/16 | 1,468,093 | ||||||||
5,826,548 | ||||||||||
Pipelines – 1.8% | ||||||||||
912,000 | Colorado Interstate Gas Co. LLC 6.8500%, 6/15/37 | 1,004,318 | ||||||||
1,688,000 | DCP Midstream Operating L.P. 3.2500%, 10/1/15 | 1,703,496 | ||||||||
756,000 | El Paso Corp. 7.7500%, 1/15/32 | 873,180 | ||||||||
459,000 | El Paso Pipeline Partners Operating Co. LLC 6.5000%, 4/1/20 | 505,876 | ||||||||
1,318,000 | El Paso Pipeline Partners Operating Co. LLC 5.0000%, 10/1/21 | 1,356,504 | ||||||||
1,270,000 | Energy Transfer Partners L.P. 4.6500%, 6/1/21 | 1,244,087 | ||||||||
678,000 | Kinder Morgan Energy Partners L.P. 5.9500%, 2/15/18 | 774,577 | ||||||||
3,701,000 | Kinder Morgan Finance Co. ULC 5.7000%, 1/5/16 | 3,784,272 | ||||||||
2,500,000 | Magellan Midstream Partners L.P. 4.2500%, 2/1/21 | 2,620,252 | ||||||||
2,793,000 | Plains All American Pipeline L.P. 3.9500%, 9/15/15 | 2,957,614 | ||||||||
710,000 | Plains All American Pipeline L.P. 8.7500%, 5/1/19 | 907,021 | ||||||||
2,396,000 | Plains All American Pipeline L.P. 5.0000%, 2/1/21 | 2,639,429 | ||||||||
1,238,000 | TC Pipelines L.P. 4.6500%, 6/15/21 | 1,296,234 | ||||||||
5,940,000 | Western Gas Partners L.P. 5.3750%, 6/1/21 | 6,297,410 | ||||||||
910,000 | Williams Partners L.P. 3.8000%, 2/15/15 | 955,312 | ||||||||
28,919,582 |
See Notes to Schedule of Investments and Financial Statements.
16 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Property and Casualty Insurance – 0.1% | ||||||||||
$1,018,000 | Fidelity National Financial, Inc. 6.6000%, 5/15/17 | $ | 1,079,101 | |||||||
695,000 | Progressive Corp. 3.7500%, 8/23/21 | 722,188 | ||||||||
1,801,289 | ||||||||||
Publishing – Newspapers – 0% | ||||||||||
270,000 | Gannett Co., Inc. 6.3750%, 9/1/15 | 274,050 | ||||||||
Publishing – Periodicals – 0.2% | ||||||||||
2,693,000 | United Business Media, Ltd. 5.7500%, 11/3/20 (144A) | 2,716,311 | ||||||||
Real Estate Management/Services – 0.1% | ||||||||||
786,000 | CB Richard Ellis Services, Inc. 6.6250%, 10/15/20 | 805,650 | ||||||||
610,000 | ProLogis L.P. 6.6250%, 5/15/18 | 662,483 | ||||||||
662,000 | ProLogis L.P. 6.8750%, 3/15/20 | 735,035 | ||||||||
2,203,168 | ||||||||||
Real Estate Operating/Development – 0.1% | ||||||||||
1,639,000 | Post Apartment Homes L.P. 4.7500%, 10/15/17 | 1,662,213 | ||||||||
Reinsurance – 0.2% | ||||||||||
2,314,000 | Berkshire Hathaway, Inc. 3.2000%, 2/11/15 | 2,453,215 | ||||||||
REIT – Diversified – 0.4% | ||||||||||
2,063,000 | Goodman Funding Pty, Ltd. 6.3750%, 11/12/20 (144A) | 2,104,990 | ||||||||
4,279,000 | Goodman Funding Pty, Ltd. 6.3750%, 4/15/21 (144A) | 4,353,981 | ||||||||
6,458,971 | ||||||||||
REIT – Health Care – 0.3% | ||||||||||
998,000 | Senior Housing Properties Trust 6.7500%, 4/15/20 | 1,017,078 | ||||||||
1,308,000 | Senior Housing Properties Trust 6.7500%, 12/15/21 | 1,329,366 | ||||||||
73,000 | Ventas Realty L.P. / Ventas Capital Corp. 6.5000%, 6/1/16 | 75,260 | ||||||||
2,146,000 | Ventas Realty L.P. / Ventas Capital Corp. 6.7500%, 4/1/17 | 2,225,608 | ||||||||
4,647,312 | ||||||||||
REIT – Hotels – 0.2% | ||||||||||
2,909,000 | Host Hotels & Resorts L.P. 6.7500%, 6/1/16 | 2,988,997 | ||||||||
REIT – Office Property – 0.4% | ||||||||||
920,000 | Reckson Operating Partnership L.P. 6.0000%, 3/31/16 | 954,539 | ||||||||
1,956,000 | Reckson Operating Partnership L.P. 5.0000%, 8/15/18 | 1,889,326 | ||||||||
3,775,000 | Reckson Operating Partnership L.P. 7.7500%, 3/15/20 | 4,140,250 | ||||||||
6,984,115 | ||||||||||
REIT – Regional Malls – 0.7% | ||||||||||
6,982,000 | Rouse Co. L.P. 6.7500%, 5/1/13 (144A) | 7,043,092 | ||||||||
4,594,000 | Rouse Co. L.P. 6.7500%, 11/9/15 | 4,645,683 | ||||||||
11,688,775 | ||||||||||
REIT – Shopping Centers – 0% | ||||||||||
689,000 | Developers Diversified Realty Corp. 4.7500%, 4/15/18 | 659,240 | ||||||||
Retail – Regional Department Stores – 0.6% | ||||||||||
1,493,000 | Macy’s Retail Holdings, Inc. 5.8750%, 1/15/13 | 1,537,117 | ||||||||
3,126,000 | Macy’s Retail Holdings, Inc. 5.7500%, 7/15/14 | 3,325,148 | ||||||||
3,037,000 | Macy’s Retail Holdings, Inc. 5.9000%, 12/1/16 | 3,393,762 | ||||||||
1,346,000 | Macy’s Retail Holdings, Inc. 6.9000%, 4/1/29 | 1,480,385 | ||||||||
9,736,412 | ||||||||||
Retail – Restaurants – 0.4% | ||||||||||
2,810,000 | Brinker International 5.7500%, 6/1/14 | 2,963,895 | ||||||||
3,387,000 | Darden Restaurants, Inc. 4.5000%, 10/15/21 | 3,474,988 | ||||||||
6,438,883 | ||||||||||
Super-Regional Banks – 0.6% | ||||||||||
769,000 | PNC Funding Corp. 3.6250%, 2/8/15 | 807,772 | ||||||||
1,368,000 | SunTrust Banks, Inc. 3.6000%, 4/15/16 | 1,393,085 | ||||||||
2,227,000 | SunTrust Banks, Inc. 3.5000%, 1/20/17 | 2,238,482 | ||||||||
2,103,000 | US Bancorp 2.2000%, 11/15/16 | 2,123,206 | ||||||||
3,256,000 | Wells Fargo & Co. 4.6000%, 4/1/21 | 3,570,797 | ||||||||
10,133,342 | ||||||||||
Telecommunication Services – 0.2% | ||||||||||
2,954,000 | Qwest Corp. 6.7500%, 12/1/21 | 3,219,860 | ||||||||
Telephone – Integrated – 0.6% | ||||||||||
1,027,000 | CenturyLink, Inc. 5.1500%, 6/15/17 | 1,017,944 | ||||||||
841,000 | CenturyLink, Inc. 7.6000%, 9/15/39 | 825,244 | ||||||||
873,000 | Qwest Communications International, Inc. 7.5000%, 2/15/14 | 876,295 | ||||||||
6,264,000 | Qwest Communications International, Inc. 7.1250%, 4/1/18 | 6,514,560 | ||||||||
9,234,043 | ||||||||||
Transportation – Railroad – 0.5% | ||||||||||
641,000 | Burlington Northern Santa Fe LLC 3.4500%, 9/15/21 | 660,672 | ||||||||
641,000 | Burlington Northern Santa Fe LLC 4.9500%, 9/15/41 | 707,129 | ||||||||
1,228,163 | CSX Corp. 8.3750%, 10/15/14 | 1,398,436 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 17
Janus Aspen Balanced Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Transportation – Railroad – (continued) | ||||||||||
$1,234,000 | CSX Corp. 4.7500%, 5/30/42 | $ | 1,273,300 | |||||||
2,472,000 | Kansas City Southern de Mexico S.A. de C.V. 8.0000%, 2/1/18 | 2,706,840 | ||||||||
1,055,000 | Kansas City Southern de Mexico S.A. de C.V. 6.6250%, 12/15/20 | 1,118,300 | ||||||||
7,864,677 | ||||||||||
Transportation – Services – 0% | ||||||||||
457,000 | Asciano Finance, Ltd. 3.1250%, 9/23/15 (144A) | 441,939 | ||||||||
Transportation – Truck – 0.2% | ||||||||||
2,537,000 | JB Hunt Transport Services, Inc. 3.3750%, 9/15/15 | 2,571,052 | ||||||||
Total Corporate Bonds (cost $485,390,837) | 503,582,328 | |||||||||
Mortgage-Backed Securities – 6.8% | ||||||||||
Fannie Mae: | ||||||||||
717,770 | 5.0000%, 2/1/23 | 775,257 | ||||||||
1,303,871 | 5.5000%, 1/1/25 | 1,416,450 | ||||||||
693,499 | 5.5000%, 1/1/33 | 761,573 | ||||||||
713,408 | 5.0000%, 11/1/33 | 771,509 | ||||||||
1,334,801 | 5.0000%, 12/1/33 | 1,443,510 | ||||||||
759,023 | 5.0000%, 2/1/34 | 820,839 | ||||||||
2,321,207 | 5.5000%, 4/1/34 | 2,537,452 | ||||||||
4,030,731 | 5.5000%, 9/1/34 | 4,403,715 | ||||||||
1,523,924 | 5.5000%, 5/1/35 | 1,663,988 | ||||||||
9,309,843 | 5.5000%, 7/1/35 | 10,171,332 | ||||||||
3,813,911 | 6.0000%, 12/1/35 | 4,252,605 | ||||||||
7,747,447 | 5.5000%, 4/1/36 | 8,459,517 | ||||||||
4,407,739 | 5.5000%, 7/1/36 | 4,815,610 | ||||||||
1,178,449 | 6.0000%, 3/1/37 | 1,303,332 | ||||||||
6,182,669 | 5.5000%, 5/1/37 | 6,789,561 | ||||||||
1,167,657 | 6.0000%, 5/1/37 | 1,288,113 | ||||||||
1,054,413 | 5.5000%, 7/1/37 | 1,149,018 | ||||||||
1,029,784 | 5.5000%, 3/1/38 | 1,130,868 | ||||||||
1,659,857 | 6.0000%, 11/1/38 | 1,831,088 | ||||||||
3,026,498 | 6.0000%, 11/1/38 | 3,351,953 | ||||||||
874,975 | 4.5000%, 10/1/40 | 931,831 | ||||||||
641,076 | 4.0000%, 12/1/40 | 678,154 | ||||||||
13,476,774 | 4.0000%, 2/1/41 | 14,247,817 | ||||||||
785,451 | 5.0000%, 3/1/41 | 857,274 | ||||||||
2,319,194 | 4.5000%, 4/1/41 | 2,489,463 | ||||||||
1,595,299 | 5.0000%, 4/1/41 | 1,725,222 | ||||||||
2,006,196 | 5.0000%, 4/1/41 | 2,172,719 | ||||||||
2,117,142 | 4.5000%, 10/1/41 | 2,254,714 | ||||||||
1,368,620 | 5.0000%, 10/1/41 | 1,480,083 | ||||||||
Freddie Mac: | ||||||||||
1,274,228 | 5.0000%, 1/1/19 | 1,372,301 | ||||||||
877,390 | 5.0000%, 2/1/19 | 944,920 | ||||||||
1,176,873 | 5.5000%, 8/1/19 | 1,276,280 | ||||||||
3,163,702 | 6.0000%, 1/1/38 | 3,485,622 | ||||||||
817,297 | 5.5000%, 5/1/38 | 894,331 | ||||||||
2,172,990 | 5.5000%, 10/1/39 | 2,377,802 | ||||||||
1,768,646 | 4.5000%, 1/1/41 | 1,874,787 | ||||||||
2,352,210 | 4.5000%, 5/1/41 | 2,513,771 | ||||||||
4,053,973 | 5.0000%, 5/1/41 | 4,367,032 | ||||||||
492,826 | 4.5000%, 9/1/41 | 522,402 | ||||||||
1,068,794 | 4.0000%, 10/1/41 | 1,132,113 | ||||||||
Ginnie Mae: | ||||||||||
2,094,869 | 5.5000%, 3/15/36 | 2,364,692 | ||||||||
Total Mortgage-Backed Securities (cost $108,448,219) | 109,100,620 | |||||||||
Preferred Stock – 0.1% | ||||||||||
Diversified Financial Services – 0% | ||||||||||
20,005 | Citigroup Capital XIII, 7.8750% | 521,330 | ||||||||
Food – Miscellaneous/Diversified – 0.1% | ||||||||||
10 | H.J. Heinz Finance Co., 8.0000% (144A) | 1,041,875 | ||||||||
Total Preferred Stock (cost $1,501,250) | 1,563,205 | |||||||||
U.S. Treasury Notes/Bonds – 4.5% | ||||||||||
U.S. Treasury Notes/Bonds: | ||||||||||
$120,000 | 0.8750%, 11/30/16 | 120,366 | ||||||||
605,000 | 1.7500%, 10/31/18 | 622,677 | ||||||||
17,852,000 | 3.1250%, 5/15/21 | 19,932,865 | ||||||||
19,696,000 | 2.1250%, 8/15/21 | 20,200,710 | ||||||||
7,834,000 | 2.0000%, 11/15/21 | 7,923,354 | ||||||||
1,281,000 | 5.3750%, 2/15/31 | 1,825,825 | ||||||||
241,000 | 4.7500%, 2/15/41 | 332,128 | ||||||||
710,000 | 4.3750%, 5/15/41 | 925,108 | ||||||||
10,947,000 | 3.7500%, 8/15/41 | 12,874,701 | ||||||||
7,419,000 | 3.1250%, 11/15/41 | 7,772,560 | ||||||||
Total U.S. Treasury Notes/Bonds (cost $68,908,209) | 72,530,294 | |||||||||
Money Market – 0.6% | ||||||||||
9,523,293 | Janus Cash Liquidity Fund LLC, 0% (cost $9,523,293) | 9,523,293 | ||||||||
Total Investments (total cost $1,437,259,914) – 99.3% | 1,594,727,114 | |||||||||
Cash, Receivables and Other Assets, net of Liabilities – 0.7% | 11,926,889 | |||||||||
Net Assets – 100% | $ | 1,606,654,003 | ||||||||
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Australia | $ | 7,941,768 | 0.5% | |||||
Belgium | 1,987,316 | 0.1% | ||||||
Bermuda | 1,701,134 | 0.1% | ||||||
Brazil | 11,376,220 | 0.7% | ||||||
Canada | 45,199,792 | 2.8% | ||||||
Cayman Islands | 2,407,300 | 0.2% | ||||||
France | 14,880,850 | 0.9% | ||||||
Germany | 6,956,196 | 0.4% | ||||||
India | 3,890,496 | 0.3% | ||||||
Jersey | 13,310,629 | 0.8% | ||||||
Luxembourg | 11,508,006 | 0.7% | ||||||
Mexico | 3,825,140 | 0.3% | ||||||
Netherlands | 12,285,592 | 0.8% | ||||||
South Korea | 1,649,258 | 0.1% | ||||||
Switzerland | 28,725,923 | 1.8% | ||||||
United Kingdom | 46,846,361 | 2.9% | ||||||
United States†† | 1,380,235,133 | 86.6% | ||||||
Total | $ | 1,594,727,114 | 100.0% |
†† | Includes Cash Equivalents (86.0% excluding Cash Equivalents). |
See Notes to Schedule of Investments and Financial Statements.
18 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Forward Currency Contracts, Open
Currency Units | Currency | Unrealized | ||||||||||
Counterparty/Currency Sold and Settlement Date | Sold | Value U.S. $ | Appreciation | |||||||||
Credit Suisse Securities (USA) LLC: British Pound 1/19/12 | 2,520,000 | $ | 3,912,170 | $ | 45,163 | |||||||
HSBC Securities (USA), Inc.: British Pound 2/2/12 | 4,200,000 | 6,519,310 | 2,716 | |||||||||
JPMorgan Chase & Co.: British Pound 1/12/12 | 1,000,000 | 1,552,565 | 7,805 | |||||||||
RBC Capital Markets Corp.: British Pound 1/5/12 | 2,400,000 | 3,726,436 | 79,865 | |||||||||
Total | $ | 15,710,481 | $ | 135,549 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 19
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
As of December 31, 2011 | Balanced | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 1,437,260 | ||||||||
Unaffiliated investments at value | $ | 1,585,204 | ||||||||
Affiliated investments at value | 9,523 | |||||||||
Cash | 1,475 | |||||||||
Receivables: | ||||||||||
Investments sold | 4,252 | |||||||||
Portfolio shares sold | 254 | |||||||||
Dividends | 1,151 | |||||||||
Foreign dividend tax reclaim | 80 | |||||||||
Interest | 6,965 | |||||||||
Non-interested Trustees’ deferred compensation | 47 | |||||||||
Other assets | 39 | |||||||||
Forward currency contracts | 136 | |||||||||
Total Assets | 1,609,126 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Investments purchased | – | |||||||||
Portfolio shares repurchased | 1,350 | |||||||||
Dividends | – | |||||||||
Advisory fees | 746 | |||||||||
Fund administration fees | 14 | |||||||||
Distribution fees and shareholder servicing fees | 161 | |||||||||
Non-interested Trustees’ fees and expenses | 26 | |||||||||
Non-interested Trustees’ deferred compensation fees | 47 | |||||||||
Accrued expenses and other payables | 128 | |||||||||
Total Liabilities | 2,472 | |||||||||
Net Assets | $ | 1,606,654 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 1,381,230 | ||||||||
Undistributed net investment income* | 7,984 | |||||||||
Undistributed net realized gain from investment and foreign currency transactions* | 59,844 | |||||||||
Unrealized net appreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 157,596 | |||||||||
Total Net Assets | $ | 1,606,654 | ||||||||
Net Assets - Institutional Shares | $ | 843,446 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 31,681 | |||||||||
Net Asset Value Per Shares | $ | 26.62 | ||||||||
Net Assets - Service Shares | $ | 763,208 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 27,513 | |||||||||
Net Asset Value Per Share | $ | 27.74 |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
20 | DECEMBER 31, 2011
Statement of Operations
Janus Aspen | ||||||
For the fiscal year ended December 31, 2011 | Balanced | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | 32,572 | ||||
Dividends | 19,375 | |||||
Dividends from affiliates | 22 | |||||
Fee income | 11 | |||||
Foreign tax withheld | (469) | |||||
Total Investment Income | 51,511 | |||||
Expenses: | ||||||
Advisory fees | 9,224 | |||||
Shareholder reports expense | 77 | |||||
Transfer agent fees and expenses | 2 | |||||
Registration fees | 14 | |||||
Custodian fees | 14 | |||||
Professional fees | 66 | |||||
Non-interested Trustees’ fees and expenses | 55 | |||||
Fund administration fees | 81 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 1,926 | |||||
Other expenses | 75 | |||||
Non-recurring costs (Note 4) | 2 | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | (2) | |||||
Total Expenses | 11,534 | |||||
Expense and Fee Offset | – | |||||
Net Expenses | 11,534 | |||||
Net Investment Income | 39,977 | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 61,283 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (74,792) | |||||
Net Loss on Investments | (13,509) | |||||
Net Increase in Net Assets Resulting from Operations | $ | 26,468 |
See Notes to Financial Statements.
Janus Aspen Series | 21
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Balanced | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment income | $ | 39,977 | $ | 44,215 | ||||||
Net realized gain from investment and foreign currency transactions(1) | 61,283 | 107,519 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (74,792) | (18,602) | ||||||||
Net Increase in Net Assets Resulting from Operations | 26,468 | 133,132 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | (21,822) | (26,865) | ||||||||
Service Shares | (16,853) | (18,312) | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | (47,125) | – | ||||||||
Service Shares | (38,544) | – | ||||||||
Net Decrease from Dividends and Distributions | (124,344) | (45,177) | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 28,932 | 25,642 | ||||||||
Service Shares | 136,359 | 145,979 | ||||||||
Reinvested Dividends and Distributions | ||||||||||
Institutional Shares | 68,947 | 26,865 | ||||||||
Service Shares | 55,397 | 18,312 | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (157,227) | (167,272) | ||||||||
Service Shares | (148,066) | (103,692) | ||||||||
Net Decrease from Capital Share Transactions | (15,658) | (54,166) | ||||||||
Net Increase/(Decrease) in Net Assets | (113,534) | 33,789 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 1,720,188 | 1,686,399 | ||||||||
End of period | $ | 1,606,654 | $ | 1,720,188 | ||||||
Undistributed Net Investment Income* | $ | 7,984 | $ | 7,216 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Certain prior year amounts have been reclassified to conform with current year presentation. |
See Notes to Financial Statements.
22 | DECEMBER 31, 2011
Financial Highlights
Institutional Shares
Janus Aspen Balanced Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $28.30 | $26.88 | $22.90 | $30.04 | $27.89 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .73 | .81 | .78 | .81 | .82 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.22) | 1.39 | 4.91 | (5.23) | 2.09 | |||||||||||||||||
Total from Investment Operations | .51 | 2.20 | 5.69 | (4.42) | 2.91 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.69) | (.78) | (.75) | (.74) | (.76) | |||||||||||||||||
Distributions (from capital gains)* | (1.50) | – | (.96) | (1.98) | – | |||||||||||||||||
Total Distributions | (2.19) | (.78) | (1.71) | (2.72) | (.76) | |||||||||||||||||
Net Asset Value, End of Period | $26.62 | $28.30 | $26.88 | $22.90 | $30.04 | |||||||||||||||||
Total Return | 1.60% | 8.39% | 25.89% | (15.81)% | 10.50% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $843,446 | $955,585 | $1,020,287 | $926,938 | $1,335,428 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $906,725 | $970,582 | $946,559 | $1,150,680 | $1,417,947 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.57% | 0.58% | 0.57% | 0.57% | 0.57% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.57% | 0.58% | 0.57% | 0.57% | 0.57% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 2.50% | 2.74% | 3.03% | 2.77% | 2.54% | |||||||||||||||||
Portfolio Turnover Rate | 108% | 90% | 169% | 120% | 54% |
Service Shares
Janus Aspen Balanced Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $29.42 | $27.93 | $23.76 | $31.07 | $28.83 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .66 | .71 | .73 | .72 | .70 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.20) | 1.51 | 5.11 | (5.37) | 2.24 | |||||||||||||||||
Total from Investment Operations | .46 | 2.22 | 5.84 | (4.65) | 2.94 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.64) | (.73) | (.71) | (.68) | (.70) | |||||||||||||||||
Distributions (from capital gains)* | (1.50) | – | (.96) | (1.98) | – | |||||||||||||||||
Total Distributions | (2.14) | (.73) | (1.67) | (2.66) | (.70) | |||||||||||||||||
Net Asset Value, End of Period | $27.74 | $29.42 | $27.93 | $23.76 | $31.07 | |||||||||||||||||
Total Return | 1.35% | 8.12% | 25.53% | (16.00)% | 10.25% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $763,208 | $764,603 | $666,112 | $479,208 | $579,181 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $770,420 | $705,784 | $554,206 | $542,837 | $545,997 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.82% | 0.83% | 0.82% | 0.82% | 0.82% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.82% | 0.83% | 0.82% | 0.82% | 0.82% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 2.25% | 2.49% | 2.77% | 2.53% | 2.27% | |||||||||||||||||
Portfolio Turnover Rate | 108% | 90% | 169% | 120% | 54% |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
Janus Aspen Series | 23
Notes to Schedule of Investments
Balanced Index | An internally-calculated, hypothetical combination of unmanaged indices that combines total returns from the S&P 500® Index (55%) and Barclays Capital U.S. Aggregate Bond Index (45%). Prior to 7/2/09, the index was calculated using the Barclays Capital U.S. Government/Credit Bond Index instead of the Barclays Capital U.S. Aggregate Bond Index. | |
Barclays Capital U.S. Aggregate Bond Index | Made up of the Barclays Capital U.S. Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million. | |
Lipper Variable Annuity Mixed-Asset Target Allocation Moderate Funds | Funds that, by portfolio practice, maintain a mix of between 40%-60% equity securities, with the remainder invested in bonds, cash and cash equivalents. | |
S&P 500® Index | A commonly recognized, market-capitalization weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance. | |
ADR | American Depositary Receipt | |
PLC | Public Limited Company | |
REIT | Real Estate Investment Trust | |
ULC | Unlimited Liability Company | |
U.S. Shares | Securities of foreign companies trading on an American Stock Exchange. |
* | Non-income producing security. | |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. | |
‡ | Rate is subject to change. Rate shown reflects current rate. |
144A | Securities sold under Rule 144A of the Securities Act of 1933, as amended, are subject to legal and/or contractual restrictions on resale and may not be publicly sold without registration under the 1933 Act. These securities have been determined to be liquid under guidelines established by the Board of Trustees. The total value of 144A securities as of the period ended December 31, 2011 is indicated in the table below: |
Value as a % | ||||||||||
Portfolio | Value | of Net Assets | ||||||||
Janus Aspen Balanced Portfolio | $ | 95,973,125 | 6.0 | % | ||||||
24 | DECEMBER 31, 2011
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Balanced Portfolio | |||||||||||
Asset-Backed/Commercial Mortgage-Backed Securities | $ | – | $ | 21,395,239 | $ | – | |||||
Bank Loans | – | 5,406,798 | – | ||||||||
Common Stock | |||||||||||
Agricultural Chemicals | 5,665,811 | 10,492,145 | – | ||||||||
Commercial Banks | 30,290,176 | 11,199,517 | – | ||||||||
Medical – Drugs | 54,477,574 | 13,310,629 | – | ||||||||
Oil Companies – Integrated | 44,016,640 | 4,067,199 | – | ||||||||
All Other | 698,105,646 | – | – | ||||||||
Corporate Bonds | – | 503,582,328 | – | ||||||||
Mortgage-Backed Securities | – | 109,100,620 | – | ||||||||
Preferred Stock | – | 1,563,205 | – | ||||||||
U.S. Treasury Notes/Bonds | – | 72,530,294 | – | ||||||||
Money Market | – | 9,523,293 | – | ||||||||
Total Investments in Securities | $ | 832,555,847 | $ | 762,171,267 | $ | – | |||||
Other Financial Instruments(a): | $ | – | $ | 135,549 | $ | – | |||||
(a) | Other financial instruments include futures, forward currency, written option, and swap contracts. Forward currency contracts and swap contracts are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. Futures are reported at their variation margin at measurement date, which represents the amount due to/from the Portfolio at that date. Options are reported at their market value at measurement date. |
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Balanced Portfolio | $ | 71,928,989 | |||
The interest rate on floating rate notes is based on an index or market interest rates and is subject to change. Rates in the security description are as of December 31, 2011.
Janus Aspen Series | 25
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Janus Aspen Balanced Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests in a combination of equity securities selected for growth potential and securities selected for income potential. The Portfolio is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers two classes of shares: Institutional Shares and Service Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
26 | DECEMBER 31, 2011
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Each class of shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
The Portfolio may make certain investments in real estate investment trusts (“REITs”) which pay dividends to their shareholders based upon funds available from operations. It is quite common for these dividends to exceed the REITs’ taxable earnings and profits, resulting in the excess portion of such dividends being designated as a return of capital. If the Portfolio distributes such amounts, such distributions could constitute a return of capital to shareholders for federal income tax purposes.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it
Janus Aspen Series | 27
Notes to Financial Statements (continued)
modernizes several of the federal income and excise tax provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with
28 | DECEMBER 31, 2011
investing in those securities. The summary of inputs used as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3 Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
There were no Level 3 securities during the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | DERIVATIVE INSTRUMENTS |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. Each derivative instrument that was held by the Portfolio during the fiscal year ended December 31, 2011 is discussed in further detail below. A summary of derivative activity is reflected in the tables at the end of this section.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the |
Janus Aspen Series | 29
Notes to Financial Statements (continued)
risks associated with changes in that index. If the index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index.
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. | |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The Portfolio may enter into forward currency contracts for hedging purposes, including, but not limited to, reducing exposure to changes in foreign currency exchange rates on foreign portfolio holdings and locking in the U.S. dollar cost of firm purchase and sale commitments for securities denominated in or exposed to foreign currencies. The Portfolio may also invest in forward currency contracts for nonhedging purposes such as seeking to enhance returns. The Portfolio is subject to currency risk in the normal course of pursuing its investment objective through its investments in forward currency contracts.
The gain or loss arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing a contract is included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations (if applicable).
Forward currency contracts held by the Portfolio are fully collateralized by other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The collateral is evaluated daily to ensure its market value equals or exceeds the current market value of the corresponding forward currency contracts. Such collateral is in the possession of the Portfolio’s custodian.
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
The following table, grouped by derivative type, provides information about the fair value and location of derivatives within the Statement of Assets and Liabilities as of December 31, 2011.
Fair Value of Derivative Instruments as of December 31, 2011
Derivatives not accounted for as | Asset Derivatives | Liability Derivatives | ||||||||||
hedging instruments | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Foreign Exchange Contracts | Forward currency contracts | $ | 135,549 | |||||||||
Total | $ | 135,549 | ||||||||||
30 | DECEMBER 31, 2011
The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the fiscal year ended December 31, 2011.
The effect of Derivative Instruments on the Statement of Operations for the fiscal year ended December 31, 2011
Amount of Realized Gain/(Loss) on Derivatives Recognized in Income | ||||||||||||||||||||
Forward | ||||||||||||||||||||
Currency | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Contracts | Total | |||||||||||||||
Foreign Exchange Contracts | $ | – | $ | – | $ | – | $ | (3,428,923 | ) | $ | (3,428,923 | ) | ||||||||
Total | $ | – | $ | – | $ | – | $ | (3,428,923 | ) | $ | (3,428,923 | ) | ||||||||
Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income | ||||||||||||||||||||
Forward | ||||||||||||||||||||
Currency | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Contracts | Total | |||||||||||||||
Foreign Exchange Contracts | $ | – | $ | – | $ | – | $ | 559,709 | $ | 559,709 | ||||||||||
Total | $ | – | $ | – | $ | – | $ | 559,709 | $ | 559,709 | ||||||||||
Please see the Portfolio’s Statement of Operations for the Portfolio’s “Net Realized and Unrealized Gain/(Loss) on Investments.”
The value of derivative instruments at period end and the effect of derivatives on the Statement of Operations are indicative of the Portfolio’s volume throughout the fiscal year.
3. | OTHER INVESTMENTS AND STRATEGIES |
Additional Investment Risk
The Portfolio may be invested in lower-rated debt securities that have a higher risk of default or loss of value since these securities may be sensitive to economic changes, political changes or adverse developments specific to the issuer.
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Janus Aspen Series | 31
Notes to Financial Statements (continued)
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Bank Loans
The Portfolio may invest in bank loans, which include institutionally traded floating rate securities generally acquired as an assignment from another holder of, or participation interest in, loans originated by a bank or financial institution (the “Lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the Portfolio has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the loan agreement and only upon receipt by the Lender of payments from the borrower. The Portfolio generally has no right to enforce compliance with the terms of the loan agreement with the borrower. Assignments and participations involve credit, interest rate, and liquidity risk. Interest rates on floating rate securities adjust with general interest rate changes and/or issuer credit quality. The interest rates paid on a floating rate security in which the Portfolio invests generally are readjusted periodically to an increment over a designated benchmark rate, such as the one-month, three-month, six-month, or one-year London Interbank Offered Rate (“LIBOR”). LIBOR is a short-term interest rate that banks charge one another and is generally representative of the most competitive and current cash rates.
The Portfolio may have difficulty trading assignments and participations to third parties. There may be restrictions on transfer and only limited opportunities may exist to sell such securities in secondary markets. As a result, the Portfolio may be unable to sell assignments or participations at the desired time or may be able to sell only at a price less than fair market value. The Portfolio utilizes an independent third party to value individual bank loans on a daily basis.
The average monthly value of borrowings outstanding under bank loan arrangements and the related rate range during the fiscal year ended December 31, 2011 is indicated in the table below:
Portfolio | Average Monthly Value | Rates | ||||||
Janus Aspen Balanced Portfolio | $ | 13,123,626 | 2.9400% - 6.7500% | |||||
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
Emerging Market Investing
Investing in emerging markets may involve certain risks and considerations not typically associated with investing in the United States and imposes risks greater than, or in addition to, the risks associated with investing in securities of more developed foreign countries. Emerging markets securities are exposed to a number of additional risks, which may result from less government supervision and regulation of business and industry practices (including the potential lack of strict finance and accounting controls and standards), stock exchanges, brokers, and listed companies, making these investments potentially more volatile in price and less liquid than investments in
32 | DECEMBER 31, 2011
developed securities markets, resulting in greater risk to investors. In addition, the Portfolio’s investments may be denominated in foreign currencies and therefore, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the Portfolio’s investments. To the extent that the Portfolio invests a significant portion of its assets in the securities of issuers in or companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region, which could have a negative impact on the Portfolio’s performance.
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Floating Rate Loans
The Portfolio may invest in floating rate loans. Floating rate loans are debt securities that have floating interest rates, which adjust periodically, and are tied to a benchmark lending rate, such as LIBOR. In other cases, the lending rate could be tied to the prime rate offered by one or more major U.S. banks or the rate paid on large certificates of deposit traded in the secondary markets. If the benchmark lending rate changes, the rate payable to lenders under the loan will change at the next scheduled adjustment date specified in the loan agreement. Floating rate loans are typically issued to companies (“borrowers”) in connection with recapitalizations, acquisitions, and refinancings. Floating rate loan investments are generally below investment grade. Senior floating rate loans are secured by specific collateral of a borrower and are senior in the borrower’s capital structure. The senior position in the borrower’s capital structure generally gives holders of senior loans a claim on certain of the borrower’s assets that is senior to subordinated debt and preferred and common stock in the case of a borrower’s default. Floating rate loan investments may involve foreign borrowers, and investments may be denominated in foreign currencies. Floating rate loans often involve borrowers whose financial condition is troubled or uncertain and companies that are highly leveraged. The Portfolio may invest in obligations of borrowers who are in bankruptcy proceedings. Floating rate loans may include fully funded term loans or revolving lines of credit.
Purchasers of floating rate loans may pay and/or receive certain fees. The Portfolio may receive fees such as covenant waiver fees or prepayment penalty fees. The Portfolio may pay fees such as facility fees. Such fees may affect the Portfolio’s return.
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Mortgage- and Asset-Backed Securities
The Portfolio may purchase fixed or variable rate mortgage-backed securities issued by the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”), the Federal
Janus Aspen Series | 33
Notes to Financial Statements (continued)
Home Loan Mortgage Corporation (“Freddie Mac”), or other governmental or government-related entities. Historically, Fannie Maes and Freddie Macs were not backed by the full faith and credit of the U.S. Government, and may not be in the future. In September 2008, the Federal Housing Finance Agency (“FHFA”), an agency of the U.S. Government, placed Fannie Mae and Freddie Mac under conservatorship to provide stability in the financial markets, mortgage availability and taxpayer protection by preserving Fannie Mae’s and Freddie Mac’s assets, and placing them in a sound and solvent condition. Under the conservatorship, the management of Fannie Mae and Freddie Mac was replaced. The effect that the FHFA’s conservatorship will have on Fannie Mae’s and Freddie Mac’s debt and equities is unclear. The Portfolio may purchase other mortgage- and asset-backed securities through single- and multi-seller conduits, collateralized debt obligations, structured investment vehicles, and other similar securities. Asset-backed securities may be backed by automobile loans, equipment leases, credit card receivables, or other collateral. In the event the underlying securities fail to perform, these investment vehicles could be forced to sell the assets and recognize losses on such assets, which could impact the Portfolio’s yield and your return.
Unlike traditional debt instruments, payments on these securities include both interest and a partial payment of principal. Prepayment risk, which results from prepayments of the principal of underlying loans at a faster pace than expected, may shorten the effective maturities of these securities and may result in the Portfolio having to reinvest proceeds at a lower interest rate. In addition to prepayment risk, investments in mortgage-backed securities, including those comprised of subprime mortgages, and investments in other asset-backed securities comprised of under-performing assets may be subject to a higher degree of credit risk, valuation risk, and liquidity risk. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.
Mortgage- and asset-backed securities are also subject to extension risk, which is the risk that rising interest rates could cause mortgages or other obligations underlying these securities to be paid more slowly than expected, increasing a Portfolio’s sensitivity to interest rate changes and causing its price to decline.
Real Estate Investing
The Portfolio may invest in equity and debt securities of U.S. real estate-related companies. Such companies may include those in the real estate industry or real estate-related industries. These securities may include common stocks, corporate bonds, preferred stocks, and other securities, including, but not limited to, REITs and similar REIT-like entities such as entities that have REIT characteristics.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the
34 | DECEMBER 31, 2011
Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio managers anticipate that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited.
Sovereign Debt
Investments in foreign government debt securities (“sovereign debt”) can involve a high degree of risk including the risk that the governmental entity that controls the repayment of sovereign debt may not be willing or able to repay the principal and/or to pay the interest on its sovereign debt in a timely manner. A sovereign debtor’s willingness or ability to satisfy its debt obligation may be affected by various factors including its cash flow situation, the extent of its foreign currency reserves, the availability of foreign exchange when a payment is due, the relative size of its debt position in relation to its economy as a whole, the sovereign debtor’s policy toward international lenders, and local political constraints to which the governmental entity may be subject. Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies, and other entities. The failure of a sovereign debtor to implement economic reforms, achieve specified levels of economic performance, or repay principal or interest when due may result in the cancellation of third party commitments to lend funds to the sovereign debtor, which may further impair such debtor’s ability or willingness to timely service its debts. The Portfolio may be requested to participate in the rescheduling of such sovereign debt and to extend further loans to governmental entities which may adversely affect the Portfolio’s holdings. In the event of default, there may be limited or no legal remedies for collecting sovereign debt and there may be no bankruptcy proceedings through which the Portfolio may collect all or part of the sovereign debt that a governmental entity has not repaid.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s contractual investment advisory fee rate (expressed as an annual rate).
Janus Aspen Series | 35
Notes to Financial Statements (continued)
Contractual | ||||||||
Average Daily | Investment | |||||||
Net Assets | Advisory Fee (%) | |||||||
Portfolio | of the Portfolio | (annual rate) | ||||||
Janus Aspen Balanced Portfolio | All Asset Levels | 0.55 | ||||||
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares at an annual rate of up to 0.25% of Service Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio may be used to
36 | DECEMBER 31, 2011
purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio is eligible to participate in the cash sweep program (the “Investing Fund”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
During the fiscal year ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Dividend | Value | |||||||||||
Shares/Cost | Shares/Cost | Income | at 12/31/11 | |||||||||||
Janus Aspen Balanced Portfolio | ||||||||||||||
Janus Cash Liquidity Fund LLC | $ | 741,301,170 | $ | (751,894,788) | $ | 22,282 | $ | 9,523,293 | ||||||
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Undistributed | Undistributed | Late- | Other Book | Net Tax | ||||||||||||||||
Ordinary | Long-Term | Accumulated | Year Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Balanced Portfolio | $ | 8,036,368 | $ | 65,904,995 | $ | – | $ | (1,900,319) | $ | (54,020) | $ | 153,436,541 | ||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary differences between book and tax appreciation or depreciation of investments are wash sale loss deferrals and partnerships.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Balanced Portfolio | $ | 1,441,290,573 | $ | 189,990,590 | $ | (36,554,049) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Balanced Portfolio | $ | 41,883,451 | $ | 82,460,474 | $ | – | $ | – | |||||||||
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Notes to Financial Statements (continued)
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Balanced Portfolio | $ | 45,177,108 | $ | – | $ | – | $ | – | |||||||||
6. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Balanced Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 1,022 | 946 | ||||||||
Reinvested dividends and distributions | 2,492 | 1,007 | ||||||||
Shares repurchased | (5,597) | (6,150) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (2,083) | (4,197) | ||||||||
Shares Outstanding, Beginning of Period | 33,764 | 37,961 | ||||||||
Shares Outstanding, End of Period | 31,681 | 33,764 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 4,687 | 5,148 | ||||||||
Reinvested dividends and distributions | 1,921 | 660 | ||||||||
Shares repurchased | (5,084) | (3,671) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | 1,524 | 2,137 | ||||||||
Shares Outstanding, Beginning of Period | 25,989 | 23,852 | ||||||||
Shares Outstanding, End of Period | 27,513 | 25,989 |
7. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Balanced Portfolio | $ | 1,291,193,835 | $ | 1,315,317,021 | $ | 499,451,795 | $ | 570,620,293 | ||||||
8. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
38 | DECEMBER 31, 2011
9. | Subsequent Events |
After the close of business on February 17, 2012, Balanced Portfolio will redeem assets through a redemption-in-kind transaction. The redemption-in-kind represents approximately 44% of the Portfolio.
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no other material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
Janus Aspen Series | 39
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Balanced Portfolio:
of Janus Aspen Balanced Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Balanced Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
40 | DECEMBER 31, 2011
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
Janus Aspen Series | 41
Additional Information (unaudited) (continued)
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
42 | DECEMBER 31, 2011
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
Janus Aspen Series | 43
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The total annual fund operating expenses ratio is based on average net assets as of the fiscal period ended December 31, 2010. The ratio also includes expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, this ratio may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
2a. Forward Currency Contracts
A table listing forward currency contracts follows the Portfolio’s Schedule of Investments (if applicable). Forward currency contracts are agreements to deliver or receive a preset amount of currency at a future date. Forward currency contracts are used to hedge against foreign currency risk in the Portfolio’s long-term holdings.
The table provides the name of the foreign currency, the settlement date of the contract, the amount of the contract, the value of the currency in U.S. dollars and the amount of unrealized gain or loss. The amount of unrealized gain or loss reflects the change in currency exchange rates from the time the contract was opened to the last day of the reporting period.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid. Additionally, there may be other assets and liabilities such as unrealized gain or loss on forward currency contracts.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s
44 | DECEMBER 31, 2011
net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
Janus Aspen Series | 45
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio managers. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
46 | DECEMBER 31, 2011
Designation Requirements (unaudited)
For federal income tax purposes, the Portfolio designated the following for the year ended December 31, 2011:
Capital Gain Distributions
Portfolio | ||||||||||
Janus Aspen Balanced Portfolio | $ | 82,460,474 | ||||||||
Dividends Received Deduction Percentage
Portfolio | ||||||||||
Janus Aspen Balanced Portfolio | 32% | |||||||||
Janus Aspen Series | 47
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
48 | DECEMBER 31, 2011
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments -HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
Janus Aspen Series | 49
Trustees and Officers (unaudited) (continued)
OFFICERS
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Marc Pinto 151 Detroit Street Denver, CO 80206 DOB: 1961 | Executive Vice President and Co-Portfolio Manager Janus Aspen Balanced Portfolio | 5/05-Present | Vice President of Janus Capital and Portfolio Manager for other Janus accounts. | |||
Gibson Smith 151 Detroit Street Denver, CO 80206 DOB: 1968 | Executive Vice President and Co-Portfolio Manager Janus Aspen Balanced Portfolio | 5/05-Present | Co-Chief Investment Officer and Executive Vice President of Janus Capital; Executive Vice President of Janus Distributors LLC and Janus Services LLC; Director of Perkins Investment Management LLC; and Portfolio Manager for other Janus accounts. Formerly, Vice President (2003-2006) of Janus Capital. | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). |
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
50 | DECEMBER 31, 2011
OFFICERS (continued)
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. | |||
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
Janus Aspen Series | 51
Notes
52 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 53
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
C-0112-126 | 109-02-81113 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
1 | ||
2 | ||
10 | ||
11 | ||
12 | ||
13 | ||
14 | ||
15 | ||
27 | ||
28 | ||
31 | ||
34 |
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s manager as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s manager may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s manager in the Management Commentary are just that: opinions. They are a reflection of the manager’s best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the manager’s opinions. These views are unique to the manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Enterprise Portfolio (unaudited)
Portfolio Snapshot We believe that investing in companies with predictable and sustainable growth can drive consistent returns and allow us to outperform our benchmark and peers over time with moderate risk. We seek to identify mid-cap companies with high-quality management teams that wisely allocate capital to fund and drive growth over time. | Brian Demain portfolio manager |
Performance Overview
During the 12 months ended December 31, 2011, Janus Aspen Enterprise Portfolio’s Institutional Shares and Service Shares returned -1.42% and -1.65%, respectively. Meanwhile, the Portfolio’s benchmark, the Russell Midcap Growth Index, returned -1.65%.
Investment Environment
Macro concerns continued to dominate sentiment as Europe’s debt crisis dragged on and Washington failed to address the U.S. fiscal situation. Leading economic indicators showed signs of strength and the unemployment rate fell late in the year, indicating potential stability in the labor market heading into 2012. Consumer confidence and spending improved, providing momentum for Gross Domestic Product growth.
Performance Discussion
The year was dominated by “risk on, risk off” trading, driven largely by political headlines out of Europe and concerns about the U.S. fiscal situation. We try not to react to these kinds of market drivers and stay focused on our core strength: bottom-up stock picking. The longer the time horizon, the more individual company performance drives prices, in our view.
Contributing to results were our selections in industrials. Our holdings are generally concentrated in non-asset based transportation, business services and distribution companies. These types of stocks tend to be lower beta than traditional industrial companies and outperformed in a weak economic environment.
Performance during the year was negatively impacted by our holdings in consumer discretionary. The sector significantly outperformed the Portfolio’s index, and our selections and underweight hurt relative results. The biggest detractor in the sector was an out-of-benchmark holding, Li & Fung, a Hong Kong-based outsourcing and logistics firm. The stock suffered from investor concerns that inflationary pressures on commodities such as cotton and the resetting of inventory levels would negatively impact the firm over the long-term. In fact, we believe inflationary pressures throughout the retail supply chain should help outsourcers like Li & Fung since they reduce costs for their customers. We believe the environment plays to the company’s strengths in managing vendor costs.
Our holdings in financials detracted from performance. We have focused on business models with pricing power and strong franchises and largely avoided bank financials, which we think face pressure on profitability from the continuing low interest rate environment. Our top holding in the sector is a provider of index services. The stock declined after the company issued muted guidance for profit margins and reported slightly lower-than-expected retention rates. Long term, we think the company has a dominant business model with pricing power due to its strong franchise.
Contributors
Fastenal was our top individual contributor. We like the industrial and construction supplier’s business model, management team and its growth profile going forward as it continues to gain market share.
Verisk Analytics rose. This risk assessment company provides services to the insurance industry through detailed actuarial and underwriting data for property and casualty companies as well as predictive analytics to help underwriters better model their risks. We like the company for its high operating margins, recurring revenues, pricing power, growth potential and management team.
Valeant Pharmaceuticals performed well. We think CEO Mike Pearson has done an impressive job of acquiring pharmaceutical and branded generics businesses and rapidly integrating and restructuring them to improve profitability. We like the company’s diversified business lines, advantageous tax rate and exposure to rapidly growing emerging markets in Latin America and Eastern Europe. We believe management will continue to find value accretive acquisition targets.
2 | DECEMBER 31, 2011
(unaudited)
Detractors
As mentioned above, Li & Fung suffered from investor concerns that inflation would negatively impact the firm over the long term. We believe inflationary pressures throughout the retail supply chain should help outsourcers like Li & Fung since they reduce costs for their customers. The company has strong opportunities to supply businesses such as Wal-Mart, in our view. We feel the market continues to underestimate the growth prospects from this trend.
VistaPrint declined. We feel its competitive position is strong and its addressable market is large. We believe VistaPrint’s business model, which manages thousands of small-volume orders using high-volume printing presses, provides unusual scale and a competitive advantage.
Masimo detracted from relative results. The company is a medical technology company that focuses on patient monitoring. It has differentiated product technology and will continue to grow market share, in our view.
Please see the “Notes to Financial Statements” for a discussion of derivatives used by the Portfolio.
Outlook
While there are signs of improvement in the economy, we think the recovery remains fragile. A few major companies have lowered forecasts in recent months, and we think margin growth could decelerate if the macro environment worsens. With margins near record levels, reversion to the mean is likely at some point. So far, we have not seen widespread evidence of margin compression. Nonetheless, we are investing in businesses that we think have financial flexibility to protect profitability should economic conditions worsen.
Although we have some concerns about the macro, we are not getting defensive or avoiding cyclically sensitive areas. The Portfolio is meaningfully overweight in technology hardware suppliers, for example, centered on businesses with relatively low price pressure and/or lower capital intensity. We feel these businesses have better underlying growth dynamics than most of the market and valuations that do not reflect their long-term growth potential (nor do they reflect the strong balance sheets and through-cycle margin structures of the industry). More broadly, corporate balance sheets are healthy, with near-record levels of cash as a percentage of total assets. We are also in a period of exceptionally low interest rates, which may help spur capital investment once some of the economic uncertainty lifts.
Equity valuations in the U.S. look reasonably compelling to us with the market trading at a low double digit multiple of earnings. Well-capitalized, well-managed companies delivering innovative products in growing end markets should be able to deliver on their business objectives – even if the economy does not materially improve. We can’t predict what will cause multiples to move higher. But with a long term horizon, buying these types of stocks – at low double-digit P/E multiples – is likely to result in attractive, long term returns.
Thank you for your investment in Janus Aspen Enterprise Portfolio.
Janus Aspen Series | 3
Janus Aspen Enterprise Portfolio (unaudited)
Janus Aspen Enterprise Portfolio At A Glance
5 Top Performers – Holdings
Contribution | ||||
Fastenal Co. | 0.67% | |||
Verisk Analytics, Inc. | 0.62% | |||
Valeant Pharmaceuticals International, Inc. | 0.56% | |||
KLA-Tencor Corp. | 0.51% | |||
Kinder Morgan Management LLC | 0.50% |
5 Bottom Performers – Holdings
Contribution | ||||
Li & Fung, Ltd. | –1.06% | |||
VistaPrint N.V. (U.S. Shares) | –0.95% | |||
Masimo Corp. | –0.69% | |||
Atmel Corp. | –0.66% | |||
ON Semiconductor Corp. | –0.52% |
5 Top Performers – Sectors*
Portfolio Weighting | Russell Midcap® Growth | |||||||||||
Portfolio Contribution | (Average % of Equity) | Index Weighting | ||||||||||
Industrials | 2.91% | 24.39% | 15.05% | |||||||||
Energy | 0.73% | 6.82% | 8.16% | |||||||||
Information Technology | 0.45% | 26.48% | 20.80% | |||||||||
Telecommunication Services | 0.45% | 4.35% | 1.68% | |||||||||
Health Care | 0.35% | 21.26% | 13.46% |
5 Bottom Performers – Sectors*
Portfolio Weighting | Russell Midcap® Growth | |||||||||||
Portfolio Contribution | (Average % of Equity) | Index Weighting | ||||||||||
Consumer Discretionary | –2.80% | 6.03% | 20.04% | |||||||||
Financials | –0.71% | 6.61% | 6.92% | |||||||||
Consumer Staples | –0.60% | 0.97% | 5.71% | |||||||||
Materials | –0.33% | 3.09% | 7.89% | |||||||||
Utilities | –0.05% | 0.00% | 0.29% |
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. | ||
* | Based on sector classification according to the Global Industry Classification Standard codes, which are the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
4 | DECEMBER 31, 2011
(unaudited)
5 Largest Equity Holdings – (% of Net Assets)
As of December 31, 2011
Crown Castle International Corp. Wireless Equipment | 5.0% | |||
Verisk Analytics, Inc. Consulting Services | 4.1% | |||
Varian Medical Systems, Inc. Medical Products | 3.1% | |||
Dresser-Rand Group, Inc. Oil Field Machinery and Equipment | 3.1% | |||
MSCI, Inc. Decision Support Software | 2.6% | |||
17.9% |
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Top Country Allocations – Long Positions (% of Investment Securities)
As of December 31, 2011
Janus Aspen Series | 5
Janus Aspen Enterprise Portfolio (unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||
One | Five | Ten | Since | Total Annual Fund | |||||||
Year | Year | Year | Inception* | Operating Expenses | |||||||
Janus Aspen Enterprise Portfolio – Institutional Shares | –1.42% | 4.30% | 6.35% | 9.10% | 0.68% | ||||||
Janus Aspen Enterprise Portfolio – Service Shares | –1.65% | 4.04% | 6.09% | 8.82% | 0.93% | ||||||
Russell Midcap® Growth Index | –1.65% | 2.44% | 5.29% | 8.08% | |||||||
Lipper Quartile – Institutional Shares | 2nd | 1st | 1st | 2nd | |||||||
Lipper Ranking – Institutional Shares based on total returns for Variable Annuity Multi-Cap Growth Funds | 41/115 | 22/88 | 6/52 | 3/8 | |||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio’s performance may be affected by risks that include those associated with investments in specific industries or countries and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), and derivatives. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
See important disclosures on the next page.
6 | DECEMBER 31, 2011
(unaudited)
The Portfolio may invest in derivatives which can be highly volatile and involve additional risks than if the underlying securities were held directly by the Portfolio. Such risks include gains or losses which, as a result of leverage, can be substantially greater than the derivatives’ original cost. There is also a possibility that derivatives may not perform as intended which can reduce opportunity for gains or result in losses by offsetting positive returns in other securities the Portfolio owns.
Foreign securities have additional risks including exchange rate changes, political and economic upheaval, the relative lack of information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. These risks are magnified in emerging markets. The prices of foreign securities held by the Portfolio, and therefore the Portfolio’s performance, may decline in response to such risks.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Returns shown for Service Shares for periods prior to December 31, 1999 are derived from the historical performance of Institutional Shares, adjusted to reflect the higher operating expenses of Service Shares.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Institutional Share class only; other classes may have different performance characteristics.
September 30, 1993 is the date used to calculate the since-inception Lipper ranking, which is slightly different from when the Portfolio began operations since Lipper provides fund rankings as of the last day of the month.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the index. The index is unmanaged and is not available for direct investment; therefore, its performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
* | The Portfolio’s inception date – September 13, 1993 |
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 924.90 | $ | 3.35 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.73 | $ | 3.52 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 923.70 | $ | 4.56 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.47 | $ | 4.79 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.69% for Institutional Shares and 0.94% for Service Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Janus Aspen Series | 7
Janus Aspen Enterprise Portfolio
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Common Stock – 98.2% | ||||||||||
Advertising Sales – 0.8% | ||||||||||
160,201 | Lamar Advertising Co. – Class A* | $ | 4,405,528 | |||||||
Aerospace and Defense – 1.3% | ||||||||||
71,625 | TransDigm Group, Inc.* | 6,853,080 | ||||||||
Agricultural Chemicals – 2.0% | ||||||||||
249,420 | Potash Corp. of Saskatchewan, Inc. (U.S. Shares) | 10,296,058 | ||||||||
Airlines – 1.4% | ||||||||||
260,428 | Ryanair Holdings PLC (ADR)** | 7,255,524 | ||||||||
Auction House – Art Dealer – 1.3% | ||||||||||
307,223 | Ritchie Bros. Auctioneers, Inc. (U.S. Shares) | 6,783,484 | ||||||||
Automotive – Truck Parts and Equipment – Original – 0.4% | ||||||||||
43,160 | WABCO Holdings, Inc.* | 1,873,144 | ||||||||
Commercial Services – 1.0% | ||||||||||
76,045 | CoStar Group, Inc.* | 5,074,483 | ||||||||
Commercial Services – Finance – 1.6% | ||||||||||
173,165 | Global Payments, Inc. | 8,204,558 | ||||||||
Computer Aided Design – 0.5% | ||||||||||
48,765 | ANSYS, Inc.* | 2,793,259 | ||||||||
Computer Services – 1.0% | ||||||||||
62,430 | IHS, Inc. – Class A* | 5,378,969 | ||||||||
Computers – 0.7% | ||||||||||
9,203 | Apple, Inc.* | 3,727,215 | ||||||||
Computers – Integrated Systems – 1.0% | ||||||||||
156,635 | Jack Henry & Associates, Inc. | 5,264,502 | ||||||||
Consulting Services – 5.6% | ||||||||||
234,218 | Gartner, Inc.* | 8,143,760 | ||||||||
530,870 | Verisk Analytics, Inc.*,** | 21,303,813 | ||||||||
29,447,573 | ||||||||||
Containers – Metal and Glass – 0.8% | ||||||||||
120,582 | Ball Corp. | 4,305,983 | ||||||||
Decision Support Software – 2.6% | ||||||||||
419,100 | MSCI, Inc.* | 13,800,963 | ||||||||
Diagnostic Equipment – 1.5% | ||||||||||
129,582 | Gen-Probe, Inc.* | 7,660,888 | ||||||||
Diagnostic Kits – 0.7% | ||||||||||
46,925 | Idexx Laboratories, Inc.* | 3,611,348 | ||||||||
Distribution/Wholesale – 5.7% | ||||||||||
222,015 | Fastenal Co. | 9,682,074 | ||||||||
7,049,720 | Li & Fung, Ltd. | 13,053,188 | ||||||||
39,305 | W.W. Grainger, Inc. | 7,357,503 | ||||||||
30,092,765 | ||||||||||
Electric Products – Miscellaneous – 1.1% | ||||||||||
135,592 | AMETEK, Inc. | 5,708,423 | ||||||||
Electronic Components – Miscellaneous – 2.8% | ||||||||||
638,200 | Flextronics International, Ltd.* | 3,612,212 | ||||||||
351,875 | TE Connectivity, Ltd. (U.S. Shares) | 10,841,269 | ||||||||
14,453,481 | ||||||||||
Electronic Components – Semiconductors – 2.5% | ||||||||||
1,316,106 | ON Semiconductor Corp.* | 10,160,338 | ||||||||
91,145 | Xilinx, Inc. | 2,922,109 | ||||||||
13,082,447 | ||||||||||
Electronic Connectors – 2.3% | ||||||||||
260,670 | Amphenol Corp. – Class A | 11,831,811 | ||||||||
Electronic Forms – 1.1% | ||||||||||
195,930 | Adobe Systems, Inc.* | 5,538,941 | ||||||||
Entertainment Software – 0.6% | ||||||||||
144,545 | Electronic Arts, Inc.* | 2,977,627 | ||||||||
Finance – Investment Bankers/Brokers – 0.9% | ||||||||||
150,038 | LPL Investment Holdings, Inc.* | 4,582,161 | ||||||||
Instruments – Controls – 2.3% | ||||||||||
28,010 | Mettler-Toledo International, Inc.* | 4,137,357 | ||||||||
301,787 | Sensata Technologies Holding N.V.*,** | 7,930,962 | ||||||||
12,068,319 | ||||||||||
Instruments – Scientific – 1.4% | ||||||||||
46,346 | Thermo Fisher Scientific, Inc.* | 2,084,180 | ||||||||
68,245 | Waters Corp.* | 5,053,542 | ||||||||
7,137,722 | ||||||||||
Insurance Brokers – 1.0% | ||||||||||
111,680 | AON Corp. | 5,226,624 | ||||||||
Internet Content – Entertainment – 0.2% | ||||||||||
99,740 | Zynga, Inc.* | 938,553 | ||||||||
Investment Management and Advisory Services – 1.8% | ||||||||||
118,929 | Eaton Vance Corp. | 2,811,482 | ||||||||
116,556 | T. Rowe Price Group, Inc. | 6,637,864 | ||||||||
9,449,346 | ||||||||||
Machinery – General Industrial – 1.5% | ||||||||||
91,115 | Roper Industries, Inc. | 7,915,160 | ||||||||
Medical – Biomedical and Genetic – 3.4% | ||||||||||
88,230 | Celgene Corp.* | 5,964,348 | ||||||||
100,692 | Gilead Sciences, Inc.* | 4,121,323 | ||||||||
268,110 | Incyte Corp., Ltd.* | 4,024,331 | ||||||||
104,975 | Vertex Pharmaceuticals, Inc.* | 3,486,220 | ||||||||
17,596,222 | ||||||||||
Medical – Drugs – 1.2% | ||||||||||
130,756 | Valeant Pharmaceuticals International, Inc. | 6,104,998 | ||||||||
Medical – Generic Drugs – 0.4% | ||||||||||
114,010 | Impax Laboratories, Inc.* | 2,299,582 | ||||||||
Medical Information Systems – 1.0% | ||||||||||
111,760 | athenahealth, Inc.* | 5,489,651 | ||||||||
Medical Instruments – 3.0% | ||||||||||
318,780 | St. Jude Medical, Inc. | 10,934,154 | ||||||||
72,250 | Techne Corp. | 4,931,785 | ||||||||
15,865,939 | ||||||||||
Medical Products – 4.6% | ||||||||||
126,105 | Henry Schein, Inc.* | 8,124,945 | ||||||||
238,970 | Varian Medical Systems, Inc.* | 16,042,056 | ||||||||
24,167,001 | ||||||||||
Metal Processors and Fabricators – 1.5% | ||||||||||
48,865 | Precision Castparts Corp. | 8,052,463 | ||||||||
Oil Companies – Exploration and Production – 0.6% | ||||||||||
103,760 | Ultra Petroleum Corp. (U.S. Shares)* | 3,074,409 | ||||||||
Oil Field Machinery and Equipment – 3.1% | ||||||||||
321,355 | Dresser-Rand Group, Inc.* | 16,038,828 | ||||||||
Patient Monitoring Equipment – 1.0% | ||||||||||
278,121 | Masimo Corp. | 5,196,691 | ||||||||
See Notes to Schedule of Investments and Financial Statements.
8 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Pharmacy Services – 0.3% | ||||||||||
39,901 | Omnicare, Inc. | $ | 1,374,589 | |||||||
Pipelines – 2.5% | ||||||||||
165,625 | Kinder Morgan Management LLC* | 13,004,875 | ||||||||
Printing – Commercial – 2.2% | ||||||||||
377,278 | VistaPrint N.V. (U.S. Shares)*,** | 11,544,707 | ||||||||
Retail – Automobile – 0.6% | ||||||||||
63,129 | Copart, Inc.* | 3,023,248 | ||||||||
Retail – Bedding – 0.9% | ||||||||||
81,416 | Bed Bath & Beyond, Inc.* | 4,719,686 | ||||||||
Retail – Catalog Shopping – 0.5% | ||||||||||
39,760 | MSC Industrial Direct Co. – Class A | 2,844,828 | ||||||||
Retail – Petroleum Products – 1.5% | ||||||||||
189,480 | World Fuel Services Corp. | 7,954,370 | ||||||||
Retail – Restaurants – 0.6% | ||||||||||
151,930 | Arcos Dorados Holdings, Inc. | 3,119,123 | ||||||||
Semiconductor Components/Integrated Circuits – 2.2% | ||||||||||
1,420,454 | Atmel Corp.* | 11,505,677 | ||||||||
Semiconductor Equipment – 3.5% | ||||||||||
151,810 | ASML Holdings N.V. (U.S. Shares)** | 6,344,140 | ||||||||
248,342 | KLA-Tencor Corp. | 11,982,501 | ||||||||
18,326,641 | ||||||||||
Telecommunication Equipment – Fiber Optics – 0.5% | ||||||||||
222,315 | Corning, Inc. | 2,885,649 | ||||||||
Telecommunication Services – 2.1% | ||||||||||
392,514 | Amdocs, Ltd. (U.S. Shares)* | 11,198,424 | ||||||||
Transactional Software – 1.5% | ||||||||||
179,145 | Solera Holdings, Inc. | 7,979,118 | ||||||||
Transportation – Services – 3.0% | ||||||||||
145,855 | C.H. Robinson Worldwide, Inc. | 10,177,762 | ||||||||
133,432 | Expeditors International of Washington, Inc. | 5,465,375 | ||||||||
15,643,137 | ||||||||||
Transportation – Truck – 1.3% | ||||||||||
148,340 | Landstar System, Inc. | 7,108,453 | ||||||||
Vitamins and Nutrition Products – 0.8% | ||||||||||
64,285 | Mead Johnson Nutrition Co. – Class A | 4,418,308 | ||||||||
Wireless Equipment – 5.0% | ||||||||||
587,395 | Crown Castle International Corp.* | 26,315,296 | ||||||||
Total Common Stock (cost $363,104,438) | 514,591,852 | |||||||||
Money Market – 2.0% | ||||||||||
10,215,870 | Janus Cash Liquidity Fund LLC, 0% (cost $10,215,870) | 10,215,870 | ||||||||
Total Investments (total cost $373,320,308) – 100.2% | 524,807,722 | |||||||||
Liabilities, net of Cash, Receivables and Other Assets– (0.2)% | (925,949) | |||||||||
Net Assets – 100% | $ | 523,881,773 | ||||||||
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Bermuda | $ | 13,053,188 | 2.5% | |||||
Canada | 26,258,949 | 5.0% | ||||||
Guernsey | 11,198,424 | 2.1% | ||||||
Ireland | 7,255,524 | 1.4% | ||||||
Netherlands | 25,819,809 | 4.9% | ||||||
Singapore | 3,612,212 | 0.7% | ||||||
Switzerland | 10,841,269 | 2.1% | ||||||
United States†† | 423,649,224 | 80.7% | ||||||
Virgin Islands (British) | 3,119,123 | 0.6% | ||||||
Total | $ | 524,807,722 | 100.0% |
†† | Includes Cash Equivalents (78.8% excluding Cash Equivalents). |
Forward Currency Contracts, Open
Currency Units | Currency | Unrealized | ||||||||||
Counterparty/Currency Sold and Settlement Date | Sold | Value U.S. $ | Appreciation | |||||||||
Credit Suisse Securities (USA) LLC: Euro 1/19/12 | 1,000,000 | $ | 1,294,222 | $ | 57,408 | |||||||
HSBC Securities (USA), Inc.: Euro 2/2/12 | 2,700,000 | 3,494,738 | 35,269 | |||||||||
JPMorgan Chase & Co.: Euro 1/12/12 | 1,700,000 | 2,200,078 | 66,168 | |||||||||
Total | $ | 6,989,038 | $ | 158,845 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 9
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
As of December 31, 2011 | Enterprise | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 373,320 | ||||||||
Unaffiliated investments at value | $ | 514,592 | ||||||||
Affiliated investments at value | 10,216 | |||||||||
Cash | 6 | |||||||||
Receivables: | ||||||||||
Investments sold | 125 | |||||||||
Portfolio shares sold | 22 | |||||||||
Dividends | 145 | �� | ||||||||
Non-interested Trustees’ deferred compensation | 15 | |||||||||
Other assets | 11 | |||||||||
Forward currency contracts | 159 | |||||||||
Total Assets | 525,291 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Portfolio shares repurchased | 977 | |||||||||
Dividends | – | |||||||||
Advisory fees | 286 | |||||||||
Fund administration fees | 5 | |||||||||
Distribution fees and shareholder servicing fees | 41 | |||||||||
Non-interested Trustees’ fees and expenses | 9 | |||||||||
Non-interested Trustees’ deferred compensation fees | 15 | |||||||||
Accrued expenses and other payables | 76 | |||||||||
Total Liabilities | 1,409 | |||||||||
Net Assets | $ | 523,882 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 439,682 | ||||||||
Undistributed net investment loss* | (15) | |||||||||
Undistributed net realized loss from investment and foreign currency transactions* | (67,430) | |||||||||
Unrealized net appreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 151,645 | |||||||||
Total Net Assets | $ | 523,882 | ||||||||
Net Assets - Institutional Shares | $ | 333,094 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 8,727 | |||||||||
Net Asset Value Per Shares | $ | 38.17 | ||||||||
Net Assets - Service Shares | $ | 190,788 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 5,169 | |||||||||
Net Asset Value Per Share | $ | 36.91 |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
10 | DECEMBER 31, 2011
Statement of Operations
Janus Aspen | ||||||
For the fiscal year ended December 31, 2011 | Enterprise | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | – | ||||
Dividends | 3,052 | |||||
Dividends from affiliates | 20 | |||||
Foreign tax withheld | (54) | |||||
Total Investment Income | 3,018 | |||||
Expenses: | ||||||
Advisory fees | 3,780 | |||||
Shareholder reports expense | 44 | |||||
Transfer agent fees and expenses | 1 | |||||
Registration fees | 21 | |||||
Custodian fees | 20 | |||||
Professional fees | 52 | |||||
Non-interested Trustees’ fees and expenses | 22 | |||||
Fund administration fees | 27 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 558 | |||||
Other expenses | 25 | |||||
Non-recurring costs (Note 4) | 1 | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | (1) | |||||
Total Expenses | 4,550 | |||||
Expense and Fee Offset | – | |||||
Net Expenses | 4,550 | |||||
Net Investment Loss | (1,532) | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 71,363 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (77,813) | |||||
Net Loss on Investments | (6,450) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (7,982) |
See Notes to Financial Statements.
Janus Aspen Series | 11
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Enterprise | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment loss | $ | (1,532) | $ | (603) | ||||||
Net realized gain from investment and foreign currency transactions | 71,363 | 35,307 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (77,813) | 100,317 | ||||||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (7,982) | 135,021 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | – | (239) | ||||||||
Service Shares | – | – | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | – | – | ||||||||
Service Shares | – | – | ||||||||
Net Decrease from Dividends and Distributions | – | (239) | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 24,842 | 21,102 | ||||||||
Service Shares | 29,343 | 35,862 | ||||||||
Reinvested Dividends and Distributions | ||||||||||
Institutional Shares | – | 239 | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (81,800) | (81,493) | ||||||||
Service Shares | (78,777) | (65,152) | ||||||||
Net Decrease from Capital Share Transactions | (106,392) | (89,442) | ||||||||
Net Increase/(Decrease) in Net Assets | (114,374) | 45,340 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 638,256 | 592,916 | ||||||||
End of period | $ | 523,882 | $ | 638,256 | ||||||
Undistributed Net Investment Loss* | $ | (15) | $ | (18) |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
12 | DECEMBER 31, 2011
Financial Highlights
Institutional Shares
Janus Aspen Enterprise Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $38.72 | $30.79 | $21.26 | $39.96 | $32.97 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .10 | .09 | .05 | .13 | .12 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.65) | 7.86 | 9.48 | (16.82) | 7.15 | |||||||||||||||||
Total from Investment Operations | (.55) | 7.95 | 9.53 | (16.69) | 7.27 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | – | (.02) | – | (.08) | (.08) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | (1.93) | (.20) | |||||||||||||||||
Total Distributions | – | (.02) | – | (2.01) | (.28) | |||||||||||||||||
Net Asset Value, End of Period | $38.17 | $38.72 | $30.79 | $21.26 | $39.96 | |||||||||||||||||
Total Return | (1.42)% | 25.85% | 44.83% | (43.75)% | 22.10% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $333,094 | $394,500 | $371,092 | $279,088 | $565,996 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $367,307 | $359,669 | $311,752 | $453,662 | $550,938 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.68% | 0.68% | 0.70% | 0.67% | 0.68% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.68% | 0.68% | 0.70% | 0.67% | 0.68% | |||||||||||||||||
Ratio of Net Investment Income/(Loss) to Average Net Assets | (0.17)% | (0.01)% | 0.02% | 0.32% | 0.27% | |||||||||||||||||
Portfolio Turnover Rate | 15% | 24% | 36% | 60% | 45% |
Service Shares
Janus Aspen Enterprise Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $37.53 | $29.90 | $20.70 | $38.97 | $32.19 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income/(loss) | (.17) | (.10) | (.09) | .02 | .04 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.45) | 7.73 | 9.29 | (16.34) | 6.96 | |||||||||||||||||
Total from Investment Operations | (.62) | 7.63 | 9.20 | (16.32) | 7.00 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | – | – | – | (.02) | (.02) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | (1.93) | (.20) | |||||||||||||||||
Total Distributions | – | – | – | (1.95) | (.22) | |||||||||||||||||
Net Asset Value, End of Period | $36.91 | $37.53 | $29.90 | $20.70 | $38.97 | |||||||||||||||||
Total Return | (1.65)% | 25.52% | 44.44% | (43.88)% | 21.80% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $190,788 | $243,756 | $221,824 | $186,105 | $368,990 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $223,285 | $220,145 | $196,683 | $300,898 | $300,362 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.93% | 0.93% | 0.95% | 0.92% | 0.93% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.93% | 0.93% | 0.95% | 0.92% | 0.93% | |||||||||||||||||
Ratio of Net Investment Income/(Loss) to Average Net Assets | (0.41)% | (0.26)% | (0.25)% | 0.07% | 0.01% | |||||||||||||||||
Portfolio Turnover Rate | 15% | 24% | 36% | 60% | 45% |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
Janus Aspen Series | 13
Notes to Schedule of Investments
Lipper Variable Annuity Multi-Cap Growth Funds | Funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-cap growth funds typically have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P SuperComposite 1500 Index. | |
Russell Midcap® Growth Index | Measures the performance of those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values. | |
ADR | American Depositary Receipt | |
PLC | Public Limited Company | |
U.S. Shares | Securities of foreign companies trading on an American Stock Exchange. |
* | Non-income producing security. | |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. |
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Enterprise Portfolio | |||||||||||
Common Stock | |||||||||||
Airlines | $ | – | $ | 7,255,524 | $ | – | |||||
All Other | 507,336,328 | – | – | ||||||||
Money Market | – | 10,215,870 | – | ||||||||
Total Investments in Securities | $ | 507,336,328 | $ | 17,471,394 | $ | – | |||||
Other Financial Instruments(a): | $ | – | $ | 158,845 | $ | – | |||||
(a) | Other financial instruments include futures, forward currency, written option, and swap contracts. Forward currency contracts and swap contracts are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. Futures are reported at their variation margin at measurement date, which represents the amount due to/from the Portfolio at that date. Options are reported at their market value at measurement date. |
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Enterprise Portfolio | $ | 39,496,133 | |||
14 | DECEMBER 31, 2011
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Janus Aspen Enterprise Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests primarily in common stocks. The Portfolio is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers two classes of shares: Institutional Shares and Service Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Each class of
Janus Aspen Series | 15
Notes to Financial Statements (continued)
shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and
16 | DECEMBER 31, 2011
repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3 Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are
Janus Aspen Series | 17
Notes to Financial Statements (continued)
summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
There were no Level 3 securities during the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | DERIVATIVE INSTRUMENTS |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. Each derivative instrument that was held by the Portfolio during the fiscal year ended December 31, 2011 is discussed in further detail below. A summary of derivative activity is reflected in the tables at the end of this section.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. | |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. | |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which |
18 | DECEMBER 31, 2011
relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested.
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The Portfolio may enter into forward currency contracts for hedging purposes, including, but not limited to, reducing exposure to changes in foreign currency exchange rates on foreign portfolio holdings and locking in the U.S. dollar cost of firm purchase and sale commitments for securities denominated in or exposed to foreign currencies. The Portfolio may also invest in forward currency contracts for nonhedging purposes such as seeking to enhance returns. The Portfolio is subject to currency risk in the normal course of pursuing its investment objective through its investments in forward currency contracts.
The gain or loss arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing a contract is included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations (if applicable).
Forward currency contracts held by the Portfolio are fully collateralized by other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The collateral is evaluated daily to ensure its market value equals or exceeds the current market value of the corresponding forward currency contracts. Such collateral is in the possession of the Portfolio’s custodian.
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
The following table, grouped by derivative type, provides information about the fair value and location of derivatives within the Statement of Assets and Liabilities as of December 31, 2011.
Fair Value of Derivative Instruments as of December 31, 2011
Derivatives not accounted for as | Asset Derivatives | Liability Derivatives | ||||||||||
hedging instruments | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Foreign Exchange Contracts | Forward currency contracts | $ | 158,845 | |||||||||
Total | $ | 158,845 | ||||||||||
The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the fiscal year ended December 31, 2011.
The effect of Derivative Instruments on the Statement of Operations for the fiscal year ended December 31, 2011
Amount of Realized Gain/(Loss) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Foreign Exchange Contracts | $ | – | $ | – | $ | – | $ | 307,078 | $ | 307,078 | ||||||||||
Total | $ | – | $ | – | $ | – | $ | 307,078 | $ | 307,078 | ||||||||||
Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Foreign Exchange Contracts | $ | – | $ | – | $ | – | $ | (42,784 | ) | $ | (42,784 | ) | ||||||||
Total | $ | – | $ | – | $ | – | $ | (42,784 | ) | $ | (42,784 | ) | ||||||||
Please see the Portfolio’s Statement of Operations for the Portfolio’s “Net Realized and Unrealized Gain/(Loss) on Investments.”
The value of derivative instruments at period end and the effect of derivatives on the Statement of Operations are indicative of the Portfolio’s volume throughout the fiscal year.
Janus Aspen Series | 19
Notes to Financial Statements (continued)
3. | OTHER INVESTMENTS AND STRATEGIES |
Additional Investment Risk
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
20 | DECEMBER 31, 2011
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
Janus Aspen Series | 21
Notes to Financial Statements (continued)
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio manager anticipates that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s contractual investment advisory fee rate (expressed as an annual rate).
Contractual | ||||||||
Average Daily | Investment | |||||||
Net Assets | Advisory Fee (%) | |||||||
Portfolio | of the Portfolio | (annual rate) | ||||||
Janus Aspen Enterprise Portfolio | All Asset Levels | 0.64 | ||||||
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares at an annual rate of up to 0.25% of Service Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one
22 | DECEMBER 31, 2011
or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio may be used to purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio is eligible to participate in the cash sweep program (the “Investing Fund”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
During the fiscal year ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Dividend | Value | |||||||||||
Shares/Cost | Shares/Cost | Income | at 12/31/11 | |||||||||||
Janus Aspen Enterprise Portfolio | ||||||||||||||
Janus Cash Liquidity Fund LLC | $ | 93,386,141 | $ | (129,870,000) | $ | 20,350 | $ | 10,215,870 | ||||||
Janus Aspen Series | 23
Notes to Financial Statements (continued)
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
Undistributed | Undistributed | Late-Year | Other Book | Net Tax | ||||||||||||||||
Ordinary | Long-Term | Accumulated | Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Enterprise Portfolio | $ | – | $ | – | $ | (67,080,125) | $ | – | $ | (16,438) | $ | 151,296,321 | ||||||||
Accumulated capital losses noted below represent net capital loss carryovers, as of December 31, 2011, that may be available to offset future realized capital gains and thereby reduce future taxable gains distributions. Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Portfolio will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may more likely expire unused. Also, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. The following table shows the expiration dates of the carryovers.
Capital Loss Carryover Expiration Schedule
For the year ended December 31, 2011
December 31, | Accumulated | |||||||
Portfolio | 2017 | Capital Losses | ||||||
Janus Aspen Enterprise Portfolio | $ | (67,080,125) | $ | (67,080,125) | ||||
During the fiscal year ended December 31, 2011, the following capital loss carryovers were utilized by the Portfolio:
Capital Loss | ||||||||||||||
Portfolio | Carryover Utilized | |||||||||||||
Janus Aspen Enterprise Portfolio | $ | 71,302,979 | ||||||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary difference between book and tax appreciation or depreciation of investments is wash sale loss deferrals.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Enterprise Portfolio | $ | 373,511,401 | $ | 164,962,643 | $ | (13,666,322) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
24 | DECEMBER 31, 2011
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Enterprise Portfolio | $ | – | $ | – | $ | – | $ | (1,535,976) | |||||||||
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Enterprise Portfolio | $ | 239,123 | $ | – | $ | – | $ | (598,013) | |||||||||
6. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Enterprise Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 624 | 638 | ||||||||
Reinvested dividends and distributions | – | 8 | ||||||||
Shares repurchased | (2,086) | (2,509) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (1,462) | (1,863) | ||||||||
Shares Outstanding, Beginning of Period | 10,189 | 12,052 | ||||||||
Shares Outstanding, End of Period | 8,727 | 10,189 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 761 | 1,101 | ||||||||
Reinvested dividends and distributions | – | – | ||||||||
Shares repurchased | (2,087) | (2,025) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (1,326) | (924) | ||||||||
Shares Outstanding, Beginning of Period | 6,495 | 7,419 | ||||||||
Shares Outstanding, End of Period | 5,169 | 6,495 |
7. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Enterprise Portfolio | $ | 83,835,239 | $ | 160,803,259 | $ | – | $ | – | ||||||
8. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value
Janus Aspen Series | 25
Notes to Financial Statements (continued)
measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
9. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
26 | DECEMBER 31, 2011
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Enterprise Portfolio:
of Janus Aspen Enterprise Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Enterprise Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
Janus Aspen Series | 27
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
28 | DECEMBER 31, 2011
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
Janus Aspen Series | 29
Additional Information (unaudited) (continued)
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
30 | DECEMBER 31, 2011
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The total annual fund operating expenses ratio is based on average net assets as of the fiscal period ended December 31, 2010. The ratio also includes expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, this ratio may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
2a. Forward Currency Contracts
A table listing forward currency contracts follows the Portfolio’s Schedule of Investments (if applicable). Forward currency contracts are agreements to deliver or receive a preset amount of currency at a future date. Forward currency contracts are used to hedge against foreign currency risk in the Portfolio’s long-term holdings.
The table provides the name of the foreign currency, the settlement date of the contract, the amount of the contract, the value of the currency in U.S. dollars and the amount of unrealized gain or loss. The amount of unrealized gain or loss reflects the change in currency exchange rates from the time the contract was opened to the last day of the reporting period.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid. Additionally, there may be other assets and liabilities such as unrealized gain or loss on forward currency contracts.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s
Janus Aspen Series | 31
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
32 | DECEMBER 31, 2011
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio manager. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
Janus Aspen Series | 33
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
34 | DECEMBER 31, 2011
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments -HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
Janus Aspen Series | 35
Trustees and Officers (unaudited) (continued)
OFFICERS
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Brian Demain 151 Detroit Street Denver, CO 80206 DOB: 1977 | Executive Vice President and Portfolio Manager Janus Aspen Enterprise Portfolio | 11/07-Present | Vice President of Janus Capital. | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. | |||
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
36 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 37
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
C-0112-126 | 109-02-81116 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
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Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s managers as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s managers may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s managers in the Management Commentary are just that: opinions. They are a reflection of the managers’ best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the managers’ opinions. These views are unique to each manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Janus Capital Management LLC (“Janus Capital”) has contractually agreed to waive the Portfolio’s total annual fund operating expenses, excluding the distribution and shareholder servicing (12b-1) fees applicable to Service Shares, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses, to certain limits until at least May 1, 2013. Expenses in the examples reflect the application of this waiver. Had the waiver not been in effect, your expenses would have been higher. More information regarding the waiver is available in the Portfolio’s prospectuses.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Flexible Bond Portfolio (unaudited)
Portfolio Snapshot We believe a bottom-up, fundamentally driven investment process that focuses on credit-oriented investments can generate risk-adjusted outperformance relative to our peers over time. Our comprehensive bottom-up view drives decision-making at a macro level, enabling us to make informed decisions about allocations to all sectors of the fixed income universe. | Gibson Smith co-portfolio manager | Darrell Watters co-portfolio manager |
Performance Overview
During the 12-month period ended December 31, 2011, Janus Aspen Flexible Bond Portfolio’s Institutional Shares and Service Shares returned 6.74% and 6.39%, respectively, compared to a 7.84% return for the Portfolio’s benchmark, the Barclays Capital U.S. Aggregate Bond Index.
Portfolio Manager Comments
The volatility in the bond markets has been mind-numbing at times, and a wake-up call to investors that key risks to the economy remain in place. We saw this reflected in the flight to safety that sent Treasury yields to near-record lows in 2011. Quite simply, the world has too much debt and not enough growth, and we are grinding through a deleveraging period that will be more painful and last longer than most investors anticipate. Unfortunately, we have also entered a period where policy actions are not necessarily effective in terms of stabilizing the imbalance and returning us to a more normal environment.
If there’s a theme for 2012 it’s that investors should get used to low rates. The Federal Reserve (Fed) has said that it expects to keep short-term interest rates near zero into late 2014. The question now is whether the Fed will undertake a third round of quantitative easing (QE3) this year. We think the Fed isn’t ready to shoot this bullet yet, but will respond if it sees economic weakness or significant dislocation in the financial markets. We also expect easy monetary policies and low rates in Europe, where inflation expectations are falling as growth rates decline.
We expect interest rate volatility to remain high, as a risk-on/risk-off environment continues amid lack of confidence in global fiscal policy decisions. In a world that is out of balance, the bands of potential outcomes widen, making prediction more difficult. In a general sense, we have been investing against a fairly stable macro backdrop over the last 30 years. But the world changed in 2008, and since then we’ve seen massive intervention and very unconventional policy response, forcing investors to consider outcomes that exhibit much greater volatility. As long as governments around the world exhibit leverage profiles that create uncertainty, U.S. government bonds will continue to be the flight-to-quality asset of choice, due to their liquidity and perceived high quality.
Against this backdrop, we continue to believe that corporate credit offers some of the best risk -adjusted returns in the market. We entered 2011 with a similar belief. The last year was highly volatile for credit, especially financials, which had a big impact on the market. Yet underlying fundamentals continue to improve. Profit margins are high and companies are accumulating cash on balance sheets (more than $2 trillion by some estimates). Moreover, we think there is a newfound conservatism resonating across management teams and boards in the United States and Europe. Management teams are being more careful and have not been committing capital to their businesses – beyond replacement levels – as growth remains slow and uncertainty remains high. We think this will continue through 2012, fueling more free cash flow, liquidity in the system and ultimately support for credit spreads in both investment-grade and high-yield bonds.
Investment Environment
Volatility and headline risk were central themes for investors in 2011. As the year began, signs of stronger economic growth fueled investor appetite for riskier assets. The yield on 10-year U.S. Treasury securities rose to its highest point all year, at 3.75% in early February, while investment-grade and high-yield spreads narrowed. But the trend reversed in March and April, as investors sought safety amid political unrest in the Middle East and North Africa, earthquakes in Japan and New Zealand, and concern about European fiscal problems. In mid-March, rising inflation concerns briefly supported longer-term U.S. Treasury yields, but yields soon began a general decline that lasted throughout 2011.
2 | DECEMBER 31, 2011
(unaudited)
The Treasury rally became especially pronounced from late July through September, as worry mounted that the U.S. economy might slip into a double-dip recession. Investors were troubled by below-expectation U.S. gross domestic product (GDP) growth, a manufacturing slowdown and persistently weak employment, housing and consumer spending figures. Concern about high government debt levels, both in the United States and Europe, only heightened this negative market sentiment. A high-stakes political standoff in Congress in July and August over raising the U.S. debt ceiling did nothing to improve the situation. Credit rating agency Standard & Poor’s subsequently lowered the United States’ sovereign credit rating to AA+ from AAA. The downgrade was followed, ironically, by a near stampede into U.S. Treasury securities, as the darkening global economic picture made Treasuries appear to be the safest haven available.
All eyes returned to Europe in the fall, as fiscal problems in the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) countries threatened to spiral out of control. By October, it appeared that European Union (EU) leaders would manage to contain euro-zone problems, and relieved investors briefly ventured out of Treasuries in search of higher yields. But uncertainty flooded back in November, as governments in Greece and then Italy fell amid market pressure to implement fiscal reforms. The late-November failure of the U.S. Congressional “super committee” to reach a deal to cut $1.2 trillion from the U.S. deficit added to the general malaise.
In December, some headway was made in Europe, as EU leaders announced a plan in which most members would agree to stricter fiscal rules and the European Central Bank served up a larger-than-expected $641 billion in 3-year loans. This injected some calm into the markets as volume wound down for the holidays, although investors remained concerned that credit ratings would be downgraded on one or more of the 17 euro zone countries.
Meanwhile, U.S. macroeconomic data reflected a strengthening domestic economy, with signs of increased hiring and rising consumer confidence. Fears of a double-dip recession, which mounted over the summer as U.S. economic indicators weakened, had receded by the fourth quarter.
Performance Discussion
The portfolio underperformed its benchmark, the Barclays Capital U.S. Aggregate Bond Index (Agg), during 2011. Our zero-weight positioning in government agency debt and underweight in mortgage-backed securities (MBS) were the top positive asset classes, while security selection within corporate credit was the primary asset-class driver of underperformance. In terms of sectors, natural gas pipelines, paper and chemicals were the top-performing sectors, while banking, retailers and non-bank commercial financial services were the worst-performing sectors. We remained significantly overweight corporate credit at year’s end, at nearly 63% of the Portfolio, compared with the Agg’s 20% exposure.
During 2011 we reduced the Portfolio’s exposure to U.S. Treasury securities to 11% at year’s end from nearly 28% at the end of 2010. This was not a steady process. At certain points, notably in February and during the second quarter, we increased Treasury exposure in order to reduce Portfolio risk as a result of our close monitoring of company fundamentals. We believe that a strategic allocation to Treasuries plays a critical defensive role during periods of uncertainty, and the flight-to-safety buying that drove longer-term Treasury yields lower throughout 2011 certainly underscored the security’s safe-haven appeal. However, in light of the U.S. government’s fiscal challenges we continue to monitor how this will play out going forward. In 2012, we expect interest rates to trade in a more range-bound fashion than they did in 2011, as discussed further below in the Outlook section. We balance our risk positions with Treasuries because we believe they offer an insurance policy against tail risk and market volatility. However, considering the high volatility in the market, we think this allocation needs to be actively managed, and we expect to reduce our allocation to take advantage of opportunities as the market presents them.
We maintained zero exposure to U.S. government agency debt throughout 2011. We have long argued that since the 2008-09 financial crisis, U.S. government agencies, agency mortgages and U.S. Treasuries have converged and now move as one large U.S. government sector. We believe that corporate credit represents a better alternative, offering the best risk-adjusted returns. Our focus on security selection also offers a more effective way of capturing alpha (outperformance versus the benchmark) within corporate credit, in our opinion.
That said, we did increase our exposure to select agency MBS during 2011, as MBS spreads moved significantly wider and presented good risk/reward opportunities in our opinion. We began the year with a zero weight to mortgages – an area we had avoided since the third quarter of 2009 – but re-established and then increased our allocation as the year progressed; as of December 31 MBS accounted for 16% of the Portfolio, compared with 32% for the Agg. However, because MBS returns trailed
Janus Aspen Series | 3
Janus Aspen Flexible Bond Portfolio (unaudited)
the Agg during 2011, our underweight allocation proved beneficial during the time period. It’s worth noting that increasing our exposure to MBS was not a broad macroeconomic decision, but consistent with our investment process it was the result of seeking opportunities through close analysis of valuations and individual security fundamentals. Broadly speaking, when the U.S. government placed Fannie Mae and Freddie Mac into conservatorship in 2008, mortgage spreads tightened significantly compared with Treasuries, offering little potential for outperformance. The evolving dynamics within the mortgage market also made it difficult to model duration extension risk. However, over the past year both factors have eased. Particularly encouraging from our standpoint was the Federal Reserve’s announcement in September that it would reinvest maturing MBS paydowns into newly issued MBS, effectively changing the Fed from a net seller to a net buyer in the MBS market. We continue to focus on pre-pay-protected issues such as low-loan balance and seasoned pools to manage the interest rate risk inherent in the sector. Although we remain underweight MBS compared with the Agg, we stand ready to increase our allocation if it appears likely that the Federal Reserve will buy additional MBS as part of a potential QE3.
We also established small positions in commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) during the year, as we perceived fresh opportunities in those markets. We believe that there is opportunity for spread tightening in CMBS as the market slowly and haltingly returns to life following the financial crisis. As of December 31, CMBS accounted for 2.5% of the Portfolio. As for the ABS markets, we prefer commercial ABS sectors (e.g. shipping containers, rail car leasing, timber) where we believe we have an advantage in identifying the best risk-adjusted return, given our bottom-up fundamental analysis and the coordination with our corporate credit analyst team. Although our allocation in the sector is not large, we believe that global ABS can offer good relative value – high credit quality at an attractive yield. As of December 31, ABS accounted for 0.4% of the Portfolio.
Given the high levels of market volatility and economic uncertainty, we believe that individual security selection will be the most important driver of returns for bond investors. As always, we will continue to focus on opportunities that offer the best risk-adjusted returns.
Outlook
Largely because the U.S. economy is being held hostage to decisions in Europe and Washington, we expect another year of subpotential growth. We forecast U.S. gross domestic product growth of 2% in 2012, barring a worsening of the euro zone crisis and assuming that Congress extends long-term unemployment benefits and the payroll tax break until the end of the year; both are currently scheduled to expire at the end of February.
Given current high levels of productivity, we expect that hiring will continue to rise slowly as companies seek to meet essential demand. However, the modest pace will keep the unemployment rate elevated and fluctuating around the 9% level throughout the year. Excess slack in the labor market combined with slow economic growth will keep inflation from moving much higher. In our opinion, the core Consumer Price Index (CPI), excluding food and energy, will continue to accelerate through the first half of 2012, peaking at a 2.5% year-over-year growth rate before moving back below 2%. Core CPI’s recent increase has been largely due to artificial factors, including a supply/demand imbalance in the housing rental market that has pushed up owners’ equivalent rent (OER), a major component of core CPI. We believe this imbalance will correct itself. Meanwhile, producer input prices are dropping, reducing the level of price pressure in the pipeline.
This low-inflation environment would give the Federal Reserve room to continue its accommodative short-term interest rate policy. The Fed has said that it plans to keep short-term interest rates near zero through late 2014. We believe there is a 50% chance that the Fed will initiate QE3 in 2012, by buying mortgage-backed securities, if market conditions warrant. In our view the likelihood of QE3 is heavily dependent on the outcome in Europe, and may be necessary if we see continued dysfunction in Washington.
We expect global economic growth to slow to roughly 2.1% in 2012, with Europe the most challenged region worldwide. In our view Europe will be in recession next year, with growth of negative 0.5% to negative 1%. Policy risk remains high in all regions of the world. We expect inflation to decline globally as commodity prices level out and the pace of growth slows.
We believe that Treasury yields will remain relatively range-bound in 2012 due to the continued headline risk from Europe, political deadlock in Washington and automatic $1.2 trillion government spending cuts scheduled to begin in January 2013. However, we think that rates will be at the higher end of the range by the end of 2012, partly because by that point we should be on a path to stronger economic growth. The front end of the curve is anchored by the Fed’s stated intention to
4 | DECEMBER 31, 2011
(unaudited)
keep interest rates near zero until late 2014. The five-year Treasury is the pivot point and stands to benefit if the Fed implements a third round of quantitative easing. We believe that the 10-year and 30-year Treasury have little upside left, as they enjoyed a remarkable rally in 2011 but will become more vulnerable to inflation concerns the longer the Fed’s accommodative policy continues. We believe this scenario bodes well for fixed-income assets, as market participants likely will look for yield while staying away from equities due to the volatile nature of the market.
Top Detractors
DineEquity: DineEquity is in the process of transforming Applebee’s, a casual dining brand that it acquired in 2007, into a nearly 99% franchised system by selling most of its company-operated restaurants. This will bring Applebee’s business model into line with IHOP, DineEquity’s other brand, and should generate more stable cash flows with less risk. DineEquity also is actively engaged in paying down debt. We exited the position during the period.
AIG: American International Group (AIG), an international insurer, is a high-beta name that faced headwinds in 2011, partly due to general challenges in the financials sector and to the performance of its aircraft-leasing unit, International Lease Finance Corp. Despite the turmoil, we like AIG’s long-term deleveraging plan and recent track record of balance sheet focus. Its core businesses include companies with top market share in their sectors, such as Chartis and SunAmerica.
Top Contributors
Bank of America: Holding the number-one position in U.S. deposits and a large bank branch network, Bank of America is transitioning from being a serial acquirer to focusing on optimizing their existing business lines. As the U.S.’s largest originator and servicer of mortgages, Bank of America’s asset recovery is more sensitive to U.S. real estate and employment improvements. The company continues to improve its capital structure, running off term-debt at a $40-55 billion per year pace and we expect the deleveraging to continue for the next few years. Depending on one’s perspective, Bank of America’s sensitivity to headline risk particularly of the mortgage or regulatory variety can provide attractive opportunities but also periodic volatility. It is also worth noting that the bank is making progress in reducing the mortgage risk within their business.
Pernod-Ricard: A French producer of distilled beverages, Pernod acquired Absolut Vodka in 2008 resulting in a downgrade of the company by ratings agencies. The company has demonstrated its ability to utilize free cash flow for the benefit of bondholders and remains focused on deleveraging.
On behalf of every member of our investment team, thank you for your investment in Janus Aspen Flexible Bond Portfolio. We appreciate your entrusting your assets with us, and we look forward to continuing to serve your investment needs.
Janus Aspen Series | 5
Janus Aspen Flexible Bond Portfolio (unaudited)
Janus Aspen Flexible Bond Portfolio At A Glance
Portfolio Profile
December 31, 2011
Weighted Average Maturity | 8.0 Years | |
Average Effective Duration* | 5.4 Years | |
30-day Current Yield** | ||
Institutional Shares | ||
Without Reimbursement | 3.16% | |
With Reimbursement | 3.33% | |
Service Shares | ||
Without Reimbursement | 2.91% | |
With Reimbursement | 3.08% | |
Number of Bonds/Notes | 313 |
* | A theoretical measure of price volatility | |
** | Yield will fluctuate |
Ratings†Summary – (% of Investment Securities)
December 31, 2011
AAA | 0.9% | |
AA | 31.8% | |
A | 14.5% | |
BBB | 34.4% | |
BB | 14.4% | |
B | 1.2% | |
Other | 2.8% |
† | Rated by Standard & Poor’s |
Significant Areas of Investment – (% of Net Assets)
As of December 31, 2011
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Emerging markets comprised 0.8% of total net assets.
6 | DECEMBER 31, 2011
(unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||||
One | Five | Ten | Since | Total Annual Fund | Net Annual Fund | ||||||||
Year | Year | Year | Inception* | Operating Expenses | Operating Expenses | ||||||||
Janus Aspen Flexible Bond Portfolio – Institutional Shares | 6.74% | 8.17% | 6.76% | 7.38% | 0.56% | 0.55%(a) | |||||||
Janus Aspen Flexible Bond Portfolio – Service Shares | 6.39% | 7.89% | 6.49% | 7.16% | 0.81% | 0.80%(b) | |||||||
Barclays Capital U.S. Aggregate Bond Index | 7.84% | 6.50% | 5.78% | 6.14% | |||||||||
Lipper Quartile – Institutional Shares | 2nd | 1st | 1st | 1st | |||||||||
Lipper Ranking – Institutional Shares based on total returns for Variable Annuity Intermediate Investment Grade Debt Funds | 32/92 | 3/76 | 5/46 | 1/15 | |||||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
(a) Janus Capital has contractually agreed to waive the Portfolio’s total annual fund operating expenses (excluding brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses) to a certain limit until at least May 1, 2013. The contractual waiver may be terminated or modified prior to this date only at the discretion of the Board of Trustees. The expense waiver shown reflects the application of such limit. Returns and yields shown include fee waivers, if any, and without such waivers, returns and yields would have been lower.
(b) Janus Capital has contractually agreed to waive the Portfolio’s total annual fund operating expenses (excluding the distribution and shareholder servicing fees, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses) to a certain limit until at least May 1, 2013. The contractual waiver may be terminated or modified prior to this date only at the discretion of the Board of Trustees. The expense waiver shown reflects the application of such limit. Returns and yields shown include fee waivers, if any, and without such waivers, returns and yields would have been lower.
See important disclosures on the next page.
Janus Aspen Series | 7
Janus Aspen Flexible Bond Portfolio (unaudited)
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. Contractual waivers agreed to by Janus Capital, where applicable, are included under “Net Annual Fund Operating Expenses.” All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio’s performance may be affected by risks that include those associated with non-investment grade debt securities, investments in specific industries or countries, and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), real estate investment trusts (“REITs”), and derivatives. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
Portfolios that invest in bonds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds owned by the Portfolio. Unlike owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond portfolios. The return of principal is not guaranteed due to net asset value fluctuation that is caused by changes in the price of specific bonds held in the Portfolio and selling of bonds within the Portfolio by the portfolio managers.
The Portfolio invests in REITs, which may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographic region. REITs may be subject to risks including, but not limited to: legal, political, liquidity, and interest rate risks, a decline in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrowers. To the extent the Portfolio invests in foreign REITs, the Portfolio may be subject to fluctuations in currency rates or political or economic conditions in a particular country.
The Portfolio invests in mortgage-backed securities. Mortgage-backed securities are subject to prepayment risk (early payoff of mortgages during periods of declining interest rates) and extension risk (extending the duration of mortgage-backed securities during periods of rising interest rates). These risks may increase the volatility of these securities and affect total returns.
High-yield/high-risk bonds, also known as “junk” bonds, involve a greater risk of default and price volatility than investment grade bonds. High-yield/high-risk bonds can experience sudden and sharp price swings which will affect net asset value.
The Portfolio will normally invest at least 80% of its net assets, measured at the time of purchase, in the type of securities described by its name.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Returns shown for Service Shares for periods prior to December 31, 1999 are derived from the historical performance of Institutional Shares, adjusted to reflect the higher operating expenses of Service Shares.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Institutional Share class only; other classes may have different performance characteristics. When an expense waiver is in effect, it may have a material effect on the total return or yield, and therefore the ranking for the period.
September 30, 1993 is the date used to calculate the since-inception Lipper ranking, which is slightly different from when the Portfolio began operations since Lipper provides fund rankings as of the last day of the month.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the index. The index is unmanaged and is not available for direct investment; therefore, its performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
* | The Portfolio’s inception date – September 13, 1993 |
8 | DECEMBER 31, 2011
(unaudited)
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 1,032.90 | $ | 2.82 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,022.43 | $ | 2.80 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 1,032.00 | $ | 4.10 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.17 | $ | 4.08 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.55% for Institutional Shares and 0.80% for Service Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses include effect of contractual waivers by Janus Capital. |
Janus Aspen Series | 9
Janus Aspen Flexible Bond Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Asset-Backed/Commercial Mortgage-Backed Securities – 3.2% | ||||||||||
$1,010,000 | Bear Stearns Commercial Mortgage Securities 5.5370%, 10/12/41 | $ | 1,133,893 | |||||||
992,229 | CLI Funding LLC 4.9400%, 10/15/26 (144A),‡ | 973,222 | ||||||||
897,000 | Commercial Mortgage Pass Through Certificates 5.8137%, 12/10/49‡ | 1,001,254 | ||||||||
837,000 | FREMF Mortgage Trust 4.7268%, 1/25/21 (144A),‡ | 718,870 | ||||||||
523,000 | FREMF Mortgage Trust 5.1587%, 4/25/21 (144A),‡ | 467,612 | ||||||||
836,000 | FREMF Mortgage Trust 4.9329%, 7/25/21‡ | 730,664 | ||||||||
461,000 | FREMF Mortgage Trust 4.7507%, 10/25/21 (144A),‡ | 389,966 | ||||||||
1,206,000 | FREMF Mortgage Trust 4.7705%, 4/25/44 (144A),‡ | 1,114,864 | ||||||||
1,476,000 | FREMF Mortgage Trust 4.8868%, 7/25/44 (144A),‡ | 1,366,497 | ||||||||
919,000 | GS Mortgage Securities Corp. II 5.5600%, 11/10/39 | 1,008,973 | ||||||||
439,000 | JPMorgan Chase Commercial Mortgage Securities Corp. 3.3638%, 11/13/16 (144A),‡ | 443,425 | ||||||||
1,334,000 | JPMorgan Chase Commercial Mortgage Securities Corp. 3.6620%, 7/5/24 (144A) | 1,367,879 | ||||||||
584,000 | JPMorgan Chase Commercial Mortgage Securities Corp. 5.6330%, 12/5/27 (144A) | 663,983 | ||||||||
584,000 | JPMorgan Chase Commercial Mortgage Securities Corp. 5.8748%, 4/15/45‡ | 655,441 | ||||||||
881,000 | Morgan Stanley Capital I 3.8840%, 2/15/16 (144A) | 925,778 | ||||||||
1,000,000 | Oxbow Resources LLC 4.9690%, 5/1/36 (144A) | 1,017,800 | ||||||||
438,000 | SLM Student Loan Trust 4.3700%, 4/17/28 (144A) | 444,765 | ||||||||
506,000 | SLM Student Loan Trust 2.7783%, 1/15/43 (144A),‡ | 484,455 | �� | |||||||
Total Asset-Backed/Commercial Mortgage-Backed Securities (cost $14,875,446) | 14,909,341 | |||||||||
Bank Loans – 0.8% | ||||||||||
Auction House – Art Dealer – 0.2% | ||||||||||
801,970 | KAR Auction Services, Inc. 5.0000%, 5/19/17‡ | 789,604 | ||||||||
Electric – Generation – 0.2% | ||||||||||
836,677 | AES Corp. 4.2500%, 6/1/18‡ | 832,812 | ||||||||
Food – Miscellaneous/Diversified – 0.3% | ||||||||||
1,476,827 | Del Monte Foods Co. 4.5000%, 3/8/18‡ | 1,399,293 | ||||||||
Telecommunication Equipment – 0.1% | ||||||||||
532,973 | CommScope, Inc. 5.0000%, 1/14/18‡ | 527,909 | ||||||||
Total Bank Loans (cost $3,635,339) | 3,549,618 | |||||||||
Corporate Bonds – 62.6% | ||||||||||
Advertising Services – 0.4% | ||||||||||
1,081,000 | WPP Finance UK 8.0000%, 9/15/14 | 1,204,136 | ||||||||
660,000 | WPP Finance UK 4.7500%, 11/21/21 (144A) | 655,191 | ||||||||
1,859,327 | ||||||||||
Aerospace and Defense – Equipment – 0.8% | ||||||||||
1,813,000 | Exelis, Inc. 4.2500%, 10/1/16 (144A) | 1,829,317 | ||||||||
1,846,000 | Exelis, Inc. 5.5500%, 10/1/21 (144A) | 1,927,261 | ||||||||
3,756,578 | ||||||||||
Agricultural Chemicals – 1.1% | ||||||||||
2,319,000 | CF Industries, Inc. 6.8750%, 5/1/18 | 2,655,255 | ||||||||
823,000 | CF Industries, Inc. 7.1250%, 5/1/20 | 973,197 | ||||||||
732,000 | Incitec Pivot, Ltd. 4.0000%, 12/7/15 (144A) | 746,969 | ||||||||
468,000 | Mosaic Co. 3.7500%, 11/15/21 | 472,864 | ||||||||
483,000 | Mosaic Co. 4.8750%, 11/15/41 | 499,287 | ||||||||
5,347,572 | ||||||||||
Airlines – 0.4% | ||||||||||
427,000 | Southwest Airlines Co. 5.2500%, 10/1/14 | 455,703 | ||||||||
1,173,000 | Southwest Airlines Co. 5.1250%, 3/1/17 | 1,236,243 | ||||||||
1,691,946 | ||||||||||
Beverages – Wine and Spirits – 2.0% | ||||||||||
5,650,000 | Pernod-Ricard S.A. 5.7500%, 4/7/21 (144A) | 6,374,336 | ||||||||
2,864,000 | Pernod-Ricard S.A. 4.4500%, 1/15/22 (144A) | 3,000,283 | ||||||||
9,374,619 | ||||||||||
Brewery – 0.3% | ||||||||||
1,458,000 | Anheuser-Busch InBev Worldwide, Inc. 1.5000%, 7/14/14 | 1,468,420 | ||||||||
Building – Residential and Commercial – 0.1% | ||||||||||
554,000 | MDC Holdings, Inc. 5.3750%, 12/15/14 | 573,222 | ||||||||
Building Products – Cement and Aggregate – 0.4% | ||||||||||
274,000 | CRH America, Inc. 4.1250%, 1/15/16 | 273,563 | ||||||||
292,000 | CRH America, Inc. 5.7500%, 1/15/21 | 297,697 | ||||||||
1,333,000 | Hanson, Ltd. 6.1250%, 8/15/16 | 1,352,995 | ||||||||
1,924,255 |
See Notes to Schedule of Investments and Financial Statements.
10 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Cable/Satellite Television – 0.4% | ||||||||||
$1,586,000 | Comcast Corp. 5.1500%, 3/1/20 | $ | 1,803,650 | |||||||
Chemicals – Diversified – 1.2% | ||||||||||
1,682,000 | Lyondell Chemical Co. 8.0000%, 11/1/17 | 1,837,585 | ||||||||
1,199,467 | Lyondell Chemical Co. 11.0000%, 5/1/18 | 1,310,418 | ||||||||
2,693,000 | LyondellBasell Industries N.V. 6.0000%, 11/15/21 (144A) | 2,793,987 | ||||||||
5,941,990 | ||||||||||
Chemicals – Specialty – 1.4% | ||||||||||
1,097,000 | Ashland, Inc. 9.1250%, 6/1/17 | 1,223,155 | ||||||||
2,364,000 | Ecolab, Inc. 3.0000%, 12/8/16 | 2,445,345 | ||||||||
2,015,000 | Ecolab, Inc. 4.3500%, 12/8/21 | 2,151,796 | ||||||||
589,000 | Ecolab, Inc. 5.5000%, 12/8/41 | 652,696 | ||||||||
6,472,992 | ||||||||||
Coatings and Paint Products – 0.3% | ||||||||||
1,148,000 | RPM International, Inc. 6.1250%, 10/15/19 | 1,247,792 | ||||||||
Commercial Banks – 2.8% | ||||||||||
547,000 | Abbey National Treasury Services PLC 2.0022%, 4/25/14‡ | 497,979 | ||||||||
1,143,000 | American Express Bank FSB 5.5000%, 4/16/13 | 1,194,724 | ||||||||
3,717,000 | Bank of Montreal 2.6250%, 1/25/16 (144A) | 3,836,933 | ||||||||
1,696,000 | CIT Group, Inc. 5.2500%, 4/1/14 (144A) | 1,689,640 | ||||||||
1,371,000 | HSBC Bank USA 4.8750%, 8/24/20 | 1,272,200 | ||||||||
1,639,000 | Standard Chartered PLC 3.2000%, 5/12/16 (144A) | 1,603,809 | ||||||||
1,870,000 | SVB Financial Group 5.3750%, 9/15/20 | 1,915,776 | ||||||||
1,417,000 | Zions Bancorp. 7.7500%, 9/23/14 | 1,502,431 | ||||||||
13,513,492 | ||||||||||
Commercial Services – Finance – 0.3% | ||||||||||
1,471,000 | Western Union Co. 3.6500%, 8/22/18 | 1,508,202 | ||||||||
Computer Services – 0.2% | ||||||||||
739,000 | International Business Machines Corp. 2.9000%, 11/1/21 | 761,794 | ||||||||
Computers – Memory Devices – 0.3% | ||||||||||
1,215,000 | Seagate Technology 10.0000%, 5/1/14 (144A) | 1,374,469 | ||||||||
Consulting Services – 1.3% | ||||||||||
1,174,000 | Verisk Analytics, Inc. 4.8750%, 1/15/19 | 1,184,449 | ||||||||
4,670,000 | Verisk Analytics, Inc. 5.8000%, 5/1/21 | 5,027,227 | ||||||||
6,211,676 | ||||||||||
Containers – Metal and Glass – 0.1% | ||||||||||
387,000 | Ball Corp. 7.1250%, 9/1/16 | 420,863 | ||||||||
Containers – Paper and Plastic – 0.3% | ||||||||||
472,000 | Sonoco Products Co. 4.3750%, 11/1/21 | 488,885 | ||||||||
820,000 | Sonoco Products Co. 5.7500%, 11/1/40 | 876,164 | ||||||||
1,365,049 | ||||||||||
Data Processing and Management – 0.5% | ||||||||||
1,249,000 | Fiserv, Inc. 3.1250%, 10/1/15 | 1,279,478 | ||||||||
468,000 | Fiserv, Inc. 3.1250%, 6/15/16 | 476,514 | ||||||||
468,000 | Fiserv, Inc. 4.7500%, 6/15/21 | 489,639 | ||||||||
2,245,631 | ||||||||||
Diversified Banking Institutions – 2.9% | ||||||||||
1,891,000 | Bank of America Corp. 4.5000%, 4/1/15 | 1,824,789 | ||||||||
809,000 | Citigroup, Inc. 5.0000%, 9/15/14 | 800,674 | ||||||||
688,000 | Citigroup, Inc. 4.8750%, 5/7/15 | 679,560 | ||||||||
477,000 | Citigroup, Inc. 4.5000%, 1/14/22 | 458,885 | ||||||||
387,000 | Goldman Sachs Group, Inc. 3.7000%, 8/1/15 | 379,145 | ||||||||
1,172,000 | Goldman Sachs Group, Inc. 3.6250%, 2/7/16 | 1,132,413 | ||||||||
955,000 | Goldman Sachs Group, Inc. 5.2500%, 7/27/21 | 931,641 | ||||||||
1,066,000 | JPMorgan Chase & Co. 6.0000%, 1/15/18 | 1,189,314 | ||||||||
1,312,000 | JPMorgan Chase & Co. 4.2500%, 10/15/20 | 1,321,214 | ||||||||
1,172,000 | Morgan Stanley 4.0000%, 7/24/15 | 1,099,045 | ||||||||
863,000 | Morgan Stanley 3.4500%, 11/2/15 | 794,556 | ||||||||
1,544,000 | Morgan Stanley 5.6250%, 9/23/19 | 1,429,866 | ||||||||
588,000 | Royal Bank of Scotland PLC 3.9500%, 9/21/15 | 551,370 | ||||||||
1,373,000 | Royal Bank of Scotland PLC 4.3750%, 3/16/16 | 1,309,832 | ||||||||
13,902,304 | ||||||||||
Diversified Financial Services – 1.9% | ||||||||||
447,000 | General Electric Capital Corp. 4.8000%, 5/1/13 | 467,956 | ||||||||
628,000 | General Electric Capital Corp. 5.9000%, 5/13/14 | 687,756 | ||||||||
2,989,000 | General Electric Capital Corp. 6.0000%, 8/7/19 | 3,433,249 | ||||||||
2,495,000 | General Electric Capital Corp. 5.5000%, 1/8/20 | 2,745,229 | ||||||||
1,612,000 | General Electric Capital Corp. 4.6500%, 10/17/21 | 1,682,391 | ||||||||
9,016,581 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 11
Janus Aspen Flexible Bond Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Diversified Minerals – 0.5% | ||||||||||
$425,000 | Teck Resources, Ltd. 7.0000%, 9/15/12 | $ | 441,169 | |||||||
377,000 | Teck Resources, Ltd. 9.7500%, 5/15/14 | 443,039 | ||||||||
1,145,000 | Teck Resources, Ltd. 10.2500%, 5/15/16 | 1,316,750 | ||||||||
3,000 | Teck Resources, Ltd. 10.7500%, 5/15/19 | 3,660 | ||||||||
2,204,618 | ||||||||||
Diversified Operations – 0.6% | ||||||||||
947,000 | Danaher Corp. 2.3000%, 6/23/16 | 984,301 | ||||||||
1,746,000 | Tyco Electronics Group S.A. 6.0000%, 10/1/12 | 1,807,265 | ||||||||
2,791,566 | ||||||||||
Diversified Operations – Commercial Services – 0.2% | ||||||||||
925,000 | ARAMARK Corp. 8.5000%, 2/1/15 | 948,125 | ||||||||
Electric – Generation – 0.1% | ||||||||||
380,000 | AES Corp. 7.7500%, 10/15/15 | 413,250 | ||||||||
Electric – Integrated – 3.0% | ||||||||||
870,000 | Calpine Construction Finance Co. L.P. 8.0000%, 6/1/16 (144A) | 939,600 | ||||||||
716,000 | CMS Energy Corp. 1.3531%, 1/15/13‡ | 708,840 | ||||||||
1,536,000 | CMS Energy Corp. 4.2500%, 9/30/15 | 1,552,432 | ||||||||
1,143,000 | CMS Energy Corp. 5.0500%, 2/15/18 | 1,140,145 | ||||||||
480,000 | Florida Power Corp. 3.1000%, 8/15/21 | 491,118 | ||||||||
1,090,000 | Great Plains Energy, Inc. 4.8500%, 6/1/21 | 1,142,569 | ||||||||
745,000 | Monongahela Power Co. 6.7000%, 6/15/14 | 826,094 | ||||||||
231,000 | Pacific Gas & Electric Co. 3.2500%, 9/15/21 | 234,399 | ||||||||
4,774,000 | PPL Energy Supply LLC 4.6000%, 12/15/21 | 4,841,309 | ||||||||
653,000 | PPL WEM Holdings PLC 3.9000%, 5/1/16 (144A) | 654,572 | ||||||||
254,000 | San Diego Gas & Electric Co. 3.0000%, 8/15/21 | 261,214 | ||||||||
740,000 | Virginia Electric and Power Co. 5.1000%, 11/30/12 | 768,641 | ||||||||
464,000 | Wisconsin Electric Power Co. 2.9500%, 9/15/21 | 472,912 | ||||||||
14,033,845 | ||||||||||
Electronic Components – Semiconductors – 1.2% | ||||||||||
733,000 | National Semiconductor Corp. 6.1500%, 6/15/12 | 750,967 | ||||||||
2,170,000 | National Semiconductor Corp. 3.9500%, 4/15/15 | 2,344,023 | ||||||||
1,523,000 | National Semiconductor Corp. 6.6000%, 6/15/17 | 1,870,657 | ||||||||
876,000 | Texas Instruments, Inc. 2.3750%, 5/16/16 | 912,504 | ||||||||
5,878,151 | ||||||||||
Electronic Connectors – 0.4% | ||||||||||
1,794,000 | Amphenol Corp. 4.7500%, 11/15/14 | 1,922,217 | ||||||||
Electronic Measuring Instruments – 0.4% | ||||||||||
560,000 | Agilent Technologies, Inc. 2.5000%, 7/15/13 | 565,289 | ||||||||
1,588,000 | FLIR Systems, Inc. 3.7500%, 9/1/16 | 1,582,018 | ||||||||
2,147,307 | ||||||||||
Electronics – Military – 0.8% | ||||||||||
1,933,000 | L-3 Communications Corp. 6.3750%, 10/15/15 | 1,981,325 | ||||||||
529,000 | L-3 Communications Corp. 5.2000%, 10/15/19 | 536,628 | ||||||||
1,559,000 | L-3 Communications Corp. 4.7500%, 7/15/20 | 1,540,370 | ||||||||
4,058,323 | ||||||||||
Enterprise Software/Services – 0.2% | ||||||||||
905,000 | BMC Software, Inc. 7.2500%, 6/1/18 | 1,043,638 | ||||||||
Finance – Auto Loans – 1.5% | ||||||||||
588,000 | Ford Motor Credit Co. LLC 7.5000%, 8/1/12 | 606,886 | ||||||||
4,131,000 | Ford Motor Credit Co. LLC 3.8750%, 1/15/15 | 4,115,583 | ||||||||
1,184,000 | Ford Motor Credit Co. LLC 6.6250%, 8/15/17 | 1,288,854 | ||||||||
1,287,000 | Ford Motor Credit Co. LLC 5.0000%, 5/15/18 | 1,290,337 | ||||||||
7,301,660 | ||||||||||
Finance��– Consumer Loans – 0.5% | ||||||||||
471,000 | John Deere Capital Corp. 3.9000%, 7/12/21 | 512,684 | ||||||||
2,134,000 | SLM Corp. 6.2500%, 1/25/16 | 2,075,270 | ||||||||
2,587,954 | ||||||||||
Finance – Credit Card – 0.6% | ||||||||||
1,514,000 | American Express Co. 6.8000%, 9/1/66‡ | 1,506,430 | ||||||||
1,561,000 | American Express Credit Co. 2.8000%, 9/19/16 | 1,568,649 | ||||||||
3,075,079 | ||||||||||
Finance – Investment Bankers/Brokers – 1.7% | ||||||||||
978,000 | Jefferies Group, Inc. 3.8750%, 11/9/15 | 865,530 | ||||||||
1,701,000 | Jefferies Group, Inc. 5.1250%, 4/13/18 | 1,496,880 | ||||||||
881,000 | Jefferies Group, Inc. 8.5000%, 7/15/19 | 894,215 | ||||||||
1,728,000 | Lazard Group LLC 7.1250%, 5/15/15 | 1,855,502 |
See Notes to Schedule of Investments and Financial Statements.
12 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Finance – Investment Bankers/Brokers – (continued) | ||||||||||
$96,000 | Lazard Group LLC 6.8500%, 6/15/17 | $ | 100,702 | |||||||
1,891,000 | TD Ameritrade Holding Corp. 4.1500%, 12/1/14 | 1,998,577 | ||||||||
658,000 | TD Ameritrade Holding Corp. 5.6000%, 12/1/19 | 711,461 | ||||||||
7,922,867 | ||||||||||
Finance – Mortgage Loan Banker – 0.5% | ||||||||||
2,187,000 | Northern Rock Asset Management PLC 5.6250%, 6/22/17 (144A) | 2,299,631 | ||||||||
Food – Meat Products – 1.0% | ||||||||||
144,000 | Smithfield Foods, Inc. 7.7500%, 5/15/13 | 152,640 | ||||||||
4,107,000 | Tyson Foods, Inc. 6.8500%, 4/1/16‡ | 4,507,433 | ||||||||
4,660,073 | ||||||||||
Food – Miscellaneous/Diversified – 0.9% | ||||||||||
1,514,000 | Corn Products International, Inc. 3.2000%, 11/1/15 | 1,564,263 | ||||||||
201,000 | Del Monte Corp. 7.6250%, 2/15/19 | 192,960 | ||||||||
244,000 | Dole Food Co., Inc. 13.8750%, 3/15/14 | 281,820 | ||||||||
929,000 | Kellogg Co. 3.2500%, 5/21/18 | 976,961 | ||||||||
1,023,000 | Kraft Foods, Inc. 5.3750%, 2/10/20 | 1,180,390 | ||||||||
4,196,394 | ||||||||||
Gas – Transportation – 0.1% | ||||||||||
215,000 | Southern Star Central Gas Pipeline, Inc. 6.0000%, 6/1/16 (144A) | 243,150 | ||||||||
Hazardous Waste Disposal – 0.1% | ||||||||||
481,000 | Clean Harbors, Inc. 7.6250%, 8/15/16 | 511,063 | ||||||||
Hotels and Motels – 0.9% | ||||||||||
801,000 | Hyatt Hotels Corp. 5.7500%, 8/15/15 (144A) | 857,769 | ||||||||
258,000 | Hyatt Hotels Corp. 6.8750%, 8/15/19 (144A) | 287,905 | ||||||||
1,130,000 | Marriott International, Inc. 4.6250%, 6/15/12 | 1,144,767 | ||||||||
224,000 | Starwood Hotels & Resorts Worldwide, Inc. 7.8750%, 10/15/14 | 251,440 | ||||||||
293,000 | Starwood Hotels & Resorts Worldwide, Inc. 6.7500%, 5/15/18 | 331,090 | ||||||||
1,203,000 | Starwood Hotels & Resorts Worldwide, Inc. 7.1500%, 12/1/19 | 1,375,931 | ||||||||
4,248,902 | ||||||||||
Investment Management and Advisory Services – 0.8% | ||||||||||
368,000 | Ameriprise Financial, Inc. 7.3000%, 6/28/19 | 441,311 | ||||||||
442,000 | Ameriprise Financial, Inc. 5.3000%, 3/15/20 | 475,618 | ||||||||
1,764,000 | Ameriprise Financial, Inc. 7.5180%, 6/1/66‡ | 1,777,230 | ||||||||
863,000 | FMR LLC 6.4500%, 11/15/39 (144A) | 925,719 | ||||||||
3,619,878 | ||||||||||
Life and Health Insurance – 0.1% | ||||||||||
318,000 | Prudential Financial, Inc. 4.7500%, 6/13/15 | 336,191 | ||||||||
Linen Supply & Related Items – 0.3% | ||||||||||
667,000 | Cintas Corp. No. 2 2.8500%, 6/1/16 | 684,037 | ||||||||
712,000 | Cintas Corp. No. 2 4.3000%, 6/1/21 | 764,812 | ||||||||
1,448,849 | ||||||||||
Medical – Biomedical and Genetic – 0.7% | ||||||||||
746,000 | Bio-Rad Laboratories, Inc. 8.0000%, 9/15/16 | 816,870 | ||||||||
1,191,000 | Gilead Sciences, Inc. 4.4000%, 12/1/21 | 1,260,902 | ||||||||
970,000 | Gilead Sciences, Inc. 5.6500%, 12/1/41 | 1,073,948 | ||||||||
3,151,720 | ||||||||||
Medical – HMO – 0.1% | ||||||||||
240,000 | Health Care Service Corp. 4.7000%, 1/15/21 (144A) | 257,840 | ||||||||
Medical Instruments – 0.7% | ||||||||||
706,000 | Boston Scientific Corp. 4.5000%, 1/15/15 | 740,886 | ||||||||
1,405,000 | Boston Scientific Corp. 6.0000%, 1/15/20 | 1,568,456 | ||||||||
944,000 | Boston Scientific Corp. 7.0000%, 11/15/35 | 1,087,427 | ||||||||
3,396,769 | ||||||||||
Medical Products – 0.2% | ||||||||||
743,000 | CareFusion Corp. 4.1250%, 8/1/12 | 754,289 | ||||||||
Metal Processors and Fabricators – 0.1% | ||||||||||
258,000 | Timken Co. 6.0000%, 9/15/14 | 279,208 | ||||||||
Money Center Banks – 0.5% | ||||||||||
2,524,000 | Lloyds TSB Bank PLC 4.8750%, 1/21/16 | 2,459,850 | ||||||||
Multi-Line Insurance – 2.0% | ||||||||||
2,132,000 | American International Group, Inc. 4.2500%, 9/15/14 | 2,070,445 | ||||||||
1,183,000 | American International Group, Inc. 5.4500%, 5/18/17 | 1,130,522 | ||||||||
1,754,000 | American International Group, Inc. 6.4000%, 12/15/20 | 1,770,189 | ||||||||
2,430,000 | American International Group, Inc. 8.1750%, 5/15/58‡ | 2,162,700 | ||||||||
1,138,000 | MetLife, Inc. 2.3750%, 2/6/14 | 1,153,878 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 13
Janus Aspen Flexible Bond Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Multi-Line Insurance – (continued) | ||||||||||
$496,000 | MetLife, Inc. 6.7500%, 6/1/16 | $ | 571,411 | |||||||
580,000 | MetLife, Inc. 7.7170%, 2/15/19 | 727,289 | ||||||||
9,586,434 | ||||||||||
Oil – Field Services – 1.4% | ||||||||||
1,265,000 | Korea National Oil Corp. 4.0000%, 10/27/16 (144A) | 1,299,073 | ||||||||
2,155,000 | Schlumberger Investment S.A. 1.9500%, 9/14/16 (144A) | 2,180,358 | ||||||||
2,156,000 | Schlumberger Investment S.A. 3.3000%, 9/14/21 (144A) | 2,214,938 | ||||||||
939,000 | Weatherford International, Ltd. 5.1250%, 9/15/20 | 975,788 | ||||||||
6,670,157 | ||||||||||
Oil and Gas Drilling – 0.8% | ||||||||||
2,704,000 | Nabors Industries, Inc. 5.0000%, 9/15/20 | 2,756,731 | ||||||||
976,000 | Rowan Cos., Inc. 5.0000%, 9/1/17 | 1,025,540 | ||||||||
3,782,271 | ||||||||||
Oil Companies – Exploration and Production – 1.4% | ||||||||||
2,483,000 | Anadarko Petroleum Corp. 6.4500%, 9/15/36 | 2,830,871 | ||||||||
629,000 | Forest Oil Corp. 8.5000%, 2/15/14 | 685,610 | ||||||||
869,000 | Occidental Petroleum Corp. 1.7500%, 2/15/17 | 880,167 | ||||||||
486,000 | Occidental Petroleum Corp. 3.1250%, 2/15/22 | 498,561 | ||||||||
245,000 | Petrohawk Energy Corp. 7.2500%, 8/15/18 | 275,625 | ||||||||
1,347,000 | Petrohawk Energy Corp. 6.2500%, 6/1/19 | 1,481,700 | ||||||||
171,000 | Whiting Petroleum Corp. 6.5000%, 10/1/18 | 178,695 | ||||||||
6,831,229 | ||||||||||
Oil Companies – Integrated – 0.8% | ||||||||||
1,615,000 | BP Capital Markets PLC 2.2480%, 11/1/16 | 1,625,299 | ||||||||
986,000 | BP Capital Markets PLC 4.5000%, 10/1/20 | 1,085,952 | ||||||||
1,147,000 | BP Capital Markets PLC 3.5610%, 11/1/21 | 1,194,123 | ||||||||
3,905,374 | ||||||||||
Oil Refining and Marketing – 0.5% | ||||||||||
369,000 | Frontier Oil Corp. 8.5000%, 9/15/16 | 392,985 | ||||||||
869,000 | Motiva Enterprises LLC 5.7500%, 1/15/20 (144A) | 1,009,927 | ||||||||
338,000 | Sunoco Logistics Partners Operations L.P. 4.6500%, 2/15/22 | 345,569 | ||||||||
795,000 | Sunoco Logistics Partners Operations L.P. 6.1000%, 2/15/42 | 850,762 | ||||||||
2,599,243 | ||||||||||
Paper and Related Products – 0.6% | ||||||||||
661,000 | International Paper Co. 4.7500%, 2/15/22 | 702,611 | ||||||||
2,010,000 | International Paper Co. 6.0000%, 11/15/41 | 2,182,082 | ||||||||
2,884,693 | ||||||||||
Pharmacy Services – 0.9% | ||||||||||
3,032,000 | Aristotle Holding, Inc. 4.7500%, 11/15/21 (144A) | 3,137,425 | ||||||||
994,000 | Express Scripts, Inc. 3.1250%, 5/15/16 | 999,510 | ||||||||
4,136,935 | ||||||||||
Pipelines – 3.9% | ||||||||||
598,000 | Colorado Interstate Gas Co. LLC 6.8500%, 6/15/37 | 658,533 | ||||||||
1,239,000 | DCP Midstream Operating L.P. 3.2500%, 10/1/15 | 1,250,374 | ||||||||
517,000 | El Paso Corp. 7.7500%, 1/15/32 | 597,135 | ||||||||
220,000 | El Paso Pipeline Partners Operating Co. LLC 6.5000%, 4/1/20 | 242,468 | ||||||||
945,000 | El Paso Pipeline Partners Operating Co. LLC 5.0000%, 10/1/21 | 972,607 | ||||||||
430,000 | Energy Transfer Partners L.P. 5.9500%, 2/1/15 | 464,775 | ||||||||
913,000 | Energy Transfer Partners L.P. 4.6500%, 6/1/21 | 894,371 | ||||||||
457 | Kern River Funding Corp. 4.8930%, 4/30/18‡,§ | 499 | ||||||||
271,000 | Kinder Morgan Energy Partners L.P. 5.9500%, 2/15/18 | 309,602 | ||||||||
1,866,000 | Kinder Morgan Finance Co. ULC 5.7000%, 1/5/16 | 1,907,985 | ||||||||
1,779,000 | Magellan Midstream Partners L.P. 4.2500%, 2/1/21 | 1,864,572 | ||||||||
1,633,000 | Plains All American Pipeline L.P. 3.9500%, 9/15/15 | 1,729,246 | ||||||||
1,434,000 | Plains All American Pipeline L.P. 5.0000%, 2/1/21 | 1,579,692 | ||||||||
869,000 | TC Pipelines L.P. 4.6500%, 6/15/21 | 909,877 | ||||||||
4,404,000 | Western Gas Partners L.P. 5.3750%, 6/1/21 | 4,668,989 | ||||||||
445,000 | Williams Partners L.P. 3.8000%, 2/15/15 | 467,158 | ||||||||
18,517,883 | ||||||||||
Property and Casualty Insurance – 0.2% | ||||||||||
569,000 | Fidelity National Financial, Inc. 6.6000%, 5/15/17 | 603,152 | ||||||||
456,000 | Progressive Corp. 3.7500%, 8/23/21 | 473,838 | ||||||||
1,076,990 | ||||||||||
Publishing – Newspapers – 0% | ||||||||||
196,000 | Gannett Co., Inc. 6.3750%, 9/1/15 | 198,940 | ||||||||
Publishing – Periodicals – 0.4% | ||||||||||
1,870,000 | United Business Media, Ltd. 5.7500%, 11/3/20 (144A) | 1,886,187 |
See Notes to Schedule of Investments and Financial Statements.
14 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Real Estate Management/Services – 0.3% | ||||||||||
$578,000 | CB Richard Ellis Services, Inc. 6.6250%, 10/15/20 | $ | 592,450 | |||||||
434,000 | ProLogis L.P. 6.6250%, 5/15/18 | 471,340 | ||||||||
470,000 | ProLogis L.P. 6.8750%, 3/15/20 | 521,853 | ||||||||
1,585,643 | ||||||||||
Real Estate Operating/Development – 0.3% | ||||||||||
1,242,000 | Post Apartment Homes L.P. 4.7500%, 10/15/17 | 1,259,590 | ||||||||
REIT – Diversified – 0.9% | ||||||||||
1,194,000 | Goodman Funding Pty, Ltd. 6.3750%, 11/12/20 (144A) | 1,218,303 | ||||||||
2,824,000 | Goodman Funding Pty, Ltd. 6.3750%, 4/15/21 (144A) | 2,873,485 | ||||||||
4,091,788 | ||||||||||
REIT – Health Care – 0.8% | ||||||||||
682,000 | Senior Housing Properties Trust 6.7500%, 4/15/20 | 695,037 | ||||||||
948,000 | Senior Housing Properties Trust 6.7500%, 12/15/21 | 963,486 | ||||||||
865,000 | Ventas Realty L.P. / Ventas Capital Corp. 6.5000%, 6/1/16 | 891,782 | ||||||||
1,357,000 | Ventas Realty L.P. / Ventas Capital Corp. 6.7500%, 4/1/17 | 1,407,339 | ||||||||
3,957,644 | ||||||||||
REIT – Hotels – 0.4% | ||||||||||
1,804,000 | Host Hotels & Resorts L.P. 6.7500%, 6/1/16 | 1,853,610 | ||||||||
REIT – Office Property – 0.8% | ||||||||||
441,000 | Reckson Operating Partnership L.P. 6.0000%, 3/31/16 | 457,556 | ||||||||
1,212,000 | Reckson Operating Partnership L.P. 5.0000%, 8/15/18 | 1,170,687 | ||||||||
2,113,000 | Reckson Operating Partnership L.P. 7.7500%, 3/15/20 | 2,317,443 | ||||||||
3,945,686 | ||||||||||
REIT – Regional Malls – 1.6% | ||||||||||
4,855,000 | Rouse Co. L.P. 6.7500%, 5/1/13 (144A) | 4,897,481 | ||||||||
2,795,000 | Rouse Co. L.P. 6.7500%, 11/9/15 | 2,826,444 | ||||||||
7,723,925 | ||||||||||
REIT – Shopping Centers – 0.1% | ||||||||||
472,000 | Developers Diversified Realty Corp. 4.7500%, 4/15/18 | 451,613 | ||||||||
Retail – Regional Department Stores – 0.6% | ||||||||||
580,000 | Macy’s Retail Holdings, Inc. 5.7500%, 7/15/14 | 616,950 | ||||||||
1,252,000 | Macy’s Retail Holdings, Inc. 5.9000%, 12/1/16 | 1,399,075 | ||||||||
622,000 | Macy’s Retail Holdings, Inc. 6.9000%, 4/1/29 | 684,100 | ||||||||
2,700,125 | ||||||||||
Retail – Restaurants – 0.8% | ||||||||||
1,241,000 | Brinker International 5.7500%, 6/1/14 | 1,308,966 | ||||||||
2,428,000 | Darden Restaurants, Inc. 4.5000%, 10/15/21 | 2,491,074 | ||||||||
3,800,040 | ||||||||||
Steel – Producers – 0.3% | ||||||||||
1,551,000 | Steel Dynamics, Inc. 6.7500%, 4/1/15 | 1,585,898 | ||||||||
Super-Regional Banks – 1.4% | ||||||||||
445,000 | PNC Funding Corp. 3.6250%, 2/8/15 | 467,436 | ||||||||
958,000 | SunTrust Banks, Inc. 3.6000%, 4/15/16 | 975,567 | ||||||||
1,561,000 | SunTrust Banks, Inc. 3.5000%, 1/20/17 | 1,569,048 | ||||||||
1,495,000 | US Bancorp 2.2000%, 11/15/16 | 1,509,364 | ||||||||
1,863,000 | Wells Fargo & Co. 4.6000%, 4/1/21 | 2,043,119 | ||||||||
6,564,534 | ||||||||||
Telecommunication Services – 0.5% | ||||||||||
2,059,000 | Qwest Corp. 6.7500%, 12/1/21 | 2,244,310 | ||||||||
Telephone – Integrated – 1.2% | ||||||||||
583,000 | CenturyLink, Inc. 5.1500%, 6/15/17 | 577,859 | ||||||||
560,000 | CenturyLink, Inc. 7.6000%, 9/15/39 | 549,508 | ||||||||
460,000 | Qwest Communications International, Inc. 7.5000%, 2/15/14 | 461,737 | ||||||||
4,107,000 | Qwest Communications International, Inc. 7.1250%, 4/1/18 | 4,271,280 | ||||||||
5,860,384 | ||||||||||
Transportation – Railroad – 1.1% | ||||||||||
496,000 | Burlington Northern Santa Fe LLC 3.4500%, 9/15/21 | 511,222 | ||||||||
496,000 | Burlington Northern Santa Fe LLC 4.9500%, 9/15/41 | 547,170 | ||||||||
603,076 | CSX Corp. 8.3750%, 10/15/14 | 686,687 | ||||||||
857,000 | CSX Corp. 4.7500%, 5/30/42 | 884,293 | ||||||||
1,845,000 | Kansas City Southern de Mexico S.A. de C.V. 8.0000%, 2/1/18 | 2,020,275 | ||||||||
634,000 | Kansas City Southern de Mexico S.A. de C.V. 6.6250%, 12/15/20 | 672,040 | ||||||||
5,321,687 | ||||||||||
Transportation – Services – 0.1% | ||||||||||
259,000 | Asciano Finance, Ltd. 3.1250%, 9/23/15 (144A) | 250,464 | ||||||||
Transportation – Truck – 0.4% | ||||||||||
1,869,000 | JB Hunt Transport Services, Inc. 3.3750%, 9/15/15 | 1,894,086 | ||||||||
Total Corporate Bonds (cost $287,493,719) | 297,142,194 | |||||||||
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 15
Janus Aspen Flexible Bond Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Principal Amount | Value | |||||||||
Mortgage-Backed Securities – 16.1% | ||||||||||
Fannie Mae: | ||||||||||
$497,323 | 5.0000%, 2/1/23 | $ | 537,154 | |||||||
930,968 | 5.5000%, 1/1/25 | 1,011,349 | ||||||||
488,516 | 5.5000%, 1/1/33 | 536,469 | ||||||||
471,279 | 5.0000%, 11/1/33 | 509,661 | ||||||||
880,876 | 5.0000%, 12/1/33 | 952,616 | ||||||||
501,727 | 5.0000%, 2/1/34 | 542,588 | ||||||||
1,715,609 | 5.5000%, 4/1/34 | 1,875,436 | ||||||||
2,880,146 | 5.5000%, 9/1/34 | 3,146,661 | ||||||||
1,006,763 | 5.5000%, 5/1/35 | 1,099,295 | ||||||||
6,707,373 | 5.5000%, 7/1/35 | 7,328,041 | ||||||||
2,755,430 | 6.0000%, 12/1/35 | 3,072,373 | ||||||||
5,622,826 | 5.5000%, 4/1/36 | 6,139,621 | ||||||||
3,156,642 | 5.5000%, 7/1/36 | 3,448,742 | ||||||||
850,140 | 6.0000%, 3/1/37 | 940,232 | ||||||||
4,084,430 | 5.5000%, 5/1/37 | 4,485,359 | ||||||||
853,684 | 6.0000%, 5/1/37 | 941,750 | ||||||||
762,081 | 5.5000%, 7/1/37 | 830,457 | ||||||||
660,773 | 5.5000%, 3/1/38 | 725,635 | ||||||||
1,154,620 | 6.0000%, 11/1/38 | 1,273,730 | ||||||||
2,198,845 | 6.0000%, 11/1/38 | 2,435,298 | ||||||||
578,634 | 4.5000%, 10/1/40 | 616,234 | ||||||||
490,749 | 4.0000%, 12/1/40 | 519,133 | ||||||||
9,766,313 | 4.0000%, 2/1/41 | 10,325,071 | ||||||||
518,709 | 5.0000%, 3/1/41 | 566,141 | ||||||||
1,578,843 | 4.5000%, 4/1/41 | 1,694,758 | ||||||||
1,053,243 | 5.0000%, 4/1/41 | 1,139,021 | ||||||||
1,324,558 | 5.0000%, 4/1/41 | 1,434,502 | ||||||||
1,516,497 | 4.5000%, 10/1/41 | 1,615,039 | ||||||||
1,030,748 | 5.0000%, 10/1/41 | 1,114,694 | ||||||||
Freddie Mac: | ||||||||||
841,399 | 5.0000%, 1/1/19 | 906,158 | ||||||||
618,630 | 5.0000%, 2/1/19 | 666,244 | ||||||||
850,360 | 5.5000%, 8/1/19 | 922,187 | ||||||||
2,091,232 | 6.0000%, 1/1/38 | 2,304,023 | ||||||||
540,388 | 5.5000%, 5/1/38 | 591,322 | ||||||||
1,436,448 | 5.5000%, 10/1/39 | 1,571,839 | ||||||||
1,203,685 | 4.5000%, 1/1/41 | 1,275,922 | ||||||||
1,601,320 | 4.5000%, 5/1/41 | 1,711,306 | ||||||||
2,676,428 | 5.0000%, 5/1/41 | 2,883,109 | ||||||||
353,899 | 4.5000%, 9/1/41 | 375,137 | ||||||||
765,427 | 4.0000%, 10/1/41 | 810,773 | ||||||||
Ginnie Mae: | ||||||||||
1,500,259 | 5.5000%, 3/15/36 | 1,693,496 | ||||||||
Total Mortgage-Backed Securities (cost $76,116,187) | 76,568,576 | |||||||||
Preferred Stock – 0.1% | ||||||||||
Diversified Financial Services – 0.1% | ||||||||||
13,525 | Citigroup Capital XIII, 7.8750% (cost $338,887) | 352,462 | ||||||||
U.S. Treasury Notes/Bonds – 11.4% | ||||||||||
U.S. Treasury Notes/Bonds: | ||||||||||
$131,000 | 0.8750%, 11/30/16 | 131,399 | ||||||||
1,893,000 | 2.3750%, 5/31/18 | 2,029,947 | ||||||||
428,000 | 1.7500%, 10/31/18 | 440,506 | ||||||||
10,692,000 | 3.1250%, 5/15/21** | 11,938,281 | ||||||||
13,732,000 | 2.1250%, 8/15/21 | 14,083,883 | ||||||||
5,618,000 | 2.0000%, 11/15/21 | 5,682,079 | ||||||||
1,401,000 | 4.6250%, 2/15/40 | 1,889,599 | ||||||||
2,307,000 | 3.8750%, 8/15/40 | 2,765,516 | ||||||||
824,000 | 4.2500%, 11/15/40 | 1,050,857 | ||||||||
243,000 | 4.7500%, 2/15/41 | 334,884 | ||||||||
384,000 | 4.3750%, 5/15/41 | 500,340 | ||||||||
7,235,000 | 3.7500%, 8/15/41 | 8,509,040 | ||||||||
4,477,000 | 3.1250%, 11/15/41 | 4,690,356 | ||||||||
Total U.S. Treasury Notes/Bonds (cost $50,243,983) | 54,046,687 | |||||||||
Money Market – 4.4% | ||||||||||
21,052,005 | Janus Cash Liquidity Fund LLC, 0%, (cost $21,052,005) | 21,052,005 | ||||||||
Total Investments (total cost $453,755,566) – 98.6% | 467,620,883 | |||||||||
Cash, Receivables and Other Assets, net of Liabilities – 1.4% | 6,736,423 | |||||||||
Net Assets – 100% | $ | 474,357,306 | ||||||||
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Australia | $ | 5,089,221 | 1.1% | |||||
Bermuda | 975,788 | 0.2% | ||||||
Canada | 7,949,536 | 1.7% | ||||||
Cayman Islands | 1,374,469 | 0.3% | ||||||
France | 9,374,619 | 2.0% | ||||||
Luxembourg | 6,202,561 | 1.3% | ||||||
Mexico | 2,692,315 | 0.6% | ||||||
Netherlands | 2,793,987 | 0.6% | ||||||
South Korea | 1,299,073 | 0.3% | ||||||
United Kingdom | 16,494,739 | 3.5% | ||||||
United States†† | 413,374,575 | 88.4% | ||||||
Total | $ | 467,620,883 | 100.0% |
†† | Includes Cash Equivalents (83.9% excluding Cash Equivalents). |
See Notes to Schedule of Investments and Financial Statements.
16 | DECEMBER 31, 2011
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
Flexible | ||||||||||
As of December 31, 2011 | Bond | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 453,756 | ||||||||
Unaffiliated investments at value | $ | 446,569 | ||||||||
Affiliated investments at value | 21,052 | |||||||||
Cash | 93 | |||||||||
Receivables: | ||||||||||
Investments sold | 3,031 | |||||||||
Portfolio shares sold | 109 | |||||||||
Dividends | 1 | |||||||||
Interest | 4,222 | |||||||||
Non-interested Trustees’ deferred compensation | 14 | |||||||||
Other assets | 14 | |||||||||
Total Assets | 475,105 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Portfolio shares repurchased | 479 | |||||||||
Dividends | – | |||||||||
Advisory fees | 138 | |||||||||
Fund administration fees | 4 | |||||||||
Distribution fees and shareholder servicing fees | 20 | |||||||||
Non-interested Trustees’ fees and expenses | 7 | |||||||||
Non-interested Trustees’ deferred compensation fees | 14 | |||||||||
Accrued expenses and other payables | 86 | |||||||||
Total Liabilities | 748 | |||||||||
Net Assets | $ | 474,357 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 450,874 | ||||||||
Undistributed net investment income* | 2,170 | |||||||||
Undistributed net realized gain from investment and foreign currency transactions* | 7,449 | |||||||||
Unrealized net appreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 13,864 | |||||||||
Total Net Assets | $ | 474,357 | ||||||||
Net Assets - Institutional Shares | $ | 376,299 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 30,657 | |||||||||
Net Asset Value Per Shares | $ | 12.27 | ||||||||
Net Assets - Service Shares | $ | 98,058 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 7,444 | |||||||||
Net Asset Value Per Share | $ | 13.17 |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
Janus Aspen Series | 17
Statement of Operations
Janus Aspen | ||||||
Flexible | ||||||
For the fiscal year ended December 31, 2011 | Bond | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | 19,775 | ||||
Dividends | 94 | |||||
Dividends from affiliates | 8 | |||||
Fee income | 7 | |||||
Total Investment Income | 19,884 | |||||
Expenses: | ||||||
Advisory fees | 2,349 | |||||
Shareholder reports expense | 66 | |||||
Transfer agent fees and expenses | 1 | |||||
Registration fees | 13 | |||||
Custodian fees | 19 | |||||
Professional fees | 52 | |||||
Non-interested Trustees’ fees and expenses | 17 | |||||
Fund administration fees | 23 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 226 | |||||
Other expenses | 34 | |||||
Non-recurring costs (Note 4) | – | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | – | |||||
Total Expenses | 2,800 | |||||
Expense and Fee Offset | – | |||||
Net Expenses | 2,800 | |||||
Less: Excess Expense Reimbursement | (66) | |||||
Net Expenses after Expense Reimbursement | 2,734 | |||||
Net Investment Income | 17,150 | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 8,564 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 3,695 | |||||
Net Gain on Investments | 12,259 | |||||
Net Increase in Net Assets Resulting from Operations | $ | 29,409 |
See Notes to Financial Statements.
18 | DECEMBER 31, 2011
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Flexible Bond | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment income | $ | 17,150 | $ | 17,363 | ||||||
Net realized gain from investment and foreign currency transactions(1) | 8,564 | 24,941 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 3,695 | (9,929) | ||||||||
Net Increase in Net Assets Resulting from Operations | 29,409 | 32,375 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | (13,988) | (14,107) | ||||||||
Service Shares | (3,111) | (2,951) | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | (20,845) | (10,003) | ||||||||
Service Shares | (4,839) | (2,120) | ||||||||
Net Decrease from Dividends and Distributions | (42,783) | (29,181) | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 40,544 | 91,562 | ||||||||
Service Shares | 27,131 | 32,625 | ||||||||
Reinvested Dividends and Distributions | ||||||||||
Institutional Shares | 34,833 | 24,110 | ||||||||
Service Shares | 7,950 | 5,071 | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (56,514) | (53,660) | ||||||||
Service Shares | (26,627) | (20,247) | ||||||||
Net Increase from Capital Share Transactions | 27,317 | 79,461 | ||||||||
Net Increase in Net Assets | 13,943 | 82,655 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 460,414 | 377,759 | ||||||||
End of period | $ | 474,357 | $ | 460,414 | ||||||
Undistributed Net Investment Income* | $ | 2,170 | $ | 1,820 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Certain prior year amounts have been reclassified to conform with current year presentation. |
See Notes to Financial Statements.
Janus Aspen Series | 19
Financial Highlights
Institutional Shares
Janus Aspen Flexible Bond Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $12.70 | $12.56 | $11.61 | $11.46 | $11.24 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .49 | .49 | .57 | .53 | .53 | |||||||||||||||||
Net gain on investments (both realized and unrealized) | .32 | .51 | .94 | .14 | .24 | |||||||||||||||||
Total from Investment Operations | .81 | 1.00 | 1.51 | .67 | .77 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.49) | (.50) | (.55) | (.52) | (.55) | |||||||||||||||||
Distributions (from capital gains)* | (.75) | (.36) | (.01) | – | – | |||||||||||||||||
Total Distributions | (1.24) | (.86) | (.56) | (.52) | (.55) | |||||||||||||||||
Net Asset Value, End of Period | $12.27 | $12.70 | $12.56 | $11.61 | $11.46 | |||||||||||||||||
Total Return | 6.66% | 8.06% | 13.22% | 5.93% | 7.04% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $376,299 | $368,544 | $304,204 | $309,504 | $297,919 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $364,656 | �� | $351,717 | $302,033 | $306,207 | $279,676 | ||||||||||||||||
Ratio of Gross Expenses to Average Net Assets(1) | 0.55% | 0.56% | 0.59% | 0.60% | 0.61% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets(1) | 0.55% | 0.56% | 0.59% | 0.60% | 0.61% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 3.82% | 4.04% | 4.65% | 4.56% | 4.91% | |||||||||||||||||
Portfolio Turnover Rate | 164% | 169% | 271% | 169% | 138%(2) |
Service Shares
Janus Aspen Flexible Bond Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $13.54 | $13.35 | $12.32 | $12.13 | $11.86 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .48 | .51 | .55 | .52 | .62 | |||||||||||||||||
Net gain on investments (both realized and unrealized) | .36 | .51 | 1.01 | .16 | .17 | |||||||||||||||||
Total from Investment Operations | .84 | 1.02 | 1.56 | .68 | .79 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.46) | (.47) | (.52) | (.49) | (.52) | |||||||||||||||||
Distributions (from capital gains)* | (.75) | (.36) | (.01) | – | – | |||||||||||||||||
Total Distributions | (1.21) | (.83) | (.53) | (.49) | (.52) | |||||||||||||||||
Net Asset Value, End of Period | $13.17 | $13.54 | $13.35 | $12.32 | $12.13 | |||||||||||||||||
Total Return | 6.47% | 7.73% | 12.89% | 5.71% | 6.80% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $98,058 | $91,870 | $73,555 | $33,244 | $22,444 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $90,661 | $83,557 | $55,100 | $28,537 | $29,701 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets(1) | 0.80% | 0.81% | 0.84% | 0.85% | 0.86% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets(1) | 0.80% | 0.81% | 0.84% | 0.85% | 0.85% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 3.57% | 3.79% | 4.42% | 4.32% | 4.66% | |||||||||||||||||
Portfolio Turnover Rate | 164% | 169% | 271% | 169% | 138%(2) |
* | See Note 5 in Notes to Financial Statements. | |
(1) | See Note 6 in Notes to Financial Statements. | |
(2) | Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 139%. |
See Notes to Financial Statements.
20 | DECEMBER 31, 2011
Notes to Schedule of Investments
Barclays Capital U.S. Aggregate Bond Index | Made up of the Barclays Capital U.S. Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million. | |
Lipper Variable Annuity Intermediate Investment Grade Debt Funds | Funds that invest primarily in investment grade debt issues (rated in the top four grades) with dollar-weighted average maturities of five to ten years. | |
PLC | Public Limited Company | |
REIT | Real Estate Investment Trust | |
ULC | Unlimited Liability Company |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. | |
‡ | Rate is subject to change. Rate shown reflects current rate. |
§ Schedule of Restricted and Illiquid Securities (as of December 31, 2011)
Acquisition | Acquisition | Value as a | ||||||||||
Date | Cost | Value | % of Net Assets | |||||||||
Janus Aspen Flexible Bond Portfolio | ||||||||||||
Kern River Funding Corp., 4.8930%, 4/30/18 | 4/28/03 | $ | 454 | $ | 499 | 0.0% | ||||||
The Portfolio has registration rights for certain restricted securities held as of December 31, 2011. The issuer incurs all registration costs.
144A | Securities sold under Rule 144A of the Securities Act of 1933, as amended, are subject to legal and/or contractual restrictions on resale and may not be publicly sold without registration under the 1933 Act. These securities have been determined to be liquid under guidelines established by the Board of Trustees. The total value of 144A securities as of the period ended December 31, 2011 is indicated in the table below: |
Value as a % | ||||||||||
Portfolio | Value | of Net Assets | ||||||||
Janus Aspen Flexible Bond Portfolio | $ | 63,645,138 | 13.4 | % | ||||||
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Flexible Bond Portfolio | |||||||||||
Asset-Backed/Commercial Mortgage-Backed Securities | $ | – | $ | 14,909,341 | $ | – | |||||
Bank Loans | – | 3,549,618 | – | ||||||||
Corporate Bonds | – | 297,142,194 | – | ||||||||
Mortgage-Backed Securities | – | 76,568,576 | – | ||||||||
Preferred Stock | – | 352,462 | – | ||||||||
U.S. Treasury Notes/Bonds | – | 54,046,687 | – | ||||||||
Money Market | – | 21,052,005 | – | ||||||||
Total Investments in Securities | $ | – | $ | 467,620,883 | $ | – | |||||
Janus Aspen Series | 21
Notes to Schedule of Investments (continued)
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Flexible Bond Portfolio | $ | 11,165,620 | |||
22 | DECEMBER 31, 2011
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Janus Aspen Flexible Bond Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests primarily in income-producing securities. The Portfolio is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers two classes of shares: Institutional Shares and Service Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Each class of
Janus Aspen Series | 23
Notes to Financial Statements (continued)
shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
The Portfolio may make certain investments in real estate investment trusts (“REITs”) which pay dividends to their shareholders based upon funds available from operations. It is quite common for these dividends to exceed the REITs’ taxable earnings and profits, resulting in the excess portion of such dividends being designated as a return of capital. If the Portfolio distributes such amounts, such distributions could constitute a return of capital to shareholders for federal income tax purposes.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax
24 | DECEMBER 31, 2011
provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used
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Notes to Financial Statements (continued)
as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3 Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
There were no Level 3 securities during the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | DERIVATIVE INSTRUMENTS |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio paid. Certain indexed securities, including inverse |
26 | DECEMBER 31, 2011
securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. | |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
There were no derivatives held by the Portfolio during the fiscal year ended December 31, 2011.
3. | OTHER INVESTMENTS AND STRATEGIES |
Additional Investment Risk
The Portfolio may be invested in lower-rated debt securities that have a higher risk of default or loss of value since these securities may be sensitive to economic changes, political changes or adverse developments specific to the issuer.
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the
Janus Aspen Series | 27
Notes to Financial Statements (continued)
resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Bank Loans
The Portfolio may invest in bank loans, which include institutionally traded floating rate securities generally acquired as an assignment from another holder of, or participation interest in, loans originated by a bank or financial institution (the “Lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the Portfolio has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender selling the loan agreement and only upon receipt by the Lender of payments from the borrower. The Portfolio generally has no right to enforce compliance with the terms of the loan agreement with the borrower. Assignments and participations involve credit, interest rate, and liquidity risk. Interest rates on floating rate securities adjust with general interest rate changes and/or issuer credit quality. The interest rates paid on a floating rate security in which the Portfolio invests generally are readjusted periodically to an increment over a designated benchmark rate, such as the one-month, three-month, six-month, or one-year London Interbank Offered Rate (“LIBOR”). LIBOR is a short-term interest rate that banks charge one another and is generally representative of the most competitive and current cash rates.
The Portfolio may have difficulty trading assignments and participations to third parties. There may be restrictions on transfer and only limited opportunities may exist to sell such securities in secondary markets. As a result, the Portfolio may be unable to sell assignments or participations at the desired time or may be able to sell only at a price less than fair market value. The Portfolio utilizes an independent third party to value individual bank loans on a daily basis.
The average monthly value of borrowings outstanding under bank loan arrangements and the related rate range during the fiscal year ended December 31, 2011 is indicated in the table below:
Portfolio | Average Monthly Value | Rates | ||||||
Janus Aspen Flexible Bond Portfolio | $ | 8,852,283 | 2.9400%-6.7500% | |||||
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
Emerging Market Investing
Investing in emerging markets may involve certain risks and considerations not typically associated with investing in the United States and imposes risks greater than, or in addition to, the risks associated with investing in securities of more developed foreign countries. Emerging markets securities are exposed to a number of additional risks, which may result from less government supervision and regulation of business and industry practices (including the potential lack of strict finance and accounting controls and standards), stock exchanges, brokers, and listed companies, making these investments potentially more volatile in price and less liquid than investments in developed securities markets, resulting in greater risk to investors. In addition, the Portfolio’s investments may be denominated in foreign currencies and therefore, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the Portfolio’s investments. To the extent that the Portfolio invests a significant portion of its assets in the securities of issuers
28 | DECEMBER 31, 2011
in or companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region, which could have a negative impact on the Portfolio’s performance.
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Floating Rate Loans
The Portfolio may invest in floating rate loans. Floating rate loans are debt securities that have floating interest rates, which adjust periodically, and are tied to a benchmark lending rate, such as LIBOR. In other cases, the lending rate could be tied to the prime rate offered by one or more major U.S. banks or the rate paid on large certificates of deposit traded in the secondary markets. If the benchmark lending rate changes, the rate payable to lenders under the loan will change at the next scheduled adjustment date specified in the loan agreement. Floating rate loans are typically issued to companies (“borrowers”) in connection with recapitalizations, acquisitions, and refinancings. Floating rate loan investments are generally below investment grade. Senior floating rate loans are secured by specific collateral of a borrower and are senior in the borrower’s capital structure. The senior position in the borrower’s capital structure generally gives holders of senior loans a claim on certain of the borrower’s assets that is senior to subordinated debt and preferred and common stock in the case of a borrower’s default. Floating rate loan investments may involve foreign borrowers, and investments may be denominated in foreign currencies. Floating rate loans often involve borrowers whose financial condition is troubled or uncertain and companies that are highly leveraged. The Portfolio may invest in obligations of borrowers who are in bankruptcy proceedings. Floating rate loans may include fully funded term loans or revolving lines of credit.
Purchasers of floating rate loans may pay and/or receive certain fees. The Portfolio may receive fees such as covenant waiver fees or prepayment penalty fees. The Portfolio may pay fees such as facility fees. Such fees may affect the Portfolio’s return.
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Mortgage- and Asset-Backed Securities
The Portfolio may purchase fixed or variable rate mortgage-backed securities issued by the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or other governmental or government-related entities. Historically, Fannie Maes and Freddie Macs were not backed by the full faith and credit of the U.S. Government, and may not be in the future. In September 2008, the Federal Housing Finance Agency (“FHFA”), an agency of the U.S. Government, placed Fannie Mae and Freddie Mac
Janus Aspen Series | 29
Notes to Financial Statements (continued)
under conservatorship to provide stability in the financial markets, mortgage availability and taxpayer protection by preserving Fannie Mae’s and Freddie Mac’s assets, and placing them in a sound and solvent condition. Under the conservatorship, the management of Fannie Mae and Freddie Mac was replaced. The effect that the FHFA’s conservatorship will have on Fannie Mae’s and Freddie Mac’s debt and equities is unclear. The Portfolio may purchase other mortgage- and asset-backed securities through single- and multi-seller conduits, collateralized debt obligations, structured investment vehicles, and other similar securities. Asset-backed securities may be backed by automobile loans, equipment leases, credit card receivables, or other collateral. In the event the underlying securities fail to perform, these investment vehicles could be forced to sell the assets and recognize losses on such assets, which could impact the Portfolio’s yield and your return.
Unlike traditional debt instruments, payments on these securities include both interest and a partial payment of principal. Prepayment risk, which results from prepayments of the principal of underlying loans at a faster pace than expected, may shorten the effective maturities of these securities and may result in the Portfolio having to reinvest proceeds at a lower interest rate. In addition to prepayment risk, investments in mortgage-backed securities, including those comprised of subprime mortgages, and investments in other asset-backed securities comprised of under-performing assets may be subject to a higher degree of credit risk, valuation risk, and liquidity risk. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.
Mortgage- and asset-backed securities are also subject to extension risk, which is the risk that rising interest rates could cause mortgages or other obligations underlying these securities to be paid more slowly than expected, increasing a Portfolio’s sensitivity to interest rate changes and causing its price to decline.
Real Estate Investing
The Portfolio may invest in debt securities of U.S. real estate-related companies. Such companies may include those in the real estate industry or real estate-related industries. These securities may include corporate bonds, preferred stocks, and other securities, including, but not limited to, REITs and similar REIT-like entities such as entities that have REIT characteristics.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
30 | DECEMBER 31, 2011
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio managers anticipate that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s contractual investment advisory fee rate (expressed as an annual rate).
Contractual | ||||||||
Average Daily | Investment | |||||||
Net Assets | Advisory Fee (%) | |||||||
Portfolio | of the Portfolio | (annual rate) | ||||||
Janus Aspen Flexible Bond Portfolio | First $ | 300 Million | 0.55 | |||||
Over $ | 300 Million | 0.45 | ||||||
Janus Capital has agreed to reimburse the Portfolio until at least May 1, 2013 by the amount, if any, that the Portfolio’s normal operating expenses in any fiscal year, including the investment advisory fee, but excluding the distribution and shareholder servicing (12b-1) fees applicable to Service Shares, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses, exceed the annual rate noted below. If applicable, amounts reimbursed to the Portfolio by Janus Capital are disclosed as “Excess Expense Reimbursement” on the Statement of Operations, if applicable.
Portfolio | Expense Limit (%) | ||||
Janus Aspen Flexible Bond Portfolio | 0.55 | ||||
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares at an annual rate of up to 0.25% of Service Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will
Janus Aspen Series | 31
Notes to Financial Statements (continued)
be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio may be used to purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio is eligible to participate in the cash sweep program (the “Investing Fund”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
32 | DECEMBER 31, 2011
During the fiscal year ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Dividend | Value | |||||||||||
Shares/Cost | Shares/Cost | Income | at 12/31/11 | |||||||||||
Janus Aspen Flexible Bond Portfolio | ||||||||||||||
Janus Cash Liquidity Fund LLC | $ | 385,670,885 | $ | (370,118,647) | $ | 8,397 | $ | 21,052,005 | ||||||
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Undistributed | Undistributed | Other Book | Net Tax | |||||||||||||||||
Ordinary | Long-Term | Accumulated | Late-Year | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Loss Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Flexible Bond Portfolio | $ | 3,978,820 | $ | 7,181,917 | $ | – | $ | (347,994) | $ | (14,871) | $ | 12,684,977 | ||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary difference between book and tax appreciation or depreciation of investments is wash sale loss deferrals.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Flexible Bond Portfolio | $ | 454,935,906 | $ | 15,112,878 | $ | (2,427,901) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Flexible Bond Portfolio | $ | 33,605,752 | $ | 9,177,644 | $ | – | $ | – | |||||||||
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Flexible Bond Portfolio | $ | 27,731,479 | $ | 1,449,527 | $ | – | $ | – | |||||||||
Janus Aspen Series | 33
Notes to Financial Statements (continued)
6. | Expense Ratios |
The expense ratios listed in the Financial Highlights reflect expenses prior to any expense offsets (gross expense ratio) and after expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursement). Listed below are the gross expense ratios for the Portfolio that would have been in effect, absent the waiver of certain fees and offsets.
For each fiscal year ended December 31
Janus Aspen Flexible | ||||
Bond Portfolio | ||||
Institutional Shares | ||||
2011 | 0.57% | |||
2010 | 0.56% | |||
2009 | 0.59% | |||
2008 | 0.60% | |||
2007 | 0.61% | |||
Service Shares | ||||
2011 | 0.82% | |||
2010 | 0.81% | |||
2009 | 0.84% | |||
2008 | 0.85% | |||
2007 | 0.86% |
7. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Flexible Bond Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 3,233 | 7,067 | ||||||||
Reinvested dividends and distributions | 2,879 | 1,913 | ||||||||
Shares repurchased | (4,483) | (4,168) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | 1,629 | 4,812 | ||||||||
Shares Outstanding, Beginning of Period | 29,028 | 24,216 | ||||||||
Shares Outstanding, End of Period | 30,657 | 29,028 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 2,019 | 2,378 | ||||||||
Reinvested dividends and distributions | 613 | 378 | ||||||||
Shares repurchased | (1,972) | (1,481) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | 660 | 1,275 | ||||||||
Shares Outstanding, Beginning of Period | 6,784 | 5,509 | ||||||||
Shares Outstanding, End of Period | 7,444 | 6,784 |
8. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Flexible Bond Portfolio | $ | 433,884,051 | $ | 373,133,702 | $ | 297,199,325 | $ | 374,299,689 | ||||||
34 | DECEMBER 31, 2011
9. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
10. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
Janus Aspen Series | 35
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Flexible Bond Portfolio:
of Janus Aspen Flexible Bond Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Flexible Bond Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
36 | DECEMBER 31, 2011
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
Janus Aspen Series | 37
Additional Information (unaudited) (continued)
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
38 | DECEMBER 31, 2011
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
Janus Aspen Series | 39
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The net annual fund operating expenses ratio (if applicable) includes contractual waivers of Janus Capital and reflects the Portfolio’s subsidized expense ratio. Both the total annual fund operating expenses ratio and net annual fund operating expenses ratio are based on average net assets as of the fiscal year ended December 31, 2010. The ratios also include expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, these ratios may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid. Additionally, there may be other assets and liabilities.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
40 | DECEMBER 31, 2011
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio managers. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
Janus Aspen Series | 41
Designation Requirements (unaudited)
For federal income tax purposes, the Portfolio designated the following for the year ended December 31, 2011:
Capital Gain Distributions
Portfolio | ||||||||||
Janus Aspen Flexible Bond Portfolio | $ | 9,177,644 | ||||||||
42 | DECEMBER 31, 2011
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
Janus Aspen Series | 43
Trustees and Officers (unaudited) (continued)
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments -HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
44 | DECEMBER 31, 2011
OFFICERS
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Gibson Smith 151 Detroit Street Denver, CO 80206 DOB: 1968 | Executive Vice President and Co-Portfolio Manager Janus Aspen Flexible Bond Portfolio | 5/07-Present | Co-Chief Investment Officer and Executive Vice President of Janus Capital; Executive Vice President of Janus Distributors LLC and Janus Services LLC; Director of Perkins Investment Management LLC; and Portfolio Manager for other Janus accounts. Formerly, Vice President (2003-2006) of Janus Capital. | |||
Darrell Watters 151 Detroit Street Denver, CO 80206 DOB: 1963 | Executive Vice President and Co-Portfolio Manager Janus Aspen Flexible Bond Portfolio | 5/07-Present | Vice President of Janus Capital and Portfolio Manager for other Janus accounts. Formerly, Analyst (until 2011) for Janus Capital. | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). |
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
Janus Aspen Series | 45
Trustees and Officers (unaudited) (continued)
OFFICERS (continued)
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. | |||
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
46 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 47
Notes
48 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 49
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
C-0112-126 | 109-02-81114 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
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2 | ||
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13 | ||
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37 |
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s manager as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s manager may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s manager in the Management Commentary are just that: opinions. They are a reflection of the manager’s best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the manager’s opinions. These views are unique to the manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Forty Portfolio (unaudited)
Portfolio Snapshot We believe that investing with conviction in dominant growth companies with wide competitive moats, strong pricing power and multi-year growth opportunities will allow us to outperform our index and peer group over time. We focus our analysis on companies with superior business models that exhibit high returns on capital and excess cash flow generation that trade at attractive valuations. We manage concentrated portfolios that leverage the most compelling large-cap growth ideas of the research team. | Ron Sachs portfolio manager |
Performance Overview
For the 12-month period ended December 31, 2011, Janus Aspen Forty Portfolio’s Institutional Shares and Service Shares returned -6.69% and -6.94%, respectively, versus a return of 2.64% for the Portfolio’s primary benchmark, the Russell 1000 Growth Index. The Portfolio’s secondary benchmark, the S&P 500 Index, returned 2.11% for the period.
Overview
Volatility and correlations remained near record levels as the markets traded around geopolitical and macroeconomic issues, including fears of a recession in Europe and a hard landing in China. While the U.S. recovery remains fragile, leading economic indicators and consumer confidence showed signs of improvement. The unemployment rate dipped to 8.5% in December, indicating the labor markets may be strengthening heading into 2012.
It was a challenging year for the Portfolio and we are disappointed in the returns and impact on long-term performance. Many of our holdings have continued to perform well from an operating perspective yet their stock prices have not responded as much as we had expected. This has been frustrating to us, but it is not surprising. In a highly correlated, macro-driven market, where news out of Europe and Washington dominates the headlines, it can be difficult for individual stocks to break out. We don’t discount the challenges that Europe’s debt crisis or the U.S. fiscal situation pose to the economy and demand for risk assets. Yet we maintain a high level of conviction in our holdings: businesses with long-duration growth opportunities, potential for share gains and competitive advantages that we think will eventually be rewarded with higher multiples and prices.
Technology stocks were the Portfolio’s weakest sector versus the index. Some large- and mega-cap names that we didn’t own were large outperformers in the benchmark, hurting our relative performance. Internet search firm Google was a top detractor. We sold the stock based on our expectation that it could suffer as consumers spend more time in application software (apps) than in browsers. Both application and browser usage are growing, but browser-based content and time spent using browsers are decelerating. In other cases, we held positions as we felt the long-term growth drivers for the companies remained intact. One of the largest detractors in the sector, for example, was an enterprise software provider, Oracle. The company reported earnings and software licensing revenue below expectations for its fiscal second quarter and issued a cautious outlook. The business is still growing and taking share, however, and we like its high returns on capital and recurring revenues.
The Portfolio’s financial holdings were relatively weak. We are still overweight in the sector with the main theme of our holdings being the growth of the Asian consumer and Asian wealth creation. However, we reduced our holdings in several U.S.-based financials as we grew concerned about the impact of continued low interest rates and a slow growth U.S. economy. Each position was sold or trimmed for company specific reasons, however. Brokerage firm Charles Schwab was the top individual detractor in the sector, for instance, suffering from the low rate environment. We trimmed the stock to match the position size with the risk/reward we see relative to other positions. Schwab continues to grow its customers and assets, but does need to find a way to earn more on its customers’ huge cash balances if interest rates remain low for an extended period.
Our energy holdings underperformed, mainly due to weak relative performance in two energy field services stocks. Shares declined on concerns of overcapacity in the industry and a potential slowdown in capital expenditures for drilling and exploration. Despite these near term pressures, we think our holdings continue to have attractive long term growth potential. Much of the world’s easy-to-extract oil has been found and companies are
2 | DECEMBER 31, 2011
(unaudited)
now tapping deep-sea wells and on-shore, horizontal shale formations for new production. We think this is resulting in greater usage of services and equipment, creating a long-term opportunity for companies with exposure to these trends.
On a positive note, our health care selections contributed to relative results. Our exposure is primarily in pharmacy benefit managers (PBMs) that are helping lower costs in the system, along with biotechnology companies with innovative, life saving products that are showing strong growth. Health care is an area of government spending that could face significant cuts. However, the biggest cuts are likely to come in the highest cost areas, such as hospitals. Pharmaceutical products are a small portion of total health care spending and are extremely cost effective. By sticking with companies whose products add value and have high returns on spending, we feel our holdings will be relatively well-insulated from government spending cuts.
Detractors
The largest detractor over the period was Ford Motor. The U.S. automaker has cut capacity, lowered labor costs and improved profitability. The company is demonstrating a renewed focus on its key Ford brand and has seen the benefits in market share gains. We like the automaker’s improved financial position and potential to benefit from the ongoing recovery in auto sales. Volumes across the industry have been stronger than expected and margins are higher. A new model cycle could also help Ford’s performance.
Shares of Google were weak. While Google remains a dominant force in Internet search technology we grew concerned about the decline in search activity and sold the position.
EMC declined on concerns of a slowdown in enterprise technology spending. We think the storage company’s product portfolio in hardware and software is well positioned to benefit from improving fundamentals in high-end and mid-range storage, which has become one of the fastest growth areas of enterprise information technology.
Contributors
Apple was the Portfolio’s top contributor during the period. We continue to hold Apple because of its highly successful line of differentiated mobile computing products, from the iPad to the iPhone, and because of its growing market share in personal computers. We like the company’s durable franchise, long-term growth prospects and demonstrated ability to win in various economic environments.
Limited Brands performed well. We like the specialty retailer for its dominant and growing market share in intimate apparel and personal care categories in the U.S. We also appreciate Limited’s international expansion opportunities and that management is returning capital to shareholders.
Intuitive Surgical was a top performer and remains a compelling opportunity, in our opinion, given its da Vinci surgical system, which has continued to see greater placement and procedural growth. We think the company’s competitive advantage is in its technology, which is difficult and expensive to replace once the system has been installed in a hospital, making the company more likely to have staying power and pricing.
Due to certain circumstances and market conditions, we may initiate positions in call and put options in an attempt to hedge risk and generate income for the Portfolio. During the period we sold put and call options on individual stocks we owned with the net effect on the Portfolio being slightly positive. (Please see “Notes to Financial Statements” for information about the hedging techniques used by the Portfolio.)
Outlook
The macro challenges today are significant, but companies look well positioned to handle them. The financial system is better capitalized than it was in 2008 and appears relatively well prepared for a bad outcome in Europe. U.S. companies have dealt with high unemployment for over two years; they have already lost those customers, and we believe the fact that they are not coming back is less of a headwind than the market seems to think. The increase in energy prices has been more gradual than the spike in 2007, and companies have adjusted their cost structures or added “energy escalators” to their contracts, enabling them to pass on higher prices to customers.
Even if the macro environment weakens, we think companies in the Portfolio can continue to execute well on their strategies. We are finding plenty of businesses that are gaining share, improving margins and strengthening their competitive moats. This is likely to pay off in stronger earnings growth going forward, which we think the market is not recognizing in current valuations. Indeed, multiples look cheap, especially for the earnings growth and returns on capital we are seeing.
Investors seem to be anticipating a global slowdown or expect near-record margins to revert to the mean. We
Janus Aspen Series | 3
Janus Aspen Forty Portfolio (unaudited)
don’t discount those concerns but think companies in the Portfolio can improve their competitive positions and returns. In a volatile and uncertain environment, we feel positive about what companies in the Portfolio are doing. We think the longer the market ignores their strong fundamentals, the more opportunity there is in these mispriced, long duration growth companies.
Thank you for your investment in Janus Aspen Forty Portfolio.
4 | DECEMBER 31, 2011
(unaudited)
Janus Aspen Forty Portfolio At A Glance
5 Top Performers – Holdings
Contribution | ||||
Apple, Inc. | 1.73% | |||
Limited Brands, Inc. | 1.36% | |||
Intuitive Surgical, Inc. | 1.35% | |||
News Corp. – Class A | 0.87% | |||
Celgene Corp. | 0.74% |
5 Bottom Performers – Holdings
Contribution | ||||
Ford Motor Co. | –1.25% | |||
Google, Inc. – Class A | –1.07% | |||
EMC Corp. | –0.93% | |||
Charles Schwab Corp. | –0.88% | |||
Halliburton Co. | –0.79% |
5 Top Performers – Sectors*
Portfolio Weighting | Russell 1000® | |||||||||||
Portfolio Contribution | (Average % of Equity) | Growth Index Weighting | ||||||||||
Health Care | 0.91% | 15.81% | 10.29% | |||||||||
Industrials | 0.16% | 11.36% | 12.98% | |||||||||
Utilities | –0.01% | 0.00% | 0.08% | |||||||||
Telecommunication Services | –0.07% | 2.94% | 1.01% | |||||||||
Materials | –0.24% | 2.18% | 5.33% |
5 Bottom Performers – Sectors*
Portfolio Weighting | Russell 1000® | |||||||||||
Portfolio Contribution | (Average % of Equity) | Growth Index Weighting | ||||||||||
Information Technology | –2.84% | 32.88% | 29.36% | |||||||||
Financials | –2.34% | 11.29% | 4.29% | |||||||||
Energy | –1.76% | 4.78% | 11.30% | |||||||||
Consumer Staples | –1.70% | 2.49% | 11.00% | |||||||||
Consumer Discretionary | –0.78% | 16.27% | 14.36% |
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. | ||
* | Based on sector classification according to the Global Industry Classification Standard codes, which are the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
Janus Aspen Series | 5
Janus Aspen Forty Portfolio (unaudited)
5 Largest Equity Holdings – (% of Net Assets)
As of December 31, 2011
Apple, Inc. Computers | 8.1% | |||
eBay, Inc. E-Commerce/Products | 7.4% | |||
Celgene Corp. Medical – Biomedical and Genetic | 6.7% | |||
Medco Health Solutions, Inc. Pharmacy Services | 5.7% | |||
News Corp. – Class A Multimedia | 5.0% | |||
32.9% |
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Top Country Allocations – Long Positions (% of Investment Securities)
As of December 31, 2011
6 | DECEMBER 31, 2011
(unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||
One | Five | Ten | Since | Total Annual Fund | |||||||
Year | Year | Year | Inception* | Operating Expenses | |||||||
Janus Aspen Forty Portfolio – Institutional Shares | –6.69% | 2.20% | 5.16% | 9.01% | 0.67% | ||||||
Janus Aspen Forty Portfolio – Service Shares | –6.94% | 1.94% | 4.89% | 8.69% | 0.92% | ||||||
Russell 1000® Growth Index | 2.64% | 2.50% | 2.60% | 4.07% | |||||||
S&P 500® Index | 2.11% | –0.25% | 2.92% | 5.00% | |||||||
Lipper Quartile – Institutional Shares | 4th | 1st | 1st | 1st | |||||||
Lipper Ranking – Institutional Shares based on total returns for Variable Annuity Large-Cap Growth Funds | 220/243 | 37/198 | 4/133 | 1/55 | |||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio has a performance-based management fee that adjusts up or down based on the Portfolio’s performance relative to an approved benchmark index over a performance measurement period. See the Portfolio’s Prospectus or Statement of Additional Information for more details.
See important disclosures on the next page.
Janus Aspen Series | 7
Janus Aspen Forty Portfolio (unaudited)
The Portfolio’s performance may be affected by risks that include those associated with nondiversification, investments in specific industries or countries, and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), and derivatives. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
The Portfolio may invest in derivatives which can be highly volatile and involve additional risks than if the underlying securities were held directly by the Portfolio. Such risks include gains or losses which, as a result of leverage, can be substantially greater than the derivatives’ original cost. There is also a possibility that derivatives may not perform as intended which can reduce opportunity for gains or result in losses by offsetting positive returns in other securities the Portfolio owns.
Foreign securities have additional risks including exchange rate changes, political and economic upheaval, the relative lack of information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. These risks are magnified in emerging markets. The prices of foreign securities held by the Portfolio, and therefore the Portfolio’s performance, may decline in response to such risks.
The Portfolio may have significant exposure to emerging markets. In general, emerging market investments have historically been subject to significant gains and/or losses. As such, the Portfolio’s returns and NAV may be subject to volatility.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Returns shown for Service Shares for periods prior to December 31, 1999 are derived from the historical performance of Institutional Shares, adjusted to reflect the higher operating expenses of Service Shares.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Institutional Share class only; other classes may have different performance characteristics.
May 31, 1997 is the date used to calculate the since-inception Lipper ranking, which is slightly different from when the Portfolio began operations since Lipper provides fund rankings as of the last day of the month.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the indices. The indices are unmanaged and are not available for direct investment; therefore, their performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
* | The Portfolio’s inception date – May 1, 1997 |
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 912.50 | $ | 3.52 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.53 | $ | 3.72 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 911.50 | $ | 4.72 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.27 | $ | 4.99 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.73% for Institutional Shares and 0.98% for Service Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
8 | DECEMBER 31, 2011
Janus Aspen Forty Portfolio
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Common Stock – 98.8% | ||||||||||
Apparel Manufacturers – 0.7% | ||||||||||
1,281,700 | Prada SpA* | $ | 5,800,929 | |||||||
Applications Software – 4.2% | ||||||||||
1,409,195 | Microsoft Corp. | 36,582,702 | ||||||||
Athletic Footwear – 1.7% | ||||||||||
154,705 | NIKE, Inc. – Class B | 14,908,921 | ||||||||
Automotive – Cars and Light Trucks – 2.1% | ||||||||||
1,711,320 | Ford Motor Co. | 18,413,803 | ||||||||
Beverages – Wine and Spirits – 1.0% | ||||||||||
97,677 | Pernod-Ricard S.A. | 9,058,071 | ||||||||
Brewery – 0% | ||||||||||
339,003 | Anheuser-Busch InBev N.V. – VVPR Strip* | 439 | ||||||||
Casino Hotels – 1.8% | ||||||||||
1,528,735 | MGM Mirage* | 15,944,706 | ||||||||
Commercial Banks – 1.9% | ||||||||||
748,756 | Standard Chartered PLC | 16,380,927 | ||||||||
Commercial Services – 2.0% | ||||||||||
568,670 | Iron Mountain, Inc. | 17,515,036 | ||||||||
Computers – 8.1% | ||||||||||
174,875 | Apple, Inc.*,** | 70,824,375 | ||||||||
Computers – Memory Devices – 3.6% | ||||||||||
1,470,455 | EMC Corp.* | 31,673,601 | ||||||||
E-Commerce/Products – 8.1% | ||||||||||
38,755 | Amazon.com, Inc.* | 6,708,490 | ||||||||
2,131,885 | eBay, Inc.* | 64,660,072 | ||||||||
71,368,562 | ||||||||||
Electronic Components – Miscellaneous – 2.3% | ||||||||||
657,225 | TE Connectivity, Ltd. (U.S. Shares) | 20,249,102 | ||||||||
Electronic Connectors – 1.3% | ||||||||||
245,315 | Amphenol Corp. – Class A | 11,134,848 | ||||||||
Enterprise Software/Services – 2.7% | ||||||||||
926,352 | Oracle Corp. | 23,760,929 | ||||||||
Finance – Investment Bankers/Brokers – 1.5% | ||||||||||
1,205,620 | Charles Schwab Corp. | 13,575,281 | ||||||||
Industrial Automation and Robotics – 4.6% | ||||||||||
264,100 | Fanuc Corp. | 40,430,123 | ||||||||
Life and Health Insurance – 3.7% | ||||||||||
4,549,400 | AIA Group, Ltd. | 14,205,342 | ||||||||
1,795,692 | Prudential PLC | 17,802,456 | ||||||||
32,007,798 | ||||||||||
Medical – Biomedical and Genetic – 8.1% | ||||||||||
872,328 | Celgene Corp.* | 58,969,373 | ||||||||
355,142 | Vertex Pharmaceuticals, Inc.* | 11,794,266 | ||||||||
70,763,639 | ||||||||||
Medical Instruments – 2.5% | ||||||||||
46,760 | Intuitive Surgical, Inc.* | 21,650,348 | ||||||||
Metal – Diversified – 2.0% | ||||||||||
989,105 | Ivanhoe Mines, Ltd. (U.S. Shares)* | 17,526,941 | ||||||||
Metal Processors and Fabricators – 2.7% | ||||||||||
144,110 | Precision Castparts Corp. | 23,747,887 | ||||||||
Multimedia – 5.0% | ||||||||||
2,468,710 | News Corp. – Class A | 44,041,786 | ||||||||
Oil – Field Services – 1.8% | ||||||||||
177,405 | Baker Hughes, Inc. | 8,628,979 | ||||||||
199,415 | Halliburton Co. | 6,881,812 | ||||||||
15,510,791 | ||||||||||
Oil Companies – Exploration and Production – 0.9% | ||||||||||
253,100 | Southwestern Energy Co.* | 8,084,014 | ||||||||
Pharmacy Services – 8.5% | ||||||||||
546,135 | Express Scripts, Inc. – Class A* | 24,406,773 | ||||||||
890,419 | Medco Health Solutions, Inc.* | 49,774,422 | ||||||||
74,181,195 | ||||||||||
Retail – Apparel and Shoe – 4.5% | ||||||||||
987,750 | Limited Brands, Inc. | 39,855,712 | ||||||||
Retail – Jewelry – 2.2% | ||||||||||
385,356 | Compagnie Financiere Richemont S.A. | 19,497,618 | ||||||||
Transportation – Services – 6.1% | ||||||||||
294,140 | C.H. Robinson Worldwide, Inc. | 20,525,089 | ||||||||
453,330 | United Parcel Service, Inc. – Class B | 33,179,223 | ||||||||
53,704,312 | ||||||||||
Wireless Equipment – 3.2% | ||||||||||
631,565 | Crown Castle International Corp.* | 28,294,112 | ||||||||
Total Common Stock (cost $727,739,708) | 866,488,508 | |||||||||
Money Market – 2.0% | ||||||||||
17,526,000 | Janus Cash Liquidity Fund LLC, 0% (cost $17,526,000) | 17,526,000 | ||||||||
Total Investments (total cost $745,265,708) – 100.8% | 884,014,508 | |||||||||
Liabilities, net of Cash, Receivables and Other Assets**– (0.8)% | (7,147,561) | |||||||||
Net Assets – 100% | $ | 876,866,947 | ||||||||
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Belgium | $ | 439 | 0.0% | |||||
Canada | 17,526,941 | 2.0% | ||||||
France | 9,058,071 | 1.0% | ||||||
Hong Kong | 14,205,342 | 1.6% | ||||||
Italy | 5,800,929 | 0.6% | ||||||
Japan | 40,430,123 | 4.6% | ||||||
Switzerland | 39,746,720 | 4.5% | ||||||
United Kingdom | 34,183,383 | 3.9% | ||||||
United States†† | 723,062,560 | 81.8% | ||||||
Total | $ | 884,014,508 | 100.0% |
†† | Includes Cash Equivalents (79.8% excluding Cash Equivalents). |
Schedule of Written Options – Put | Value | |||
Microsoft Corp. expires January 2012 5,000 contracts exercise price $25.00 (premiums received $696,000) | $ | (123,841) | ||
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 9
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
As of December 31, 2011 | Forty | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 745,266 | ||||||||
Unaffiliated investments at value | $ | 866,489 | ||||||||
Affiliated investments at value | 17,526 | |||||||||
Cash denominated in foreign currency(1) | 7 | |||||||||
Restricted cash (Note 1) | 288 | |||||||||
Receivables: | ||||||||||
Portfolio shares sold | 140 | |||||||||
Dividends | 297 | |||||||||
Foreign dividend tax reclaim | 39 | |||||||||
Non-interested Trustees’ deferred compensation | 26 | |||||||||
Other assets | 18 | |||||||||
Total Assets | 884,830 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Options written, at value(2) | 124 | |||||||||
Due to custodian | 22 | |||||||||
Portfolio shares repurchased | 7,053 | |||||||||
Advisory fees | 480 | |||||||||
Fund administration fees | 7 | |||||||||
Distribution fees and shareholder servicing fees | 89 | |||||||||
Non-interested Trustees’ fees and expenses | 16 | |||||||||
Non-interested Trustees’ deferred compensation fees | 26 | |||||||||
Accrued expenses and other payables | 146 | |||||||||
Total Liabilities | 7,963 | |||||||||
Net Assets | $ | 876,867 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 808,975 | ||||||||
Undistributed net investment income* | 2,526 | |||||||||
Undistributed net realized loss from investment and foreign currency transactions* | (73,951) | |||||||||
Unrealized net appreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 139,317 | |||||||||
Total Net Assets | $ | 876,867 | ||||||||
Net Assets - Institutional Shares | $ | 459,459 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 13,830 | |||||||||
Net Asset Value Per Shares | $ | 33.22 | ||||||||
Net Assets - Service Shares | $ | 417,408 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 12,759 | |||||||||
Net Asset Value Per Share | $ | 32.72 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Includes cost of $6,564. | |
(2) | Includes premiums of $696,000 on written options. |
See Notes to Financial Statements.
10 | DECEMBER 31, 2011
Statement of Operations
Janus Aspen | ||||||
For the fiscal year ended December 31, 2011 | Forty | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | 3 | ||||
Dividends | 12,724 | |||||
Dividends from affiliates | 31 | |||||
Foreign tax withheld | (244) | |||||
Total Investment Income | 12,514 | |||||
Expenses: | ||||||
Advisory fees | 6,365 | |||||
Shareholder reports expense | 350 | |||||
Transfer agent fees and expenses | 2 | |||||
Registration fees | 22 | |||||
Custodian fees | 33 | |||||
Professional fees | 63 | |||||
Non-interested Trustees’ fees and expenses | 37 | |||||
Fund administration fees | 46 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 1,190 | |||||
Other expenses | 56 | |||||
Non-recurring costs (Note 4) | 1 | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | (1) | |||||
Total Expenses | 8,164 | |||||
Expense and Fee Offset | (1) | |||||
Net Expenses | 8,163 | |||||
Net Investment Income | 4,351 | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 93,797 | |||||
Net realized gain from written options contracts | 1,547 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (164,433) | |||||
Change in unrealized net appreciation/(depreciation) of written option contracts | (105) | |||||
Net Loss on Investments | (69,194) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (64,843) |
See Notes to Financial Statements.
Janus Aspen Series | 11
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Forty | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment income | $ | 4,351 | $ | 4,329 | ||||||
Net realized gain from investment and foreign currency transactions(1) | 95,344 | 96,909 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (164,538) | (38,829) | ||||||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (64,843) | 62,409 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | (1,932) | (1,928) | ||||||||
Service Shares | (1,182) | (1,186) | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | – | – | ||||||||
Service Shares | – | – | ||||||||
Net Decrease from Dividends and Distributions | (3,114) | (3,114) | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 57,219 | 78,034 | ||||||||
Service Shares | 52,459 | 76,738 | ||||||||
Reinvested Dividends and Distributions | ||||||||||
Institutional Shares | 1,932 | 1,928 | ||||||||
Service Shares | 1,182 | 1,187 | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (131,430) | (127,040) | ||||||||
Service Shares | (136,505) | (212,665) | ||||||||
Net Decrease from Capital Share Transactions | (155,143) | (181,818) | ||||||||
Net Decrease in Net Assets | (223,100) | (122,523) | ||||||||
Net Assets: | ||||||||||
Beginning of period | 1,099,967 | 1,222,490 | ||||||||
End of period | $ | 876,867 | $ | 1,099,967 | ||||||
Undistributed Net Investment Income* | $ | 2,526 | $ | 1,263 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Certain prior year amounts have been reclassified to conform with current year presentation. |
See Notes to Financial Statements.
12 | DECEMBER 31, 2011
Financial Highlights
Institutional Shares
Janus Aspen Forty Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $35.74 | $33.61 | $22.97 | $41.18 | $30.16 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .23 | .19 | .08 | .04 | .15 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (2.62) | 2.06 | 10.57 | (18.20) | 10.99 | |||||||||||||||||
Total from Investment Operations | (2.39) | 2.25 | 10.65 | (18.16) | 11.14 | |||||||||||||||||
Less Distributions and Other: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.13) | (.12) | – | (.03) | (.12) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Return of capital | N/A | N/A | (.01) | (.02) | N/A | |||||||||||||||||
Total Distributions and Other | (.13) | (.12) | (.01) | (.05) | (.12) | |||||||||||||||||
Net Asset Value, End of Period | $33.22 | $35.74 | $33.61 | $22.97 | $41.18 | |||||||||||||||||
Total Return | (6.69)% | 6.72% | 46.38% | (44.15)% | 36.99% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $459,459 | $567,322 | $582,511 | $399,087 | $576,503 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $518,818 | $553,994 | $482,572 | $560,324 | $485,379 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.70% | 0.67% | 0.68% | 0.67% | 0.69%(1) | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.70% | 0.67% | 0.68% | 0.67% | 0.69%(1) | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.56% | 0.52% | 0.05% | 0.05%(2) | 0.40% | |||||||||||||||||
Portfolio Turnover Rate | 46% | 36% | 32% | 61% | 24% |
Service Shares
Janus Aspen Forty Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $35.24 | $33.17 | $22.73 | $40.80 | $29.91 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income/(loss) | .09 | .07 | – | (.03) | .06 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (2.52) | 2.08 | 10.44 | (18.04) | 10.89 | |||||||||||||||||
Total from Investment Operations | (2.43) | 2.15 | 10.44 | (18.07) | 10.95 | |||||||||||||||||
Less Distributions and Other: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.09) | (.08) | – | – | (.06) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Return of capital | N/A | N/A | –(3) | –(3) | N/A | |||||||||||||||||
Total Distributions and Other | (.09) | (.08) | – | – | (.06) | |||||||||||||||||
Net Asset Value, End of Period | $32.72 | $35.24 | $33.17 | $22.73 | $40.80 | |||||||||||||||||
Total Return | (6.91)% | 6.48% | 45.95% | (44.28)% | 36.63% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $417,408 | $532,645 | $639,979 | $428,109 | $713,499 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $475,743 | $567,062 | $520,592 | $653,396 | $557,041 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.95% | 0.92% | 0.93% | 0.92% | 0.94%(1) | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.95% | 0.92% | 0.93% | 0.92% | 0.94%(1) | |||||||||||||||||
Ratio of Net Investment Income/(Loss) to Average Net Assets | 0.31% | 0.25% | (0.22)% | (0.18)%(2) | 0.15% | |||||||||||||||||
Portfolio Turnover Rate | 46% | 36% | 32% | 61% | 24% |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Ratio of Gross Expenses to Average Net Assets and Ratio of Net Expenses to Average Net Assets include any applicable dividends and interest on short positions and may include stock loan fees. The ratios would have been 0.67% and 0.67%, respectively, in 2007 for Institutional Shares and 0.92% and 0.92%, respectively, in 2007 for Service Shares without the inclusion of any applicable dividends and interest on short positions and any stock loan fees. | |
(2) | As a result of recharacterization of dividend income to return of capital, the Ratio of Net Investment Income/(Loss) to Average Net Assets has been reduced by 0.11% and 0.09% for Institutional Shares and Service Shares, respectively. The adjustment had no impact on total net assets or total return of the class. | |
(3) | Return of capital aggregated less than $.01 on a per share basis. |
See Notes to Financial Statements.
Janus Aspen Series | 13
Notes to Schedule of Investments
Lipper Variable Annuity Large-Cap Growth Funds | Funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) above Lipper’s U.S. Diversified Equity large-cap floor. Large-cap growth funds typically have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P 500® Index. | |
Russell 1000® Growth Index | Measures the performance of those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. | |
S&P 500® Index | A commonly recognized, market-capitalization weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance. | |
PLC | Public Limited Company | |
U.S. Shares | Securities of foreign companies trading on an American Stock Exchange. | |
VVPR Strip | The Voter Verified Paper Record (VVPR) strip is a coupon which, if presented along with the dividend coupon of the ordinary share, allows the benefit of a reduced withholding tax on the dividends paid by the company. This strip is quoted separately from the ordinary share and is freely negotiable. |
* | Non-income producing security. | |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. |
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Forty Portfolio | |||||||||||
Common Stock | $ | 866,488,508 | $ | – | $ | – | |||||
Money Market | – | 17,526,000 | – | ||||||||
Total Investments in Securities | $ | 866,488,508 | $ | 17,526,000 | $ | – | |||||
Other Financial Instruments(a): | $ | – | $ | (123,841) | $ | – | |||||
(a) | Other financial instruments include futures, forward currency, written option, and swap contracts. Forward currency contracts and swap contracts are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. Futures are reported at their variation margin at measurement date, which represents the amount due to/from the Portfolio at that date. Options are reported at their market value at measurement date. |
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Forty Portfolio | $ | 16,487,600 | |||
14 | DECEMBER 31, 2011
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Janus Aspen Forty Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests primarily in common stocks. The Portfolio is classified as nondiversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers two classes of shares: Institutional Shares and Service Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Each class of
Janus Aspen Series | 15
Notes to Financial Statements (continued)
shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and
16 | DECEMBER 31, 2011
repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Restricted Cash
As of December 31, 2011, Janus Aspen Forty Portfolio had restricted cash in the amount of $287,600. The restricted cash represents collateral received in relation to options contracts invested in by the Portfolio at December 31, 2011. The restricted cash is held at the Portfolio’s custodian, State Street Bank and Trust Company. The carrying value of the restricted cash approximates fair value.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3
Janus Aspen Series | 17
Notes to Financial Statements (continued)
Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
There were no Level 3 securities during the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | DERIVATIVE INSTRUMENTS |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. Each derivative instrument that was held by the Portfolio during the fiscal year ended December 31, 2011 is discussed in further detail below. A summary of derivative activity is reflected in the tables at the end of this section.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio |
18 | DECEMBER 31, 2011
paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. | |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
Options Contracts
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. The Portfolio may purchase or write covered and uncovered put and call options on swap contracts (“swaptions”), futures contracts, and on portfolio securities for hedging purposes or as a substitute for an investment. The Portfolio is subject to interest rate risk, liquidity risk, equity risk, and currency risk in the normal course of pursuing its investment objective through its investments in options contracts. The Portfolio may use options contracts to hedge against changes in interest rates, the values of equities, or foreign currencies. The Portfolio may utilize American-style and European-style options. An American-style option is an option contract that can be exercised at any time between the time of purchase and the option’s expiration date. A European-style option is an option contract that can only be exercised on the option’s expiration date. The Portfolio may also purchase or write put and call options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. The Portfolio may also invest in long-term equity anticipation securities, which are long-term option contracts that can be maintained for a period of up to three years. The Portfolio may also enter into a swaption contract which grants the purchaser the right, but not the obligation, to enter into a swap transaction at preset terms detailed in the underlying agreement within a specified period of time. Entering into a swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk, associated with both option contracts and swap contracts. The Portfolio generally invests in options to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Portfolio receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. In writing an option, the Portfolio bears the risk of an unfavorable change in the price of the security underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio buying or selling a security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option are adjusted by the amount of premium received or paid.
The Portfolio may also purchase and write exchange-listed and OTC put and call options on domestic securities indices, and on foreign securities indices listed on domestic and foreign securities exchanges. Options on securities indices are similar to options on securities except that (1) the expiration cycles of securities index options are monthly, while those of securities options are currently quarterly, and (2) the delivery requirements are different. Instead of giving the right to take or make delivery of securities at a specified price, an option on a securities index gives the holder the right to receive a cash “exercise settlement amount” equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed “index multiplier.” Receipt of this cash amount will depend upon the closing level of the securities index upon which the option is based being greater than, in the case of a call, or less than, in the case of a put, the exercise price of the index and the exercise price of the option times a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount.
Options traded on an exchange are regulated and the terms of the options are standardized. Options traded OTC expose the Portfolio to counterparty risk in the event that
Janus Aspen Series | 19
Notes to Financial Statements (continued)
the counterparty does not perform. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by having the counterparty post collateral to cover the Portfolio’s exposure to the counterparty.
Holdings of the Portfolio designated to cover outstanding written options are noted on the Schedule of Investments (if applicable). Options written are reported as a liability on the Statement of Assets and Liabilities as “Options written at value” (if applicable). Realized gains and losses are reported as “Net realized gain/(loss) from written options contracts” on the Statement of Operations (if applicable).
The risk in writing call options is that the Portfolio gives up the opportunity for profit if the market price of the security increases and the options are exercised. The risk in writing put options is that the Portfolio may incur a loss if the market price of the security decreases and the options are exercised. The risk in buying options is that the Portfolio pays a premium whether or not the options are exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. A lack of correlation between the value of an instrument underlying an option and the asset being hedged, or unexpected adverse price movements, could render the Portfolio’s hedging strategy unsuccessful. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased or sold. There is no limit to the loss the Portfolio may recognize due to written call options.
Written option activity for the fiscal year ended December 31, 2011 is indicated in the tables below:
Number of | Premiums | |||||||
Call Options | Contracts | Received | ||||||
Janus Aspen Forty Portfolio | ||||||||
Options outstanding at December 31, 2010 | 4,085 | $ | 1,239,800 | |||||
Options written | – | – | ||||||
Options closed | – | – | ||||||
Options expired | (3,672) | (584,658) | ||||||
Options exercised | (413) | (655,142) | ||||||
Options outstanding at December 31, 2011 | – | $ | – | |||||
Number of | Premiums | |||||||
Put Options | Contracts | Received | ||||||
Janus Aspen Forty Portfolio | ||||||||
Options outstanding at December 31, 2010 | 4,085 | $ | 962,349 | |||||
Options written | 5,000 | 696,000 | ||||||
Options closed | – | – | ||||||
Options expired | (4,085) | (962,349) | ||||||
Options exercised | – | – | ||||||
Options outstanding at December 31, 2011 | 5,000 | $ | 696,000 | |||||
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
The following table, grouped by derivative type, provides information about the fair value and location of derivatives within the Statement of Assets and Liabilities as of December 31, 2011.
Fair Value of Derivative Instruments as of December 31, 2011
Derivatives not accounted for as | Asset Derivatives | Liability Derivatives | ||||||||||
hedging instruments | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Equity Contracts | Options written, at value | $ | 123,841 | |||||||||
Total | $ | 123,841 | ||||||||||
The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the fiscal year ended December 31, 2011.
The effect of Derivative Instruments on the Statement of Operations for the fiscal year ended December 31, 2011
Amount of Realized Gain/(Loss) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | – | $ | 1,547,007 | $ | – | $ | 1,547,007 | ||||||||||
Total | $ | – | $ | – | $ | 1,547,007 | $ | – | $ | 1,547,007 | ||||||||||
20 | DECEMBER 31, 2011
Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | – | $ | (105,262 | ) | $ | – | $ | (105,262 | ) | ||||||||
Total | $ | – | $ | – | $ | (105,262 | ) | $ | – | $ | (105,262 | ) | ||||||||
Please see the Portfolio’s Statement of Operations for the Portfolio’s “Net Realized and Unrealized Gain/(Loss) on Investments.”
The value of derivative instruments at period end and the effect of derivatives on the Statement of Operations are indicative of the Portfolio’s volume throughout the fiscal year.
3. | OTHER INVESTMENTS AND STRATEGIES |
Additional Investment Risk
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as
Janus Aspen Series | 21
Notes to Financial Statements (continued)
recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering
22 | DECEMBER 31, 2011
the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio manager anticipates that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s “base” fee rate prior to any performance adjustment (expressed as an annual rate).
Base Fee | |||||
Rate (%) | |||||
Portfolio | (annual rate) | ||||
Janus Aspen Forty Portfolio | 0.64 | ||||
For the Portfolio, the investment advisory fee rate is determined by calculating a base fee and applying a performance adjustment. The base fee rate is the same as the contractual investment advisory fee rate shown in the table above. The performance adjustment either increases or decreases the base fee depending on how well the Portfolio has performed relative to its benchmark index, as shown below:
Portfolio | Benchmark Index | ||||
Janus Aspen Forty Portfolio | Russell 1000® Growth Index | ||||
Janus Aspen Series | 23
Notes to Financial Statements (continued)
Only the base fee rate will apply until January 2012 for the Portfolio. The calculation of the performance adjustment applies as follows:
Investment Advisory Fee = Base Fee Rate +/- Performance Adjustment
The investment advisory fee rate paid to Janus Capital by the Portfolio consists of two components: (1) a base fee calculated by applying the contractual fixed rate of the advisory fee to the Portfolio’s average daily net assets during the previous month (“Base Fee Rate”), plus or minus (2) a performance-fee adjustment (“Performance Adjustment”) calculated by applying a variable rate of up to 0.15% (positive or negative) to the Portfolio’s average daily net assets during the applicable performance measurement period. The performance measurement period generally is the previous 36 months, although no Performance Adjustment is made until the Portfolio’s performance-based fee structure has been in effect for at least 18 months. When the Portfolio’s performance-based fee structure has been in effect for at least 18 months, but less than 36 months, the performance measurement period will be equal to the time that has elapsed since the performance-based fee structure took effect. As noted above, any applicable Performance Adjustment will begin January 2012 for the Portfolio.
No Performance Adjustment is applied unless the difference between the Portfolio’s investment performance and the cumulative investment record of the Portfolio’s benchmark index is 0.50% or greater (positive or negative) during the applicable performance measurement period. The Base Fee Rate is subject to an upward or downward Performance Adjustment for every full 0.50% increment by which the Portfolio outperforms or underperforms its benchmark index. Because the Performance Adjustment is tied to the Portfolio’s relative performance compared to its benchmark index (and not its absolute performance), the Performance Adjustment could increase Janus Capital’s fee even if the Portfolio’s Shares lose value during the performance measurement period and could decrease Janus Capital’s fee even if the Portfolio’s Shares increase in value during the performance measurement period. For purposes of computing the Base Fee Rate and the Performance Adjustment, net assets are averaged over different periods (average daily net assets during the previous month for the Base Fee Rate, versus average daily net assets during the performance measurement period for the Performance Adjustment). Performance of the Portfolio is calculated net of expenses, whereas the Portfolio’s benchmark index does not have any fees or expenses. Reinvestment of dividends and distributions is included in calculating both the performance of the Portfolio and the Portfolio’s benchmark index. The Base Fee Rate is calculated and accrued daily. The Performance Adjustment is calculated monthly in arrears and is accrued throughout the month. The investment fee is paid monthly in arrears. Under extreme circumstances involving underperformance by a rapidly shrinking Portfolio, the dollar amount of the Performance Adjustment could be more than the dollar amount of the Base Fee Rate. In such circumstances, Janus Capital would reimburse the Portfolio.
The investment performance of the Portfolio’s Service Shares for the performance measurement period is used to calculate the Performance Adjustment. After Janus Capital determines whether the Portfolio’s performance was above or below its benchmark index by comparing the investment performance of the Portfolio’s Service Shares against the cumulative investment record of its benchmark index, Janus Capital applies the same Performance Adjustment (positive or negative) across each other class of shares of the Portfolio, as applicable.
It is not possible to predict the effect of the Performance Adjustment on future overall compensation to Janus Capital since it depends on the performance of the Portfolio relative to the record of the Portfolio’s benchmark index and future changes to the size of the Portfolio.
The Portfolio’s prospectuses and statements of additional information contain additional information about performance-based fees. The amount shown as advisory fees on the Statement of Operations reflects the Base Fee Rate only.
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares at an annual rate of up to 0.25% of Service Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
24 | DECEMBER 31, 2011
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio may be used to purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio is eligible to participate in the cash sweep program (the “Investing Fund”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
During the fiscal year ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Dividend | Value | |||||||||||
Shares/Cost | Shares/Cost | Income | at 12/31/11 | |||||||||||
Janus Aspen Forty Portfolio | ||||||||||||||
Janus Cash Liquidity Fund LLC | $ | 337,803,332 | $ | (345,654,358) | $ | 30,628 | $ | 17,526,000 | ||||||
Janus Aspen Series | 25
Notes to Financial Statements (continued)
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Undistributed | Undistributed | Other Book | Net Tax | |||||||||||||||||
Ordinary | Long-Term | Accumulated | Late-Year Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Forty Portfolio | $ | 2,558,767 | $ | – | $ | (64,279,281) | $ | (8,831,940) | $ | 542,020 | $ | 137,902,255 | ||||||||
Accumulated capital losses noted below represent net capital loss carryovers, as of December 31, 2011, that may be available to offset future realized capital gains and thereby reduce future taxable gains distributions. Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Portfolio will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may more likely expire unused. Also, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. The following table shows the expiration dates of the carryovers.
Capital Loss Carryover Expiration Schedule
For the year ended December 31, 2011
December 31, | Accumulated | |||||||
Portfolio | 2017 | Capital Losses | ||||||
Janus Aspen Forty Portfolio | $ | (64,279,281) | $ | (64,279,281) | ||||
During the fiscal year ended December 31, 2011, the following capital loss carryovers were utilized by the Portfolio:
Capital Loss | ||||||||||||||||||||||||||
Portfolio | Carryover Utilized | |||||||||||||||||||||||||
Janus Aspen Forty Portfolio | $ | 100,692,656 | ||||||||||||||||||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary difference between book and tax appreciation or depreciation of investments is wash sale loss deferrals.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Forty Portfolio | $ | 746,112,253 | $ | 203,790,895 | $ | (65,888,640) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
26 | DECEMBER 31, 2011
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Forty Portfolio | $ | 3,113,887 | $ | – | $ | – | $ | – | |||||||||
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Forty Portfolio | $ | 3,114,400 | $ | – | $ | – | $ | – | |||||||||
6. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Forty Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 1,627 | 2,337 | ||||||||
Reinvested dividends and distributions | 55 | 58 | ||||||||
Shares repurchased | (3,726) | (3,854) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (2,044) | (1,459) | ||||||||
Shares Outstanding, Beginning of Period | 15,874 | 17,333 | ||||||||
Shares Outstanding, End of Period | 13,830 | 15,874 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 1,519 | 2,361 | ||||||||
Reinvested dividends and distributions | 34 | 35 | ||||||||
Shares repurchased | (3,909) | (6,572) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (2,356) | (4,176) | ||||||||
Shares Outstanding, Beginning of Period | 15,115 | 19,291 | ||||||||
Shares Outstanding, End of Period | 12,759 | 15,115 |
7. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Forty Portfolio | $ | 447,713,183 | $ | 588,840,973 | $ | – | $ | – | ||||||
8. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value
Janus Aspen Series | 27
Notes to Financial Statements (continued)
measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
9. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
28 | DECEMBER 31, 2011
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Forty Portfolio:
of Janus Aspen Forty Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Forty Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
Janus Aspen Series | 29
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
30 | DECEMBER 31, 2011
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
Janus Aspen Series | 31
Additional Information (unaudited) (continued)
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
32 | DECEMBER 31, 2011
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The total annual fund operating expenses ratio is based on average net assets as of the fiscal period ended December 31, 2010. The ratio also includes expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, this ratio may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
2a. Options
A table listing written options contracts follows the Portfolio’s Schedule of Investments (if applicable). Written options contracts are contracts that obligate the Portfolio to sell or purchase an underlying security at a fixed price, upon exercise of the option. Options are used to hedge against adverse movements in securities prices, currency risk or interest rates.
The table provides the name of the contract, number of contracts held, the expiration date, exercise price, value and premiums received.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid. Additionally, there may be other assets and liabilities.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s net assets (assets minus liabilities) by the number of shares outstanding.
Janus Aspen Series | 33
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating
34 | DECEMBER 31, 2011
volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio manager. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
Janus Aspen Series | 35
Designation Requirements (unaudited)
For federal income tax purposes, the Portfolio designated the following for the year ended December 31, 2011:
Dividends Received Deduction Percentage
Portfolio | ||||||||||
Janus Aspen Forty Portfolio | 100% | |||||||||
36 | DECEMBER 31, 2011
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
Janus Aspen Series | 37
Trustees and Officers (unaudited) (continued)
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments -HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
38 | DECEMBER 31, 2011
OFFICERS
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Ron Sachs 151 Detroit Street Denver, CO 80206 DOB: 1967 | Executive Vice President and Portfolio Manager Janus Aspen Forty Portfolio | 1/08-Present | Vice President of Janus Capital and Portfolio Manager for other Janus accounts. | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. | |||
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
Janus Aspen Series | 39
Notes
40 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 41
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
C-0112-126 | 109-02-81115 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
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2 | ||
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20 | ||
34 | ||
35 | ||
38 | ||
41 |
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s manager as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s manager may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s manager in the Management Commentary are just that: opinions. They are a reflection of the manager’s best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the manager’s opinions. These views are unique to the manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares and Service II Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Janus Capital Management LLC (“Janus Capital”) has contractually agreed to waive the Portfolio’s total annual fund operating expenses, excluding the distribution and shareholder servicing (12b-1) fees applicable to Service Shares and Service II Shares, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses, to certain limits until at least May 1, 2013. Expenses in the examples reflect the application of this waiver. Had the waiver not been in effect, your expenses would have been higher. More information regarding the waiver is available in the Portfolio’s prospectuses.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Global Technology Portfolio (unaudited)
Portfolio Snapshot We focus on anticipating change and determining which companies will win on a multi-year basis whose share price is below the value of its cash flows. We take a strategy and culture-based approach to investing, diving deep into what we believe are the most important factors which allow companies to transform industries and win. We leverage the strong and thoughtful research at Janus to uncover innovative companies representing our best investment ideas | J. Bradley Slingerlend portfolio manager |
Performance Overview
During the 12 months ended December 31, 2011, Janus Aspen Global Technology Portfolio’s Institutional Shares, Service Shares and Service II Shares returned -8.68%, -8.66% and -8.81%. By comparison, the Portfolio’s secondary and primary benchmarks, the MSCI World Information Technology Index and the S&P 500 Index returned -2.49% and 2.11%, respectively.
Portfolio Manager Comments
We were disappointed with performance in 2011. We focus our time and effort positioning the portfolio to outperform over the long term, and this past year did not go our way. Compared to the MSCI World Information Technology Index we owned more cyclical companies which underperformed in an uncertain global economic environment and fewer services companies which outperformed. Our focus on deriving insights from in-depth fundamental research remains. We continue to find attractive companies to own in the technology sector with strong long-term prospects.
A key driver of investment success is to identify important changes in how we interact with technology. In some cases, we need to understand human behavior. Since Adam Smith begat modern economic theory we have relied on the flawed idea that the human species is rational, self-interested and has access to perfect information. In modern times, however, these shortcomings in traditional economic theory have created wide ranging global economic challenges. We do not always operate with perfect information and certainly are not always rational.
But this may be changing because of two important trends in technology – smart phones and data analytics. Homo economicus could prove to be real after all.
In theory, competition should drive the price of ice cream at your nearby grocery store to the same level as the nearby super center. In practice it is not always the case when you consider how convenience and lack of information drive purchase decisions. But what if you did have access to perfect, real-time information?
Say you are in the market for a new LCD TV: using eBay’s Red Laser app you can scan barcodes as you walk through Best Buy and find the lowest price either online or at other physical stores near you. Perhaps you want to live healthier: New healthcare smartphone apps allow you to easily track your food consumption and exercise, or even monitor key aspects of your body. Presumably, those who want to get healthier could do so more easily, with large implications to insurers and drug companies.
Or say you want to know where to buy the cheapest basket of groceries nearest to you. Now, with shopping list apps, you can see where your basket of items are the cheapest.
There is a behavioral revolution taking place with smart phones. Access to the world’s information in your pocket with easy and inexpensive apps to provide you data should allow Homo economicus, the rational consumer, to finally behave according to “theory.” Many economic theories that are intuitively logical, but have been thrown out, may turn out to be viable in the midst of this revolution.
So what does this have to do with investing in tech stocks? This mobile computing revolution – with data and access a few taps away – lead to several key investment themes. Among them:
• | Platforms: New platforms are key to enabling this transformative trend in data. Companies such as Amazon, with its cloud computing platform Amazon Web Services, allow startups to create low cost apps for consumers and businesses. Apple’s iOS operating system and Google’s Android platform enable computing power and access to information we could not even dream of a few years ago. We see many companies now thinking more broadly about |
2 | DECEMBER 31, 2011
(unaudited)
their ecosystems and how they can be platforms for their customers and partners. |
• | Making the complex simple: Apple’s strength in this area is showing up across several other areas of technology. For example, enterprise software, once complicated and buried in computer programming code, is now accessible by employees with iPads. This simplification and consumerization propels adoption and growth of technology products and services, and ultimately drives global innovation. | |
• | Insight from data analysis: Distilling information from data is becoming a core competency for many companies in many industries. We are seeing leaders emerge in sectors such as retail and financials based on their ability to understand and leverage data to create better products and happier customers. In the retail sector some particularly interesting technology developments are starting to have a large impact. Forward thinking retailers leveraging the latest analytics and electronic payment platforms, such as PayPal (owned by eBay), are able to gather data to create more loyal customers while spending less on marketing – or better yet taking marketing dollars and putting them directly in consumer pockets in the form of coupons and rebates. This type of technology requires heavy investments in software, storage, and new in-store devices and relies on the products of many of our holdings, including Apple, EMC, NetApp, Teradata, eBay, and QLIK Technologies. |
Remember these are long-term trends. For example, right now my diet app tells me it’s time for a protein bar that I researched on line and ordered with my shopping app at the cheapest price available. But I think I’ll head to 7-11 tonight for some ice cream because it’s closer and I’m hungry. So much for Homo economicus. Forgive me, I’m human.
Detractors from Performance
Longtop Financial Technologies was our largest individual detractor. We were caught by what appears to be an issue of fraud or at least questionable accounting. We sold the holding.
STR Holdings also traded significantly lower during the period. This company manufactures power module encapsulants (extruded sheets and film which hold the solar module together and protect the semiconductor circuit of a solar panel), which are a vital but low-cost component of a solar module. STR Holdings produces the highest quality encapsulants in our view and therefore should benefit from the unit growth we anticipate in the solar industry.
Semiconductor maker ON Semiconductor was among supply chain stocks caught in the third-quarter downdraft. Supply chain stocks were priced as if a crisis were imminent. We viewed that as an over-reaction based on our channel checks, which showed slower activity but not as slow as during 2008. The market’s behavior was painful, but it made semiconductor and electronic connector stocks more attractive. ON’s integration of Sanyo’s semiconductor business unit also progressed slower than anticipated due to Japan’s earthquake in March 2011; however, production has improved considerably since the tragedy. We continue to believe this large-scale provider of low-cost analog and other semiconductor chips has a business-model advantage in that it spends less on marketing and research and development than its competitors. We think ON Semiconductor can generate attractive levels of profit and free cash flows in its competitive markets.
Contributors to Performance
Autonomy, a U.K.-based software company, was our top performing holdings during the period after Hewlett-Packard (HP) announced it would buy the firm. This was an example of how our team working across various segments within technology enabled us to value Autonomy’s assets higher than where the stock had been trading. We found the company had a strong niche in unstructured data; its software enables companies to tease valuable information from large data sources. The buy-out also indicated that traditional technology companies like HP have significant cash on their balance sheets and continue to generate high levels of free cash flow, both of which could fuel more transactions to help them re-start their growth engines. We like the companies we own for their own characteristics, but we also feel many could be acquired in the years ahead.
Health care technology company athenahealth also contributed to performance. We consider this a highly innovative company that is re-investing in software products to help make the U.S. health care system more efficient. We feel athenahealth, the leading software provider for managing physicians’ practices with an attractive growth business in electronic health records, remains in the early stages of its growth potential.
Janus Aspen Series | 3
Janus Aspen Global Technology Portfolio (unaudited)
Finally, software maker SolarWinds posted strong returns after the company reported better-than-expected financial results. While we continue to like the leading vendor of low-cost management software for its growing presence in network management and entry into storage and application management areas, we felt its risk-return profile had become less attractive. Therefore, we sold our position.
Derivatives
We initiated and owned positions in futures contracts and derivatives, such as options, in order to help mitigate the risks and potentially enhance the performance of the Portfolio. During the period, these positions in aggregate detracted modestly from performance. (Please see “Notes to Financial Statements” for information about the hedging techniques used by the Portfolio.)
Thank you for your investment in Janus Aspen Global Technology Portfolio.
4 | DECEMBER 31, 2011
(unaudited)
Janus Aspen Global Technology Portfolio At A Glance
5 Top Performers – Holdings
Contribution | ||||
Autonomy Corp. PLC | 1.25% | |||
Cree, Inc. | 0.86% | |||
athenahealth, Inc. | 0.62% | |||
SolarWinds, Inc. | 0.56% | |||
Teradata Corp. | 0.53% |
5 Bottom Performers – Holdings
Contribution | ||||
Longtop Financial Technologies, Ltd. (ADR) | –1.73% | |||
STR Holdings, Inc. | –1.48% | |||
ON Semiconductor Corp. | –1.07% | |||
Atmel Corp. | –1.02% | |||
EMC Corp. | –0.83% |
5 Top Performers – Sectors*
Portfolio Weighting | ||||||||||||
Portfolio Contribution | (% of Equity) | S&P 500® Index Weighting | ||||||||||
Financials | 2.77% | 0.21% | 14.81% | |||||||||
Industrials | 0.50% | 5.91% | 10.86% | |||||||||
Other** | 0.01% | –0.82% | 0.00% | |||||||||
Telecommunication Services | –0.01% | 2.05% | 3.05% | |||||||||
Health Care | –0.25% | 5.83% | 11.44% |
5 Bottom Performers – Sectors*
Portfolio Weighting | ||||||||||||
Portfolio Contribution | (% of Equity) | S&P 500® Index Weighting | ||||||||||
Information Technology | –8.46% | 74.86% | 18.76% | |||||||||
Consumer Discretionary | –1.57% | 9.95% | 10.61% | |||||||||
Consumer Staples | –1.20% | 0.00% | 10.87% | |||||||||
Materials | –0.96% | 1.40% | 3.59% | |||||||||
Utilities | –0.82% | 0.61% | 3.48% |
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. | ||
* | Based on sector classification according to the Global Industry Classification Standard (“GICS”) codes, which are the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
** | Not a GICS classified sector. |
Janus Aspen Series | 5
Janus Aspen Global Technology Portfolio (unaudited)
5 Largest Equity Holdings – (% of Net Assets)
As of December 31, 2011
Microsoft Corp. Applications Software | 5.1% | |||
eBay, Inc. E-Commerce/Products | 4.6% | |||
ON Semiconductor Corp. Electronic Components – Semiconductors | 3.6% | |||
Apple, Inc. Computers | 3.4% | |||
EMC Corp. Computers – Memory Devices | 3.3% | |||
20.0% |
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Emerging markets comprised 4.3% for long positions and (0.2)% for short positions of total net assets.
*Includes Securities Sold Short of (2.7)%
Top Country Allocations – Long Positions (% of Investment Securities)
As of December 31, 2011
6 | DECEMBER 31, 2011
(unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||||
One | Five | Ten | Since | Total Annual Fund | Net Annual Fund | ||||||||
Year | Year | Year | Inception* | Operating Expenses | Operating Expenses | ||||||||
Janus Aspen Global Technology Portfolio – Institutional Shares | –8.68% | 4.24% | 2.68% | –5.01% | 0.87% | 0.87%(a) | |||||||
Janus Aspen Global Technology Portfolio – Service Shares | –8.66% | 3.98% | 2.44% | –5.24% | 1.13% | 1.13%(b) | |||||||
Janus Aspen Global Technology Portfolio – Service II Shares | –8.81% | 4.03% | 2.53% | –5.24% | 1.11% | 1.11%(b) | |||||||
S&P 500® Index | 2.11% | –0.25% | 2.92% | 0.63% | |||||||||
Morgan Stanley Capital International World Information Technology Index | –2.49% | 1.18% | 1.26% | –5.64%** | |||||||||
Lipper Quartile – Institutional Shares | 3rd | 2nd | 1st | 2nd | |||||||||
Lipper Ranking – Institutional Shares based on total returns for Variable Annuity Science & Technology Funds | 30/44 | 15/40 | 6/32 | 5/10 | |||||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
For Service II Shares, a 1% redemption fee may be imposed on shares held for 60 days or less. Performance shown does not reflect this redemption fee and, if reflected, performance would have been lower.
(a) Janus Capital has contractually agreed to waive the Portfolio’s total annual fund operating expenses (excluding brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses) to a certain limit until at least May 1, 2013. The contractual waiver may be terminated or modified prior to this date only at the discretion of the Board of Trustees. The expense waiver shown reflects the application of such limit. Returns shown include fee waivers, if any, and without such waivers, returns would have been lower.
(b) Janus Capital has contractually agreed to waive the Portfolio’s total annual fund operating expenses (excluding the distribution and shareholder servicing fees, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses) to a certain limit until at least May 1, 2013. The contractual waiver may be terminated or modified prior to this date only at the discretion of the Board of Trustees. The expense waiver shown reflects the application of such limit. Returns shown include fee waivers, if any, and without such waivers, returns would have been lower.
See important disclosures on the next page.
Janus Aspen Series | 7
Janus Aspen Global Technology Portfolio (unaudited)
Annual expense ratios include dividends or interest on short sales, which are paid to the lender of borrowed securities. Such expenses will vary depending on whether the securities the Portfolio sells short pay dividends or interest and the amount of such dividends or interest.
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. Contractual waivers agreed to by Janus Capital, where applicable, are included under “Net Annual Fund Operating Expenses.” All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio’s performance may be affected by risks that include those associated with investments in specific industries or countries and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), derivatives, and short sales. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
Foreign securities have additional risks including exchange rate changes, political and economic upheaval, the relative lack of information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. These risks are magnified in emerging markets. The prices of foreign securities held by the Portfolio, and therefore the Portfolio’s performance, may decline in response to such risks.
The Portfolio may have significant exposure to emerging markets. In general, emerging market investments have historically been subject to significant gains and/or losses. As such, the Portfolio’s returns and NAV may be subject to volatility.
The use of short sales may cause the Portfolio to have higher expenses than those of other equity portfolios. Short sales are speculative transactions and involve special risks, including a greater reliance on the investment team’s ability to accurately anticipate the future value of a security. The Portfolio’s losses are potentially unlimited in a short sale transaction. The Portfolio’s use of short sales in effect leverages the Portfolio. The Portfolio’s use of leverage may result in risks and can magnify the effect of any losses. There is no assurance that a leveraging strategy will be successful.
The Portfolio may invest in derivatives which can be highly volatile and involve additional risks than if the underlying securities were held directly by the Portfolio. Such risks include gains or losses which, as a result of leverage, can be substantially greater than the derivatives’ original cost. There is also a possibility that derivatives may not perform as intended which can reduce opportunity for gains or result in losses by offsetting positive returns in other securities the Portfolio owns.
The Portfolio may at times have significant exposure to certain industry groups, which may react similarly to market developments (resulting in greater price volatility).
The Portfolio will normally invest at least 80% of its net assets, measured at the time of purchase, in the type of securities described by its name.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Returns shown for Service II Shares for periods prior to December 31, 2001 are derived from the historical performance of Institutional Shares, adjusted to reflect the higher operating expenses of Service II Shares.
Net dividends reinvested are the dividends that remain to be reinvested after foreign tax obligations have been met. Such obligations vary from country to country.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Institutional Share class only; other classes may have different performance characteristics. When an expense waiver is in effect, it may have a material effect on the total return, and therefore the ranking for the period.
January 31, 2000 is the date used to calculate the since-inception Lipper ranking, which is slightly different from when the Portfolio began operations since Lipper provides fund rankings as of the last day of the month.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the indices. The indices are unmanaged and are not available for direct investment; therefore, their performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
Effective May 12, 2011, J. Bradley Slingerlend is portfolio manager of Janus Aspen Global Technology Portfolio.
* | The Portfolio’s inception date – January 18, 2000 | |
** | The Morgan Stanley Capital International World Information Technology Index since inception returns are calculated from January 31, 2000. |
8 | DECEMBER 31, 2011
(unaudited)
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 889.10 | $ | 4.05 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.92 | $ | 4.33 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 889.80 | $ | 5.24 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.66 | $ | 5.60 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service II Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 888.90 | $ | 5.24 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.66 | $ | 5.60 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.85% for Institutional Shares, 1.10% for Service Shares and 1.10% for Service II Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses include effect of contractual waivers by Janus Capital. |
Janus Aspen Series | 9
Janus Aspen Global Technology Portfolio
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Common Stock – 99.2% | ||||||||||
Advanced Materials/Production – 1.2% | ||||||||||
147,618 | STR Holdings, Inc.* | $ | 1,214,896 | |||||||
Applications Software – 7.2% | ||||||||||
3,600 | Citrix Systems, Inc.* | 218,592 | ||||||||
202,826 | Microsoft Corp.** | 5,265,363 | ||||||||
58,150 | RealPage, Inc.* | 1,469,451 | ||||||||
4,370 | Salesforce.com, Inc.* | 443,380 | ||||||||
7,396,786 | ||||||||||
Cable/Satellite Television – 2.1% | ||||||||||
26,505 | Comcast Corp. – Class A | 628,434 | ||||||||
24,730 | Time Warner Cable, Inc. – Class A | 1,572,086 | ||||||||
2,200,520 | ||||||||||
Commercial Services – 3.0% | ||||||||||
80,924 | Iron Mountain, Inc. | 2,492,459 | ||||||||
72,781 | Live Nation, Inc.* | 604,810 | ||||||||
3,097,269 | ||||||||||
Commercial Services – Finance – 1.0% | ||||||||||
2,900 | MasterCard, Inc. – Class A | 1,081,178 | ||||||||
Computer Aided Design – 2.8% | ||||||||||
35,161 | ANSYS, Inc.* | 2,014,022 | ||||||||
29,520 | Autodesk, Inc.* | 895,342 | ||||||||
2,909,364 | ||||||||||
Computer Software – 1.1% | ||||||||||
63,396 | Cornerstone OnDemand, Inc.* | 1,156,343 | ||||||||
Computers – 3.9% | ||||||||||
8,600 | Apple, Inc.* | 3,483,000 | ||||||||
265,840 | Quanta Computer, Inc. | 559,469 | ||||||||
4,042,469 | ||||||||||
Computers – Integrated Systems – 3.1% | ||||||||||
38,715 | Jack Henry & Associates, Inc. | 1,301,211 | ||||||||
39,206 | Teradata Corp.* | 1,901,883 | ||||||||
3,203,094 | ||||||||||
Computers – Memory Devices – 5.6% | ||||||||||
157,071 | EMC Corp.*,** | 3,383,310 | ||||||||
65,301 | NetApp, Inc.* | 2,368,467 | ||||||||
5,751,777 | ||||||||||
Consulting Services – 3.4% | ||||||||||
49,641 | Gartner, Inc.* | 1,726,018 | ||||||||
30,295 | Verisk Analytics, Inc.* | 1,215,738 | ||||||||
24,740 | Zillow, Inc.* | 556,155 | ||||||||
3,497,911 | ||||||||||
E-Commerce/Products – 7.1% | ||||||||||
12,607 | Amazon.com, Inc.*,** | 2,182,272 | ||||||||
156,283 | eBay, Inc.*,** | 4,740,063 | ||||||||
5,645 | Netflix, Inc.* | 391,142 | ||||||||
7,313,477 | ||||||||||
E-Commerce/Services – 0.9% | ||||||||||
22,524 | Ctrip.com International, Ltd. (ADR)* | 527,061 | ||||||||
10,660 | OpenTable, Inc.* | 417,126 | ||||||||
944,187 | ||||||||||
Electronic Components – Miscellaneous – 3.3% | ||||||||||
109,472 | TE Connectivity, Ltd. (U.S. Shares)** | 3,372,832 | ||||||||
Electronic Components – Semiconductors – 5.8% | ||||||||||
121,337 | ARM Holdings PLC** | 1,115,327 | ||||||||
483,894 | ON Semiconductor Corp.*,** | 3,735,662 | ||||||||
640 | Samsung Electronics Co., Ltd. | 589,151 | ||||||||
17,320 | Xilinx, Inc. | 555,279 | ||||||||
5,995,419 | ||||||||||
Electronic Connectors – 3.0% | ||||||||||
68,260 | Amphenol Corp. – Class A** | 3,098,321 | ||||||||
Electronics – Military – 1.3% | ||||||||||
56,563 | Ultra Electronics Holdings PLC** | 1,298,058 | ||||||||
Enterprise Software/Services – 6.9% | ||||||||||
35,578 | Aveva Group PLC** | 789,959 | ||||||||
8,640 | Informatica Corp.* | 319,075 | ||||||||
114,479 | Oracle Corp. | 2,936,387 | ||||||||
91,182 | QLIK Technologies, Inc.*,** | 2,206,605 | ||||||||
54,817 | Temenos Group A.G.* | 899,022 | ||||||||
7,151,048 | ||||||||||
Entertainment Software – 0.2% | ||||||||||
17,800 | Nexon Co., Ltd.** | 256,070 | ||||||||
Independent Power Producer – 0.2% | ||||||||||
9,662 | NRG Energy, Inc.* | 175,076 | ||||||||
Industrial Automation and Robotics – 2.1% | ||||||||||
13,849 | Fanuc Corp.** | 2,120,094 | ||||||||
Internet Applications Software – 1.6% | ||||||||||
27,800 | Tencent Holdings, Ltd. | 558,770 | ||||||||
48,740 | Vocus, Inc.* | 1,076,667 | ||||||||
1,635,437 | ||||||||||
Internet Content – Entertainment – 1.1% | ||||||||||
37,758 | Youku.com, Inc. (ADR)* | 591,668 | ||||||||
54,020 | Zynga, Inc.* | 508,328 | ||||||||
1,099,996 | ||||||||||
Internet Content – Information/News – 0.9% | ||||||||||
17,570 | Bankrate, Inc.* | 377,755 | ||||||||
9,485 | LinkedIn Corp.* | 597,650 | ||||||||
975,405 | ||||||||||
Internet Gambling – 1.7% | ||||||||||
696,936 | Bwin.Party Digital Entertainment PLC** | 1,774,696 | ||||||||
Media – 0.3% | ||||||||||
25,540 | Workday, Inc. – Private Placement°° ,§ | 338,660 | ||||||||
Medical – Biomedical and Genetic – 2.5% | ||||||||||
26,520 | Celgene Corp.* | 1,792,752 | ||||||||
23,191 | Vertex Pharmaceuticals, Inc.* | 770,173 | ||||||||
2,562,925 | ||||||||||
Medical Information Systems – 1.6% | ||||||||||
34,120 | athenahealth, Inc.* | 1,675,974 | ||||||||
Multimedia – 3.3% | ||||||||||
68,205 | Demand Media, Inc.* | 453,563 | ||||||||
70,820 | News Corp. – Class A | 1,263,429 | ||||||||
46,170 | Walt Disney Co.** | 1,731,375 | ||||||||
3,448,367 | ||||||||||
Networking Products – 1.0% | ||||||||||
58,590 | Cisco Systems, Inc. | 1,059,307 | ||||||||
Printing – Commercial – 1.2% | ||||||||||
39,723 | VistaPrint N.V. (U.S. Shares)* | 1,215,524 |
See Notes to Schedule of Investments and Financial Statements.
10 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Semiconductor Components/Integrated Circuits – 6.0% | ||||||||||
360,640 | Atmel Corp.*,** | $ | 2,921,184 | |||||||
1,318,000 | Taiwan Semiconductor Manufacturing Co., Ltd. | 3,300,661 | ||||||||
6,221,845 | ||||||||||
Semiconductor Equipment – 2.6% | ||||||||||
64,979 | ASML Holding N.V. | 2,730,793 | ||||||||
Software Tools – 0.4% | ||||||||||
5,370 | VMware, Inc. – Class A* | 446,730 | ||||||||
Telecommunication Equipment – 0.5% | ||||||||||
131,790 | Tellabs, Inc. | 532,432 | ||||||||
Telecommunication Services – 2.4% | ||||||||||
85,841 | Amdocs, Ltd. (U.S. Shares)*,** | 2,449,044 | ||||||||
Television – 1.4% | ||||||||||
51,767 | CBS Corp. – Class B | 1,404,956 | ||||||||
Toys – 0.5% | ||||||||||
3,632 | Nintendo Co., Ltd.** | 500,315 | ||||||||
Transactional Software – 0.9% | ||||||||||
20,760 | Solera Holdings, Inc. | 924,650 | ||||||||
Wireless Equipment – 4.1% | ||||||||||
44,144 | Crown Castle International Corp.* | 1,977,651 | ||||||||
28,635 | SBA Communications Corp. – Class A* | 1,230,159 | ||||||||
102,674 | Telefonaktiebolaget L.M. Ericsson – Class B | 1,050,893 | ||||||||
4,258,703 | ||||||||||
Total Common Stock (cost $99,091,296) | 102,531,948 | |||||||||
Money Market – 0.2% | ||||||||||
217,000 | Janus Cash Liquidity Fund LLC, 0% (cost $217,000) | 217,000 | ||||||||
Total Investments (total cost $99,308,296) – 99.4% | 102,748,948 | |||||||||
Securities Sold Short – (2.7)% | ||||||||||
Common Stock Sold Short – (2.7)% | ||||||||||
Computer Services – (0.8)% | ||||||||||
11,662 | Atos Origin S.A. | (565,306) | ||||||||
24,210 | Wipro, Ltd. (ADR) | (246,700) | ||||||||
(812,006) | ||||||||||
Computers – Memory Devices – (0.6)% | ||||||||||
17,685 | Seagate Technology | (290,034) | ||||||||
10,210 | Western Digital Corp.* | (316,000) | ||||||||
(606,034) | ||||||||||
Electronic Components – Semiconductors – (0.3)% | ||||||||||
16,175 | Cree, Inc.* | (356,497) | ||||||||
Printing – Commercial – (0.4)% | ||||||||||
21,205 | Valassis Communications, Inc.* | (407,772) | ||||||||
Semiconductor Equipment – (0.6)% | ||||||||||
12,300 | Tokyo Electron, Ltd.** | (582,375) | ||||||||
Total Securities Sold Short (proceeds $3,357,481) | (2,764,684) | |||||||||
Cash, Receivables and Other Assets, net of Liabilities – 3.3% | 3,384,125 | |||||||||
Net Assets – 100% | $ | 103,368,389 | ||||||||
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Cayman Islands | $ | 1,677,499 | 1.6% | |||||
Gibraltar | 1,774,696 | 1.7% | ||||||
Guernsey | 2,449,044 | 2.4% | ||||||
Japan | 2,876,479 | 2.8% | ||||||
Netherlands | 3,946,317 | 3.8% | ||||||
South Korea | 589,151 | 0.6% | ||||||
Sweden | 1,050,893 | 1.0% | ||||||
Switzerland | 4,271,854 | 4.2% | ||||||
Taiwan | 3,860,130 | 3.8% | ||||||
United Kingdom | 3,203,344 | 3.1% | ||||||
United States†† | 77,049,541 | 75.0% | ||||||
Total | $ | 102,748,948 | 100.0% |
†† | Includes Cash Equivalents (74.8% excluding Cash Equivalents). |
Summary of Investments by Country – (Short Positions)
% of Securities | ||||||||
Country | Value | Sold Short | ||||||
France | $ | (565,306) | 20.4% | |||||
India | (246,700) | 8.9% | ||||||
Ireland | (290,034) | 10.5% | ||||||
Japan | (582,375) | 21.1% | ||||||
United States | (1,080,269) | 39.1% | ||||||
Total | $ | (2,764,684) | 100.0% |
Forward Currency Contracts, Open
Unrealized | ||||||||||||
Currency Units | Currency | Appreciation/ | ||||||||||
Counterparty/Currency Sold and Settlement Date | Sold | Value U.S. $ | (Depreciation) | |||||||||
Credit Suisse Securities (USA) LLC: | ||||||||||||
British Pound 1/19/12 | 379,000 | $ | 588,378 | $ | 6,792 | |||||||
Japanese Yen 1/19/12 | 44,000,000 | 571,965 | (5,273) | |||||||||
1,160,343 | 1,519 | |||||||||||
HSBC Securities (USA), Inc.: | ||||||||||||
British Pound 2/2/12 | 110,000 | 170,744 | 239 | |||||||||
Japanese Yen 2/2/12 | 43,100,000 | 560,425 | (5,877) | |||||||||
731,169 | (5,638) | |||||||||||
JPMorgan Chase & Co.: | ||||||||||||
British Pound 1/12/12 | 280,000 | 434,718 | 2,185 | |||||||||
Japanese Yen 1/12/12 | 43,300,000 | 562,784 | (5,649) | |||||||||
997,502 | (3,464) | |||||||||||
Total | $ | 2,889,014 | $ | (7,583) |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 11
Janus Aspen Global Technology Portfolio
Schedule of Investments
As of December 31, 2011
Schedule of Written Options – Calls | Value | |||
Amazon.com, Inc. expires January 2012 30 contracts exercise price $235.00 | $ | (63) | ||
Amdocs, Ltd. (U.S. Shares) expires April 2012 500 contracts exercise price $32.50 | (9,905) | |||
Amphenol Corp. – Class A expires January 2012 175 contracts exercise price $50.00 | (1,391) | |||
Atmel Corp. expires February 2012 950 contracts exercise price $13.00 | (343) | |||
eBay, Inc. expires January 2012 500 contracts exercise price $35.00 | (1,187) | |||
ON Semiconductor Corp. expires January 2012 1,250 contracts exercise price $10.00 | (2,265) | |||
TE Connectivity, Ltd. (U.S. Shares) expires January 2012 550 contracts exercise price $40.00 | (4) | |||
Total Written Options – Calls (premiums received $134,620 ) | $ | (15,158) | ||
Schedule of Written Options – Put | ||||
Microsoft Corp. expires January 2012 705 contracts exercise price $24.00 (premiums received $30,315) | (7,349) | |||
Total Return Swap outstanding at December 31, 2011
Notional | Return Paid | Return Received | Unrealized | ||||||||||||
Counterparty | Amount | by the Portfolio | by the Portfolio | Termination Date | Appreciation | ||||||||||
Goldman Sachs International | $ | (303,632) | Samsung SDI Co., Ltd. | 1-month USD LIBOR minus 50 basis points | 11/19/12 | $ | 27,857 | ||||||||
See Notes to Schedule of Investments and Financial Statements.
12 | DECEMBER 31, 2011
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
Global | ||||||||||
As of December 31, 2011 | Technology | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 99,308 | ||||||||
Unaffiliated investments at value | $ | 102,532 | ||||||||
Affiliated investments at value | 217 | |||||||||
Cash | 96 | |||||||||
Deposits with broker for short sales | 3,358 | |||||||||
Receivables: | ||||||||||
Investments sold | 187 | |||||||||
Portfolio shares sold | 19 | |||||||||
Dividends | 58 | |||||||||
Outstanding swap contracts at value | 28 | |||||||||
Non-interested Trustees’ deferred compensation | 3 | |||||||||
Other assets | 2 | |||||||||
Forward currency contracts | 9 | |||||||||
Total Assets | 106,509 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Short sales, at value(1) | 2,765 | |||||||||
Options written, at value(2) | 23 | |||||||||
Portfolio shares repurchased | 154 | |||||||||
Advisory fees | 57 | |||||||||
Fund administration fees | 1 | |||||||||
Distribution fees and shareholder servicing fees | 21 | |||||||||
Non-interested Trustees’ fees and expenses | 2 | |||||||||
Non-interested Trustees’ deferred compensation fees | 3 | |||||||||
Accrued expenses and other payables | 98 | |||||||||
Forward currency contracts | 17 | |||||||||
Total Liabilities | 3,141 | |||||||||
Net Assets | $ | 103,368 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 108,132 | ||||||||
Undistributed net investment loss* | (37) | |||||||||
Undistributed net realized loss from investment and foreign currency transactions* | (8,924) | |||||||||
Unrealized net appreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 4,197 | |||||||||
Total Net Assets | $ | 103,368 | ||||||||
Net Assets - Institutional Shares | $ | 4,275 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 846 | |||||||||
Net Asset Value Per Shares | $ | 5.05 | ||||||||
Net Assets - Service Shares | $ | 73,246 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 14,176 | |||||||||
Net Asset Value Per Share | $ | 5.17 | ||||||||
Net Assets - Service II Shares | $ | 25,847 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 4,892 | |||||||||
Net Asset Value Per Share | $ | 5.28 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Includes proceeds of $3,357,481 on short sales. | |
(2) | Includes premiums of $164,935 on written options. |
See Notes to Financial Statements.
Janus Aspen Series | 13
��
Statement of Operations
Janus Aspen | ||||||
Global | ||||||
For the fiscal year ended December 31, 2011 | Technology | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | – | ||||
Interest proceeds from short sales | 3 | |||||
Dividends | 921 | |||||
Dividends from affiliates | 6 | |||||
Foreign tax withheld | (38) | |||||
Total Investment Income | 892 | |||||
Expenses: | ||||||
Advisory fees | 839 | |||||
Shareholder reports expense | 39 | |||||
Transfer agent fees and expenses | 1 | |||||
Registration fees | – | |||||
Custodian fees | 29 | |||||
Professional fees | 54 | |||||
Non-interested Trustees’ fees and expenses | 6 | |||||
Short sales dividend expense | 26 | |||||
Short sales interest expense | – | |||||
Stock loan fees | 11 | |||||
Fund administration fees | 6 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 235 | |||||
Distribution fees and shareholder servicing fees - Service II Shares | 80 | |||||
Other expenses | 23 | |||||
Non-recurring costs (Note 4) | – | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | – | |||||
Total Expenses | 1,349 | |||||
Expense and Fee Offset | – | |||||
Net Expenses | 1,349 | |||||
Net Investment Loss | (457) | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 18,032(1) | |||||
Net realized gain from short sales | 744 | |||||
Net realized loss from swap contracts | (37) | |||||
Net realized gain from written options contracts | 328 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (29,406) | |||||
Change in unrealized net appreciation/(depreciation) of short sales | 787 | |||||
Change in unrealized net appreciation/(depreciation) of swap contracts | 28 | |||||
Change in unrealized net appreciation/(depreciation) of written option contracts | 142 | |||||
Net Loss on Investments | (9,382) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (9,839) |
(1) | Includes $2,477,587 of realized gains resulting from a redemption-in-kind during the fiscal year ended December 31, 2011 for Janus Aspen Global Technology Portfolio. |
See Notes to Financial Statements.
14 | DECEMBER 31, 2011
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Global Technology | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment loss | $ | (457) | $ | (616) | ||||||
Net realized gain from investment and foreign currency transactions(1) | 19,067 | 22,147 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (28,449) | 6,588 | ||||||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (9,839) | 28,119 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | – | – | ||||||||
Service Shares | – | – | ||||||||
Service II Shares | – | – | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | – | – | ||||||||
Service Shares | – | – | ||||||||
Service II Shares | – | – | ||||||||
Net Decrease from Dividends and Distributions | – | – | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 2,660 | 2,433 | ||||||||
Service Shares | 8,690 | 15,031 | ||||||||
Service II Shares | 20,257 | 14,114 | ||||||||
Redemption Fees | ||||||||||
Service II Shares | 34 | 17 | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (2,753) | (1,277) | ||||||||
Service Shares(2) | (41,810) | (24,167) | ||||||||
Service II Shares | (22,238) | (7,181) | ||||||||
Net Decrease from Capital Share Transactions | (35,160) | (1,030) | ||||||||
Net Increase/(Decrease) in Net Assets | (44,999) | 27,089 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 148,367 | 121,278 | ||||||||
End of period | $ | 103,368 | $ | 148,367 | ||||||
Undistributed Net Investment Loss* | $ | (37) | $ | (283) |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Certain prior year amounts have been reclassified to conform with current year presentation. | |
(2) | During the fiscal year ended December 31, 2011, Janus Aspen Global Technology Portfolio disbursed to a redeeming shareholder portfolio securities and cash valued at $12,434,999 and $865,446, respectively, at the date of redemption. |
See Notes to Financial Statements.
Janus Aspen Series | 15
Financial Highlights
Institutional Shares
Janus Aspen Global Technology Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $5.53 | $4.43 | $2.82 | $5.02 | $4.13 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income/(loss) | .03 | (.04) | (.04) | .09 | – | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.51) | 1.14 | 1.65 | (2.28) | .91 | |||||||||||||||||
Total from Investment Operations | (.48) | 1.10 | 1.61 | (2.19) | .91 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | – | – | – | (.01) | (.02) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Total Distributions | – | – | – | (.01) | (.02) | |||||||||||||||||
Net Asset Value, End of Period | $5.05 | $5.53 | $4.43 | $2.82 | $5.02 | |||||||||||||||||
Total Return | (8.68)% | 24.83% | 57.09% | (43.70)% | 22.07% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $4,275 | $4,803 | $2,835 | $1,395 | $4,093 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $4,972 | $3,825 | $2,218 | $3,000 | $3,293 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets(1) | 0.80%(2) | 0.87%(2) | 0.95%(2) | 0.85%(2) | 0.82%(2) | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets(1) | 0.80%(2) | 0.87%(2) | 0.95%(2) | 0.85%(2) | 0.82%(2) | |||||||||||||||||
Ratio of Net Investment Income/(Loss) to Average Net Assets | (0.10)% | (0.23)% | (0.31)% | 0.04%(3) | 0.70% | |||||||||||||||||
Portfolio Turnover Rate | 83% | 79% | 101% | 92% | 67% |
Service Shares
Janus Aspen Global Technology Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $5.66 | $4.55 | $2.90 | $5.18 | $4.27 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income/(loss) | – | (.01) | – | – | .02 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.49) | 1.12 | 1.65 | (2.28) | .91 | |||||||||||||||||
Total from Investment Operations | (.49) | 1.11 | 1.65 | (2.28) | .93 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | – | – | – | – | (.02) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Total Distributions | – | – | – | – | (.02) | |||||||||||||||||
Net Asset Value, End of Period | $5.17 | $5.66 | $4.55 | $2.90 | $5.18 | |||||||||||||||||
Total Return | (8.66)% | 24.40% | 56.90% | (43.97)% | 21.70% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $73,246 | $112,809 | $99,472 | $62,274 | $137,367 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $94,128 | $101,085 | $78,097 | $101,523 | $133,221 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets(1) | 1.04%(2) | 1.13%(2) | 1.22%(2) | 1.11%(2) | 1.07%(2) | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets(1) | 1.04%(2) | 1.13%(2) | 1.22%(2) | 1.11%(2) | 1.07%(2) | |||||||||||||||||
Ratio of Net Investment Income/(Loss) to Average Net Assets | (0.36)% | (0.50)% | (0.56)% | (0.23)%(3) | 0.39% | |||||||||||||||||
Portfolio Turnover Rate | 83% | 79% | 101% | 92% | 67% |
* | See Note 5 in Notes to Financial Statements. | |
(1) | See Note 6 in Notes to Financial Statements. | |
(2) | Ratio of Gross Expenses to Average Net Assets and Ratio of Net Expenses to Average Net Assets include any applicable dividends and interest on short positions and may include stock loan fees. The ratios would have been 0.77% and 0.77%, respectively, in 2011, 0.76% and 0.76%, respectively, in 2010, 0.91% and 0.91%, respectively, in 2009, 0.85% and 0.85%, respectively, in 2008, 0.82% and 0.82%, respectively, in 2007 for Institutional Shares and 1.01% and 1.01%, respectively, in 2011, 1.02% and 1.02%, respectively, in 2010, 1.18% and 1.17%, respectively, in 2009, 1.11% and 1.11%, respectively, in 2008 and 1.07% and 1.07%, respectively, in 2007 for Service Shares without the inclusion of any applicable dividends and interest on short positions and any stock loan fees. | |
(3) | As a result of the recharacterization of dividend income to return of capital, the Ratio of Net Investment Income/(Loss) to Average Net Assets has been reduced by 0.02% for Institutional Shares and 0.02% for Service Shares. The adjustment had no impact on total net assets or total return of the class. |
See Notes to Financial Statements.
16 | DECEMBER 31, 2011
Service II Shares
Janus Aspen Global Technology Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $5.79 | $4.65 | $2.96 | $5.28 | $4.35 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income/(loss) | .01 | (.01) | – | – | .02 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.53) | 1.15 | 1.69 | (2.32) | .93 | |||||||||||||||||
Total from Investment Operations | (.52) | 1.14 | 1.69 | (2.32) | .95 | |||||||||||||||||
Less Distributions and Other: | ||||||||||||||||||||||
Dividends (from net investment income)* | – | – | – | – | (.02) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Redemption fees | .01 | –(1) | –(1) | –(1) | –(1) | |||||||||||||||||
Total Distributions and Other: | .01 | – | – | – | (.02) | |||||||||||||||||
Net Asset Value, End of Period | $5.28 | $5.79 | $4.65 | $2.96 | $5.28 | |||||||||||||||||
Total Return | (8.81)% | 24.52% | 57.09% | (43.89)% | 21.75% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $25,847 | $30,755 | $18,971 | $11,844 | $26,188 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $31,926 | $20,569 | $16,142 | $19,274 | $25,482 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets(2) | 1.04%(3) | 1.11%(3) | 1.20%(3) | 1.11%(3) | 1.07%(3) | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets(2) | 1.04%(3) | 1.11%(3) | 1.20%(3) | 1.11%(3) | 1.07%(3) | |||||||||||||||||
Ratio of Net Investment Income/(Loss) to Average Net Assets | (0.36)% | (0.47)% | (0.54)% | (0.24)%(4) | 0.39% | |||||||||||||||||
Portfolio Turnover Rate | 83% | 79% | 101% | 92% | 67% |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Redemption fees aggregated less than $.01 on a per share basis. | |
(2) | See Note 6 in Notes to Financial Statements. | |
(3) | Ratio of Gross Expenses to Average Net Assets and Ratio of Net Expenses to Average Net Assets include any applicable dividends and interest on short positions and may include stock loan fees. The ratios would have been 1.01% and 1.01%, respectively, in 2011, 0.99% and 0.99%, respectively, in 2010, 1.17% and 1.17%, respectively, in 2009, 1.11% and 1.11%, respectively, in 2008 and 1.07% and 1.07%, respectively, in 2007 without the inclusion of any applicable dividends and interest on short positions and any stock loan fees. | |
(4) | As a result of the recharacterization of dividend income to return of capital, the Ratio of Net Investment Income/(Loss) to Average Net Assets has been reduced by 0.03%. The adjustment had no impact on total net assets or total return of the class. |
See Notes to Financial Statements.
Janus Aspen Series | 17
Notes to Schedule of Investments
Lipper Variable Annuity Science & Technology Funds | Funds that invest primarily in the equity securities of domestic and foreign companies engaged in science and technology. | |
Morgan Stanley Capital International World Information Technology Index | A capitalization weighted index that monitors the performance of information technology stocks from developed market countries in North America, Europe, and the Asia/Pacific Region. The index includes reinvestment of dividends, net of foreign withholding taxes. | |
S&P 500® Index | A commonly recognized, market-capitalization weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance. | |
ADR | American Depositary Receipt | |
PLC | Public Limited Company | |
U.S. Shares | Securities of foreign companies trading on an American Stock Exchange. |
* | Non-income producing security. | |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. |
°° Schedule of Fair Valued Securities (as of December 31, 2011)
Value as a | |||||||
Value | % of Net Assets | ||||||
Janus Aspen Global Technology Portfolio | |||||||
Workday, Inc. – Private Placement | $ | 338,660 | 0.3% | ||||
Securities are valued at “fair value” pursuant to procedures adopted by the Portfolio’s Trustees. The Schedule of Fair Valued Securities does not include international equity securities fair valued pursuant to systematic fair valuation models. Securities are restricted as to resale and may not have a readily available market.
§ Schedule of Restricted and Illiquid Securities (as of December 31, 2011)
Acquisition | Acquisition | Value as a | ||||||||||
Date | Cost | Value | % of Net Assets | |||||||||
Janus Aspen Global Technology Portfolio | ||||||||||||
Workday, Inc. – Private Placement | 10/13/11 | $ | 338,660 | $ | 338,660 | 0.3% | ||||||
The Portfolio has registration rights for certain restricted securities held as of December 31, 2011. The issuer incurs all registration costs.
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Global Technology Portfolio | |||||||||||
Common Stock | |||||||||||
E-Commerce/Services | $ | 417,126 | $ | 527,061 | $ | – | |||||
Electronic Components – Semiconductors | 5,406,268 | 589,151 | – | ||||||||
Internet Content – Entertainment | 508,328 | 591,668 | – | ||||||||
Media | – | – | 338,660 | ||||||||
All Other | 94,153,686 | – | – | ||||||||
Money Market | – | 217,000 | – | ||||||||
Total Investments in Securities | $ | 100,485,408 | $ | 1,924,880 | $ | 338,660 | |||||
Investments in Securities Sold Short: | |||||||||||
Computer Services | $ | (565,306) | $ | (246,700) | $ | – | |||||
All Other | (1,952,678) | – | – | ||||||||
Total Investments in Securities Sold Short | $ | (2,517,984) | $ | (246,700) | $ | – | |||||
18 | DECEMBER 31, 2011
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Other Financial Instruments(a): | $ | – | $ | (2,233) | $ | – | |||||
(a) | Other financial instruments include futures, forward currency, written option, and swap contracts. Forward currency contracts and swap contracts are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. Futures are reported at their variation margin at measurement date, which represents the amount due to/from the Portfolio at that date. Options are reported at their market value at measurement date. |
Level 3 Valuation Reconciliation of Assets (as of the period ended December 31, 2011)
Change in | Transfers | ||||||||||||||||||||||
Balance as of | Unrealized | In and/or | |||||||||||||||||||||
December | Realized | Appreciation/ | Out of | Balance as of | |||||||||||||||||||
31, 2010 | Gain/(Loss)(a) | (Depreciation)(b) | Gross Purchases | Gross Sales | Level 3 | December 31, 2011 | |||||||||||||||||
Investments in Securities: | |||||||||||||||||||||||
Janus Aspen Global Technology Portfolio | |||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||
Media | $ | – | $ | – | $ | – | $ | 338,660 | $ | – | $ | – | $ | 338,660 | |||||||||
(a) | Included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations. | |
(b) | Included in “Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Operations. |
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Global Technology Portfolio | $ | 27,525,143 | |||
Janus Aspen Series | 19
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Janus Aspen Global Technology Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests primarily in equity securities. The Portfolio is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers three classes of shares: Institutional Shares, Service Shares and Service II Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares and Service II Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants. For Service II Shares, a redemption fee of 1% may be imposed on interests in separate accounts or plans held 60 days or less.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
20 | DECEMBER 31, 2011
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Each class of shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
Janus Aspen Series | 21
Notes to Financial Statements (continued)
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3 Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s
22 | DECEMBER 31, 2011
disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | DERIVATIVE INSTRUMENTS |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. Each derivative instrument that was held by the Portfolio during the fiscal year ended December 31, 2011 is discussed in further detail below. A summary of derivative activity is reflected in the tables at the end of this section.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. | |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will |
Janus Aspen Series | 23
Notes to Financial Statements (continued)
generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The Portfolio may enter into forward currency contracts for hedging purposes, including, but not limited to, reducing exposure to changes in foreign currency exchange rates on foreign portfolio holdings and locking in the U.S. dollar cost of firm purchase and sale commitments for securities denominated in or exposed to foreign currencies. The Portfolio may also invest in forward currency contracts for nonhedging purposes such as seeking to enhance returns. The Portfolio is subject to currency risk in the normal course of pursuing its investment objective through its investments in forward currency contracts.
The gain or loss arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing a contract is included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations (if applicable).
Forward currency contracts held by the Portfolio are fully collateralized by other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The collateral is evaluated daily to ensure its market value equals or exceeds the current market value of the corresponding forward currency contracts. Such collateral is in the possession of the Portfolio’s custodian.
Options Contracts
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. The Portfolio may purchase or write covered and uncovered put and call options on swap contracts (“swaptions”), futures contracts, and on portfolio securities for hedging purposes or as a substitute for an investment. The Portfolio is subject to interest rate risk, liquidity risk, equity risk, and currency risk in the normal course of pursuing its investment objective through its investments in options contracts. The Portfolio may use options contracts to hedge against changes in interest rates, the values of equities, or foreign currencies. The Portfolio may utilize American-style and European-style options. An American-style option is an option contract that can be exercised at any time between the time of purchase and the option’s expiration date. A European-style option is an option contract that can only be exercised on the option’s expiration date. The Portfolio may also purchase or write put and call options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. The Portfolio may also invest in long-term equity anticipation securities, which are long-term option contracts that can be maintained for a period of up to three years. The Portfolio may also enter into a swaption contract which grants the purchaser the right, but not the obligation, to enter into a swap transaction at preset terms detailed in the underlying agreement within a specified period of time. Entering into a swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk, associated with both option contracts and swap contracts. The Portfolio generally invests in options to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Portfolio receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. In writing an option, the Portfolio bears the risk of an unfavorable change in the price of the security underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio buying or selling a security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option are adjusted by the amount of premium received or paid.
The Portfolio may also purchase and write exchange-listed and OTC put and call options on domestic securities indices, and on foreign securities indices listed on domestic and foreign securities exchanges. Options on
24 | DECEMBER 31, 2011
securities indices are similar to options on securities except that (1) the expiration cycles of securities index options are monthly, while those of securities options are currently quarterly, and (2) the delivery requirements are different. Instead of giving the right to take or make delivery of securities at a specified price, an option on a securities index gives the holder the right to receive a cash “exercise settlement amount” equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed “index multiplier.” Receipt of this cash amount will depend upon the closing level of the securities index upon which the option is based being greater than, in the case of a call, or less than, in the case of a put, the exercise price of the index and the exercise price of the option times a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount.
Options traded on an exchange are regulated and the terms of the options are standardized. Options traded OTC expose the Portfolio to counterparty risk in the event that the counterparty does not perform. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by having the counterparty post collateral to cover the Portfolio’s exposure to the counterparty.
Holdings of the Portfolio designated to cover outstanding written options are noted on the Schedule of Investments (if applicable). Options written are reported as a liability on the Statement of Assets and Liabilities as “Options written at value” (if applicable). Realized gains and losses are reported as “Net realized gain/(loss) from written options contracts” on the Statement of Operations (if applicable).
The risk in writing call options is that the Portfolio gives up the opportunity for profit if the market price of the security increases and the options are exercised. The risk in writing put options is that the Portfolio may incur a loss if the market price of the security decreases and the options are exercised. The risk in buying options is that the Portfolio pays a premium whether or not the options are exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. A lack of correlation between the value of an instrument underlying an option and the asset being hedged, or unexpected adverse price movements, could render the Portfolio’s hedging strategy unsuccessful. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased or sold. There is no limit to the loss the Portfolio may recognize due to written call options.
Written option activity for the fiscal year ended December 31, 2011 is indicated in the tables below:
Number of | Premiums | |||||||
Call Options | Contracts | Received | ||||||
Janus Aspen Global Technology Portfolio | ||||||||
Options outstanding at December 31, 2010 | – | $ | – | |||||
Options written | 7,372 | 432,070 | ||||||
Options closed | (3,417) | (297,450) | ||||||
Options expired | – | – | ||||||
Options exercised | – | – | ||||||
Options outstanding at December 31, 2011 | 3,955 | $ | 134,620 | |||||
Number of | Premiums | |||||||
Put Options | Contracts | Received | ||||||
Janus Aspen Global Technology Portfolio | ||||||||
Options outstanding at December 31, 2010 | – | $ | – | |||||
Options written | 2,649 | 259,263 | ||||||
Options closed | (1,944) | (228,948) | ||||||
Options expired | – | – | ||||||
Options exercised | – | – | ||||||
Options outstanding at December 31, 2011 | 705 | $ | 30,315 | |||||
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
The following table, grouped by derivative type, provides information about the fair value and location of derivatives within the Statement of Assets and Liabilities as of December 31, 2011.
Fair Value of Derivative Instruments as of December 31, 2011
Derivatives not accounted for as | Asset Derivatives | Liability Derivatives | ||||||||||
hedging instruments | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Equity Contracts | Outstanding swap contracts at value | $ | 27,857 | Options written, at value | $ | 22,507 | ||||||
Foreign Exchange Contracts | Forward currency contracts | 9,216 | Forward currency contracts | 16,799 | ||||||||
Total | $ | 37,073 | $ | 39,306 | ||||||||
Janus Aspen Series | 25
Notes to Financial Statements (continued)
The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the fiscal year ended December 31, 2011.
The effect of Derivative Instruments on the Statement of Operations for the fiscal year ended December 31, 2011
Amount of Realized Gain/(Loss) on Derivatives Recognized in Income | ||||||||||||||||||||
Forward Currency | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | (37,250 | ) | $ | (224,985 | ) | $ | – | $ | (262,235 | ) | |||||||
Foreign Exchange Contracts | – | – | – | (415,816 | ) | (415,816 | ) | |||||||||||||
Total | $ | – | $ | (37,250 | ) | $ | (224,985 | ) | $ | (415,816 | ) | $ | (678,051 | ) | ||||||
Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income | ||||||||||||||||||||
Forward Currency | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | 27,857 | $ | 389,326 | $ | – | $ | 417,183 | ||||||||||
Foreign Exchange Contracts | – | – | – | 113,897 | 113,897 | |||||||||||||||
Total | $ | – | $ | 27,857 | $ | 389,326 | $ | 113,897 | $ | 531,080 | ||||||||||
Please see the Portfolio’s Statement of Operations for the Portfolio’s “Net Realized and Unrealized Gain/(Loss) on Investments.”
The value of derivative instruments at period end and the effect of derivatives on the Statement of Operations are indicative of the Portfolio’s volume throughout the fiscal year.
3. | OTHER INVESTMENTS AND STRATEGIES |
Additional Investment Risk
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes,
26 | DECEMBER 31, 2011
wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
Emerging Market Investing
Investing in emerging markets may involve certain risks and considerations not typically associated with investing in the United States and imposes risks greater than, or in addition to, the risks associated with investing in securities of more developed foreign countries. Emerging markets securities are exposed to a number of additional risks, which may result from less government supervision and regulation of business and industry practices (including the potential lack of strict finance and accounting controls and standards), stock exchanges, brokers, and listed companies, making these investments potentially more volatile in price and less liquid than investments in developed securities markets, resulting in greater risk to investors. In addition, the Portfolio’s investments may be denominated in foreign currencies and therefore, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the Portfolio’s investments. To the extent that the Portfolio invests a significant portion of its assets in the securities of issuers in or companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region, which could have a negative impact on the Portfolio’s performance.
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Janus Aspen Series | 27
Notes to Financial Statements (continued)
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio manager anticipates that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no
28 | DECEMBER 31, 2011
assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited. As of December 31, 2011, Janus Aspen Global Technology Portfolio had deposits with brokers of $3,357,481. The deposits represent restricted cash held as collateral in relation to short sales.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s contractual investment advisory fee rate (expressed as an annual rate).
Contractual | ||||||||
Average Daily | Investment | |||||||
Net Assets | Advisory Fee (%) | |||||||
Portfolio | of the Portfolio | (annual rate) | ||||||
Janus Aspen Global Technology Portfolio | All Asset Levels | 0.64 | ||||||
Janus Capital has agreed to reimburse the Portfolio until at least May 1, 2013 by the amount, if any, that the Portfolio’s normal operating expenses in any fiscal year, including the investment advisory fee, but excluding the distribution and shareholder servicing (12b-1) fees applicable to Service Shares and Service II Shares, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses, exceed the annual rate noted below. If applicable, amounts reimbursed to the Portfolio by Janus Capital are disclosed as “Excess Expense Reimbursement” on the Statement of Operations, if applicable.
Portfolio | Expense Limit (%) | ||||
Janus Aspen Global Technology Portfolio | 0.95 | ||||
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares and Service II Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares and Service II Shares at an annual rate of up to 0.25% of Service Shares and Service II Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their
Janus Aspen Series | 29
Notes to Financial Statements (continued)
designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
A 1.00% redemption fee may be imposed on Service II Shares of the Portfolio held for 60 days or less. This fee is paid to the Portfolio rather than Janus Capital, and is designed to deter excessive short-term trading and to offset the brokerage commissions, market impact, and other costs associated with changes in the Portfolio’s asset level and cash flow due to short-term money movements in and out of the Portfolio. The redemption fee is accounted for as an addition to Paid-in Capital. Total redemption fees for the fiscal year ended December 31, 2011 were $33,860 for the Portfolio.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio may be used to purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio is eligible to participate in the cash sweep program (the “Investing Fund”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
During the fiscal year ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Dividend | Value | |||||||||||
Shares/Cost | Shares/Cost | Income | at 12/31/11 | |||||||||||
Janus Aspen Global Technology Portfolio | ||||||||||||||
Janus Cash Liquidity Fund LLC | $ | 59,638,576 | $ | (68,171,746) | $ | 5,680 | $ | 217,000 | ||||||
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract
30 | DECEMBER 31, 2011
adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Undistributed | Undistributed | Late-Year | Other Book | Net Tax | ||||||||||||||||
Ordinary | Long-Term | Accumulated | Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Global Technology Portfolio | $ | – | $ | – | $ | (8,024,913) | $ | (759,747) | $ | 139,883 | $ | 3,881,077 | ||||||||
Accumulated capital losses noted below represent net capital loss carryovers, as of December 31, 2011, that may be available to offset future realized capital gains and thereby reduce future taxable gains distributions. Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Portfolio will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may more likely expire unused. Also, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. The following table shows the expiration dates of the carryovers.
Capital Loss Carryover Expiration Schedule
For the year ended December 31, 2011
For the year ended December 31, 2011
December 31, | Accumulated | |||||||
Portfolio | 2017 | Capital Losses | ||||||
Janus Aspen Global Technology Portfolio | $ | (8,024,913) | $ | (8,024,913) | ||||
During the fiscal year ended December 31, 2011, the following capital loss carryovers were utilized by the Portfolio:
Capital Loss | ||||||||||||||
Portfolio | Carryover Utilized | |||||||||||||
Janus Aspen Global Technology Portfolio | $ | 17,448,946 | ||||||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary difference between book and tax appreciation or depreciation of investments is wash sale loss deferrals.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Global Technology Portfolio | $ | 99,460,668 | $ | 10,929,466 | $ | (7,641,186) | |||||
Information on the tax components of securities sold short as of December 31, 2011 is as follows:
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | (Appreciation) | Depreciation | ||||||||
Janus Aspen Global Technology Portfolio | $ | (3,357,481) | $ | (55,258) | $ | 648,055 | |||||
Janus Aspen Series | 31
Notes to Financial Statements (continued)
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Global Technology Portfolio | $ | – | $ | – | $ | – | $ | (544,760) | |||||||||
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Global Technology Portfolio | $ | – | $ | – | $ | – | $ | (377,286) | |||||||||
6. | Expense Ratios |
The expense ratios listed in the Financial Highlights reflect expenses prior to any expense offsets (gross expense ratio) and after expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursement). Listed below are the gross expense ratios for the Portfolio that would have been in effect, absent the waiver of certain fees and offsets.
For each fiscal year ended December 31, 2011
Janus Aspen Global | ||||
Technology Portfolio | ||||
Institutional Shares | ||||
2011 | 0.80% | |||
2010 | 0.87% | |||
2009 | 0.95% | |||
2008 | 0.85% | |||
2007 | 0.82% | |||
Service Shares | ||||
2011 | 1.04% | |||
2010 | 1.13% | |||
2009 | 1.22% | |||
2008 | 1.11% | |||
2007 | 1.07% | |||
Service II Shares | ||||
2011 | 1.04% | |||
2010 | 1.11% | |||
2009 | 1.20% | |||
2008 | 1.11% | |||
2007 | 1.07% |
32 | DECEMBER 31, 2011
7. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Global Technology Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 473 | 512 | ||||||||
Reinvested dividends and distributions | – | – | ||||||||
Shares repurchased | (496) | (283) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (23) | 229 | ||||||||
Shares Outstanding, Beginning of Period | 869 | 640 | ||||||||
Shares Outstanding, End of Period | 846 | 869 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 1,523 | 3,111 | ||||||||
Reinvested dividends and distributions | – | – | ||||||||
Shares repurchased | (7,261) | (5,043) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (5,738) | (1,932) | ||||||||
Shares Outstanding, Beginning of Period | 19,914 | 21,846 | ||||||||
Shares Outstanding, End of Period | 14,176 | 19,914 | ||||||||
Transactions in Portfolio Shares – Service II Shares | ||||||||||
Shares sold | 3,403 | 2,712 | �� | |||||||
Reinvested dividends and distributions | – | – | ||||||||
Shares repurchased | (3,826) | (1,479) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (423) | 1,233 | ||||||||
Shares Outstanding, Beginning of Period | 5,315 | 4,082 | ||||||||
Shares Outstanding, End of Period | 4,892 | 5,315 |
8. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Global Technology Portfolio | $ | 105,344,318 | $ | 120,311,761 | $ | – | $ | – | ||||||
9. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
10. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
Janus Aspen Series | 33
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Global Technology Portfolio:
of Janus Aspen Global Technology Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Global Technology Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
34 | DECEMBER 31, 2011
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
Janus Aspen Series | 35
Additional Information (unaudited) (continued)
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
36 | DECEMBER 31, 2011
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
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Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The net annual fund operating expenses ratio (if applicable) includes contractual waivers of Janus Capital and reflects the Portfolio’s subsidized expense ratio. Both the total annual fund operating expenses ratio and net annual fund operating expenses ratio are based on average net assets as of the fiscal year ended December 31, 2010. The ratios also include expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, these ratios may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
2a. Forward Currency Contracts
A table listing forward currency contracts follows the Portfolio’s Schedule of Investments (if applicable). Forward currency contracts are agreements to deliver or receive a preset amount of currency at a future date. Forward currency contracts are used to hedge against foreign currency risk in the Portfolio’s long-term holdings.
The table provides the name of the foreign currency, the settlement date of the contract, the amount of the contract, the value of the currency in U.S. dollars and the amount of unrealized gain or loss. The amount of unrealized gain or loss reflects the change in currency exchange rates from the time the contract was opened to the last day of the reporting period.
2b. Options
A table listing written options contracts follows the Portfolio’s Schedule of Investments (if applicable). Written options contracts are contracts that obligate the Portfolio to sell or purchase an underlying security at a fixed price, upon exercise of the option. Options are used to hedge against adverse movements in securities prices, currency risk or interest rates.
The table provides the name of the contract, number of contracts held, the expiration date, exercise price, value and premiums received.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared
38 | DECEMBER 31, 2011
but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid. Additionally, there may be other assets and liabilities such as unrealized gain or loss on forward currency contracts.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. “Redemption Fees” (if applicable) refers to the fee paid to the Portfolio for shares held for 60 days or less by a shareholder. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
Janus Aspen Series | 39
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio manager. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
40 | DECEMBER 31, 2011
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
Janus Aspen Series | 41
Trustees and Officers (unaudited) (continued)
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments -HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
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OFFICERS
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
J. Bradley Slingerlend 151 Detroit Street Denver, CO 80206 DOB: 1978 | Executive Vice President and Portfolio Manager Janus Aspen Global Technology Portfolio | 5/11-Present | Portfolio Manager for other Janus accounts and Research Analyst for Janus Capital. | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. |
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
Janus Aspen Series | 43
Notes
44 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 45
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
C-0112-126 | 109-02-81119 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
1 | ||
2 | ||
11 | ||
12 | ||
13 | ||
14 | ||
15 | ||
16 | ||
31 | ||
32 | ||
35 | ||
38 | ||
39 |
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s managers as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s managers may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s managers in the Management Commentary are just that: opinions. They are a reflection of the managers’ best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the managers’ opinions. These views are unique to each manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Janus Portfolio (unaudited)
Portfolio Snapshot We believe the market often under-values predictable growth companies due to misunderstandings around the value of long-duration growth, company’s life cycle transition or management quality and incentives. We believe buying undervalued companies with strong competitive positions and predictable cash flows should allow us to outperform the benchmark and peers over time with lower volatility. We perform in-depth research and focus on a company’s long-term strategy, with a view formed independent of conversations with management, to identify predictable growth companies in attractive industries with reasonable valuations. | Jonathan Coleman lead co-portfolio manager | Barney Wilson co-portfolio manager |
Performance Review
For the 12-month period ended December 31, 2011, Janus Aspen Janus Portfolio’s Institutional Shares and Service Shares returned -5.30% and -5.54%, respectively. Meanwhile, the Portfolio’s primary benchmark, the Russell 1000 Growth Index, returned 2.64%. Its secondary benchmark, the S&P 500 Index, returned 2.11% and its supplemental benchmark, the Core Growth Index, an equally weighted combination of the S&P 500 Index and Russell 1000 Growth Index, returned 2.38%.
Investment Environment
Trading was volatile and correlations remained elevated as global macro risks continued to dominate market sentiment. Europe’s debt problems stayed at the forefront as politicians failed to come up with a long-term solution that could contain the crisis. Leading economic indicators showed signs of improvement in the U.S. and the unemployment rate ticked down, relieving concerns of a double-dip recession. Housing starts, consumer spending and confidence also rose, helping to drive stocks higher late in the period.
Performance Discussion
It was a frustrating environment for stock pickers as correlations remained high and markets continued to trade in “risk on, risk off” patterns, taking cues from headlines around the debt crisis in Europe and fiscal situation in the U.S. We believe these macro issues had minimal (if any) impact on the fundamentals of companies in the Portfolio, however. Businesses we invest in have generally reported strong results and continue to have exciting, long-duration opportunities for growth. Over a full market cycle, we think these companies will be rewarded with higher multiples and prices.
In constructing the Portfolio, we have sought to identify a core group of companies with wide competitive barriers to entry, strong management teams and multi-year growth potential. These businesses tend to generate cash from operations that exceeds their capital expenditures, providing cash flows that can be returned to shareholders or used for acquisitions or reinvestment in the business. Many of these businesses also have higher expected growth rates and as we transitioned much of the Portfolio into these stocks, we feel the overall growth profile of the Portfolio improved.
To a lesser degree in the Portfolio, we have attempted to identify “positive change” stocks – companies going through a transition that we think will be successful. We bought shares in a department store chain, JC Penney, for example, because we have confidence that the new management team is in the early stages of a dramatic turnaround in the retailer’s positioning and relevance to consumers. Another recent addition is a technology company, Autodesk, that makes 3D design software for industrial uses. While the stock price fell in 2011, the company has a good track record and is entering a large new market in product life cycle management. We also think this type of software is becoming more widely adopted, representing a structural change in the industry that should benefit the company.
Our technology holdings detracted from relative results, primarily due to weakness in three enterprise technology stocks, Cisco Systems, EMC and Oracle. Networking giant Cisco has reported disappointing gross margins, raising concerns over competition the company is facing. We sold the position. EMC declined on concerns of a slowdown in enterprise technology spending. Long term, we think the storage company’s product portfolio in hardware and software is well positioned to benefit from improving fundamentals in high-end and mid-range storage, which has become one of the fastest growth areas of enterprise
2 | DECEMBER 31, 2011
(unaudited)
information technology. Oracle fell after the company reported earnings and software licensing revenue below expectations for its fiscal second quarter and issued a cautious outlook. The business is still growing and taking share, however, and we like its high returns on capital and recurring revenues. While the quarter came in slightly below expectations, it did not alter our multi-year view. We added to our position late in the period on weakness in the stock price.
Our holdings in financials declined on an absolute basis and detracted from relative results. The largest detractor in the sector was Morgan Stanley, which fell amid worries of balance sheet risk and exposure to Europe. While we see improvements and growth potential in its wealth management business, the company’s investment banking business remains susceptible to regulatory and capital market headwinds. We sold the position to redeploy capital into opportunities that we felt offered more attractive risk/reward. Another weak performer was a U.S. brokerage firm, Charles Schwab. The company continues to grow its customer base and assets, but needs to find a way to earn more on its customers’ huge cash balances if interest rates remain low for an extended period. Overall, we reduced our exposure to financials during the period and have concentrated on banking and insurance companies with exposure to growing end markets in Asia. We also maintained holdings in a U.S. asset manager, T. Rowe Price, with a solid management team that has continued to create value.
In energy – a sector that detracted from performance – we are focusing on oil-field services and equipment companies. Much of the world’s easy-to-extract oil has been found and companies are now tapping deep-sea wells and on-shore, horizontal shale formations for new production. We think this is resulting in greater usage of services and equipment, creating a long-term opportunity for companies with exposure to these trends. We are also investing in exploration and production businesses that are disciplined capital allocators and are likely to benefit from firm crude prices and tight supplies, which we believe is a long term, structural shift in the market.
Contributing to relative results were our selections in industrials. We have generally focused on business models with long-term competitive advantages and less cyclical characteristics. Our top holding in the sector, for example, is Precision Castparts, a company that makes castings and other complex metal products for the aerospace industry. Its highly specialized product gives it a wide competitive moat, in our view. We also believe the company’s opportunities in aerostructures (components, doors and flight-control assemblies) and recent entry into oil and gas are underestimated by the market.
Detractors
Shares of network equipment provider Cisco Systems dropped significantly after the company gave lower-than-expected guidance. The company cited tight public spending on information technology, falling cable set-top box sales and retrenchment following strong “catch-up” sales in earlier quarters, among other factors. We sold the position.
EMC fell. The storage company’s product portfolio in hardware and software is well positioned to benefit from improving fundamentals in high-end and mid-range storage, which has become one of the fastest growth areas of enterprise information technology.
Oracle declined after issuing fiscal second quarter results and guidance below expectations. We like the enterprise software company long term for its recurring maintenance contracts, historically dominant market share and pricing power. Its generally stable cash flows are appealing to us as well.
Contributors
Apple was the top contributor during the period. We continue to hold Apple because of its highly successful line of differentiated mobile computing products, from the iPad to the iPhone, and because of its growing market share in personal computers. We like the company’s durable franchise, long-term growth prospects and demonstrated ability to win in various economic environments.
Philip Morris International performed well. We like the tobacco company for its pure international exposure, stable markets, minimal litigation risk and ability to implement price increases. Its cash generative business has historically led to high dividend payouts and share repurchases.
CBS was a top performer. The mass media company continues to benefit from the ongoing improvement in advertising and its ownership of the top-rated network. We like the company’s role as a provider of content, which we think will be highly valued going forward. We also appreciate the additional revenue the company is generating by re-transmitting its network to cable and satellite providers.
Due to certain circumstances and market conditions, we may initiate positions in call and put options in an attempt to hedge risk and generate income for the Portfolio. We
Janus Aspen Series | 3
Janus Aspen Janus Portfolio (unaudited)
sometimes sell calls on portions of existing long holdings. We do this at stock prices at which we’d be willing to trim the securities. The option trades are initiated to generate income based on fundamental research and our view of volatility. We also sell puts on stocks that we would like to own at prices lower than today’s levels. During the period, our aggregate derivative positions detracted slightly from relative results. (Please see “Notes to Financial Statements” for information about the hedging techniques used by the Portfolio.)
Outlook
The last 12 months have been tumultuous and we expect volatility to remain elevated in 2012. Markets may continue to trade on headlines related to Europe’s debt crisis, the U.S. fiscal situation or other macro issues, and we are likely to see some periods of extreme risk aversion, as we did in 2011.
While macro issues may pressure the markets, they do not heavily influence our outlook or security selection. Much more important to us is identifying companies with long-duration growth drivers, quality management teams and competitive advantages that can help them grow margins and gain market share. While the markets may be volatile, we continue to identify companies with strong businesses and valuations that are likely to provide attractive total returns on a multi-year basis.
We also think this is an opportune time to own large cap equities. The spread between the earnings yields of stocks and the yields of Treasuries is historically wide, offering greater potential for total returns in equities on a multi-year basis. With the risk of inflation eroding one’s principal in bonds, we think the odds are stacked in favor of equities, especially if they have growing free cash flows. We have constructed the Portfolio with strong cash flow producing, long-duration growth companies and are excited about their prospects as we head into a new year.
Thank you for your investment in Janus Aspen Janus Portfolio.
4 | DECEMBER 31, 2011
(unaudited)
Janus Aspen Janus Portfolio At A Glance
5 Top Performers – Holdings
Contribution | ||||
Apple, Inc. | 1.03% | |||
CBS Corp. – Class B | 0.53% | |||
Philip Morris International, Inc. | 0.52% | |||
Limited Brands, Inc. | 0.47% | |||
International Business Machines Corp. | 0.46% |
5 Bottom Performers – Holdings
Contribution | ||||
Cisco Systems, Inc. | –0.65% | |||
EMC Corp. | –0.61% | |||
Oracle Corp. | –0.60% | |||
Morgan Stanley | –0.58% | |||
Baker Hughes, Inc. | –0.51% |
5 Top Performers – Sectors*
Portfolio Weighting | Russell 1000® Growth | |||||||||||
Portfolio Contribution | (Average % of Equity) | Index Weighting | ||||||||||
Industrials | 0.39% | 9.18% | 12.98% | |||||||||
Other** | 0.22% | 0.67% | 0.00% | |||||||||
Utilities | –0.01% | 0.00% | 0.08% | |||||||||
Consumer Discretionary | –0.12% | 13.00% | 14.36% | |||||||||
Materials | –0.28% | 4.43% | 5.33% |
5 Bottom Performers – Sectors*
Portfolio Weighting | Russell 1000® Growth | |||||||||||
Portfolio Contribution | (Average % of Equity) | Index Weighting | ||||||||||
Financials | –1.94% | 5.76% | 4.29% | |||||||||
Energy | –1.75% | 12.88% | 11.30% | |||||||||
Consumer Staples | –0.88% | 8.21% | 11.00% | |||||||||
Health Care | –0.36% | 15.31% | 10.29% | |||||||||
Telecommunication Services | –0.31% | 2.22% | 1.01% |
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. | ||
* | Based on sector classification according to the Global Industry Classification Standard (“GICS”) codes, which are the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
** | Not a GICS classified sector |
Janus Aspen Series | 5
Janus Aspen Janus Portfolio (unaudited)
5 Largest Equity Holdings – (% of Net Assets)
As of December 31, 2011
Apple, Inc. Computers | 7.0% | |||
eBay, Inc. E-Commerce/Products | 3.4% | |||
Celgene Corp. Medical – Biomedical and Genetic | 3.4% | |||
Oracle Corp. Enterprise Software/Services | 3.2% | |||
Precision Castparts Corp. Metal Processors and Fabricators | 2.4% | |||
19.4% |
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Emerging markets comprised 1.9% of total net assets.
Top Country Allocations – Long Positions (% of Investment Securities)
As of December 31, 2011
6 | DECEMBER 31, 2011
(unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||
One | Five | Ten | Since | Total Annual Fund | |||||||
Year | Year | Year | Inception* | Operating Expenses | |||||||
Janus Aspen Janus Portfolio – Institutional Shares | –5.30% | 0.51% | 1.89% | 6.28% | 0.70% | ||||||
Janus Aspen Janus Portfolio – Service Shares | –5.54% | 0.27% | 1.64% | 5.99% | 0.92% | ||||||
Russell 1000® Growth Index | 2.64% | 2.50% | 2.60% | 7.04% | |||||||
S&P 500® Index | 2.11% | –0.25% | 2.92% | 7.67% | |||||||
Core Growth Index | 2.38% | 1.13% | 2.78% | 7.40% | |||||||
Lipper Quartile – Institutional Shares | 4th | 3rd | 3rd | 3rd | |||||||
Lipper Ranking – Institutional Shares based on total returns for Variable Annuity Large-Cap Growth Funds | 198/243 | 121/198 | 77/133 | 16/26 | |||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio has a performance-based management fee that adjusts up or down based on the Portfolio’s performance relative to an approved benchmark index over a performance measurement period. See the Portfolio’s Prospectus or Statement of Additional Information for more details.
See important disclosures on the next page.
Janus Aspen Series | 7
Janus Aspen Janus Portfolio (unaudited)
The Portfolio’s performance may be affected by risks that include those associated with investments in specific industries or countries and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), derivatives, and short sales. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
The Portfolio may invest in derivatives which can be highly volatile and involve additional risks than if the underlying securities were held directly by the Portfolio. Such risks include gains or losses which, as a result of leverage, can be substantially greater than the derivatives’ original cost. There is also a possibility that derivatives may not perform as intended which can reduce opportunity for gains or result in losses by offsetting positive returns in other securities the Portfolio owns.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Returns shown for Service Shares for periods prior to December 31, 1999 are derived from the historical performance of Institutional Shares, adjusted to reflect the higher operating expenses of Service Shares.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Institutional Share class only; other classes may have different performance characteristics.
September 30, 1993 is the date used to calculate the since-inception Lipper ranking, which is slightly different from when the Portfolio began operations since Lipper provides fund rankings as of the last day of the month.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the indices. The indices are unmanaged and are not available for direct investment; therefore, their performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
Effective May 12, 2011, Barney Wilson is co-portfolio manager of Janus Aspen Janus Portfolio.
* | The Portfolio’s inception date – September 13, 1993 |
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 908.10 | $ | 2.55 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,022.53 | $ | 2.70 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 907.00 | $ | 3.75 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.27 | $ | 3.97 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.53% for Institutional Shares and 0.78% for Service Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
8 | DECEMBER 31, 2011
Janus Aspen Janus Portfolio
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Common Stock – 95.8% | ||||||||||
Apparel Manufacturers – 0.8% | ||||||||||
937,100 | Prada SpA*,** | $ | 4,241,282 | |||||||
Applications Software – 1.6% | ||||||||||
337,015 | Microsoft Corp. | 8,748,909 | ||||||||
Athletic Footwear – 1.2% | ||||||||||
63,345 | NIKE, Inc. – Class B | 6,104,558 | ||||||||
Beverages – Wine and Spirits – 1.2% | ||||||||||
68,404 | Pernod-Ricard S.A.** | 6,343,441 | ||||||||
Brewery – 3.1% | ||||||||||
161,682 | Anheuser-Busch InBev N.V.** | 9,897,723 | ||||||||
180,554 | SABMiller PLC** | 6,354,041 | ||||||||
16,251,764 | ||||||||||
Cable/Satellite Television – 0.9% | ||||||||||
79,145 | Time Warner Cable, Inc. – Class A | 5,031,248 | ||||||||
Commercial Banks – 0.7% | ||||||||||
161,072 | Standard Chartered PLC** | 3,523,856 | ||||||||
Commercial Services – Finance – 0.5% | ||||||||||
7,240 | MasterCard, Inc. – Class A | 2,699,217 | ||||||||
Computer Aided Design – 0.8% | ||||||||||
13,292 | ANSYS, Inc.* | 761,366 | ||||||||
117,240 | Autodesk, Inc.* | 3,555,889 | ||||||||
4,317,255 | ||||||||||
Computers – 7.0% | ||||||||||
91,755 | Apple, Inc.*,** | 37,160,775 | ||||||||
Computers – Integrated Systems – 0.7% | ||||||||||
78,925 | Teradata Corp.* | 3,828,652 | ||||||||
Computers – Memory Devices – 2.3% | ||||||||||
559,575 | EMC Corp.* | 12,053,245 | ||||||||
Consulting Services – 0.7% | ||||||||||
88,835 | Verisk Analytics, Inc.* | 3,564,949 | ||||||||
Containers – Metal and Glass – 1.6% | ||||||||||
236,945 | Ball Corp. | 8,461,306 | ||||||||
Cosmetics and Toiletries – 1.6% | ||||||||||
91,450 | Colgate-Palmolive Co. | 8,449,066 | ||||||||
Dialysis Centers – 0.2% | ||||||||||
16,845 | DaVita, Inc.* | 1,277,019 | ||||||||
Distribution/Wholesale – 0.6% | ||||||||||
75,278 | Fastenal Co. | 3,282,874 | ||||||||
Diversified Operations – 2.1% | ||||||||||
114,485 | Danaher Corp. | 5,385,374 | ||||||||
121,715 | Tyco International, Ltd. (U.S. Shares) | 5,685,308 | ||||||||
11,070,682 | ||||||||||
E-Commerce/Products – 4.5% | ||||||||||
35,055 | Amazon.com, Inc.* | 6,068,021 | ||||||||
594,150 | eBay, Inc.* | 18,020,569 | ||||||||
24,088,590 | ||||||||||
Electronic Components – Miscellaneous – 1.7% | ||||||||||
291,810 | TE Connectivity, Ltd. (U.S. Shares) | 8,990,666 | ||||||||
Electronic Components – Semiconductors – 1.2% | ||||||||||
856,194 | ON Semiconductor Corp.* | 6,609,818 | ||||||||
Electronic Connectors – 1.3% | ||||||||||
154,765 | Amphenol Corp. – Class A | 7,024,783 | ||||||||
Enterprise Software/Services – 3.2% | ||||||||||
667,225 | Oracle Corp. | 17,114,321 | ||||||||
Finance – Investment Bankers/Brokers – 0.3% | ||||||||||
146,720 | Charles Schwab Corp. | 1,652,067 | ||||||||
Food – Miscellaneous/Diversified – 1.4% | ||||||||||
219,986 | Unilever N.V.** | 7,564,029 | ||||||||
Industrial Automation and Robotics – 1.4% | ||||||||||
48,900 | Fanuc Corp. | 7,485,926 | ||||||||
Industrial Gases – 1.7% | ||||||||||
83,310 | Praxair, Inc. | 8,905,839 | ||||||||
Instruments – Controls – 1.8% | ||||||||||
356,732 | Sensata Technologies Holding N.V.*,** | 9,374,917 | ||||||||
Internet Content – Entertainment – 0.2% | ||||||||||
101,535 | Zynga, Inc.* | 955,444 | ||||||||
Investment Management and Advisory Services – 1.2% | ||||||||||
115,290 | T. Rowe Price Group, Inc. | 6,565,766 | ||||||||
Life and Health Insurance – 1.0% | ||||||||||
556,404 | Prudential PLC** | 5,516,178 | ||||||||
Medical – Biomedical and Genetic – 4.2% | ||||||||||
265,741 | Celgene Corp.* | 17,964,092 | ||||||||
126,919 | Vertex Pharmaceuticals, Inc.* | 4,214,980 | ||||||||
22,179,072 | ||||||||||
Medical – Drugs – 1.9% | ||||||||||
129,785 | Endo Pharmaceuticals Holdings, Inc.* | 4,481,476 | ||||||||
124,654 | Valeant Pharmaceuticals International, Inc. | 5,820,095 | ||||||||
10,301,571 | ||||||||||
Medical – Generic Drugs – 2.2% | ||||||||||
310,770 | Mylan, Inc.* | 6,669,124 | ||||||||
49,660 | Perrigo Co. | 4,831,918 | ||||||||
11,501,042 | ||||||||||
Medical – Wholesale Drug Distributors – 0.9% | ||||||||||
121,255 | AmerisourceBergen Corp. | 4,509,473 | ||||||||
Medical Products – 2.2% | ||||||||||
220,260 | Covidien PLC (U.S. Shares)** | 9,913,903 | ||||||||
30,095 | Varian Medical Systems, Inc.* | 2,020,277 | ||||||||
11,934,180 | ||||||||||
Metal Processors and Fabricators – 2.4% | ||||||||||
75,870 | Precision Castparts Corp. | 12,502,617 | ||||||||
Multimedia – 1.3% | ||||||||||
189,285 | Walt Disney Co. | 7,098,188 | ||||||||
Oil – Field Services – 2.3% | ||||||||||
101,450 | Baker Hughes, Inc. | 4,934,528 | ||||||||
86,965 | Halliburton Co. | 3,001,162 | ||||||||
66,115 | Schlumberger, Ltd. (U.S. Shares) | 4,516,316 | ||||||||
12,452,006 | ||||||||||
Oil and Gas Drilling – 0.8% | ||||||||||
74,920 | Helmerich & Payne, Inc. | 4,372,331 | ||||||||
Oil Companies – Exploration and Production – 5.0% | ||||||||||
53,885 | Apache Corp. | 4,880,903 | ||||||||
107,085 | Canadian Natural Resources, Ltd. | 4,001,767 | ||||||||
80,700 | EOG Resources, Inc. | 7,949,757 | ||||||||
74,750 | Occidental Petroleum Corp. | 7,004,075 | ||||||||
375,500 | OGX Petroleo e Gas Participacoes S.A.* | 2,742,993 | ||||||||
26,579,495 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 9
Janus Aspen Janus Portfolio
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Oil Companies – Integrated – 0.4% | ||||||||||
82,005 | Petroleo Brasileiro S.A. (ADR) | $ | 2,037,824 | |||||||
Oil Field Machinery and Equipment – 1.7% | ||||||||||
128,577 | Dresser-Rand Group, Inc.* | 6,417,278 | ||||||||
41,905 | National Oilwell Varco, Inc. | 2,849,121 | ||||||||
9,266,399 | ||||||||||
Pharmacy Services – 1.2% | ||||||||||
141,885 | Express Scripts, Inc. – Class A* | 6,340,841 | ||||||||
Pipelines – 2.1% | ||||||||||
245,620 | Enterprise Products Partners L.P. | 11,391,856 | ||||||||
Retail – Apparel and Shoe – 2.3% | ||||||||||
308,215 | Limited Brands, Inc. | 12,436,475 | ||||||||
Retail – Discount – 1.7% | ||||||||||
109,160 | Costco Wholesale Corp. | 9,095,211 | ||||||||
Retail – Jewelry – 0.8% | ||||||||||
84,955 | Compagnie Financiere Richemont S.A. | 4,298,415 | ||||||||
Retail – Major Department Stores – 2.8% | ||||||||||
86,875 | JC Penney Co., Inc. | 3,053,656 | ||||||||
236,225 | Nordstrom, Inc. | 11,742,745 | ||||||||
14,796,401 | ||||||||||
Retail – Restaurants – 0.8% | ||||||||||
41,860 | McDonald’s Corp. | 4,199,814 | ||||||||
Semiconductor Components/Integrated Circuits – 1.7% | ||||||||||
454,013 | Atmel Corp.* | 3,677,505 | ||||||||
2,083,942 | Taiwan Semiconductor Manufacturing Co., Ltd. | 5,218,806 | ||||||||
8,896,311 | ||||||||||
Soap and Cleaning Preparations – 0.5% | ||||||||||
55,345 | Reckitt Benckiser Group PLC** | 2,732,704 | ||||||||
Telecommunication Equipment – 0% | ||||||||||
289 | Nortel Networks Corp. (U.S. Shares)* | 5 | ||||||||
Telecommunication Services – 1.1% | ||||||||||
212,125 | Amdocs, Ltd. (U.S. Shares)*,** | 6,051,926 | ||||||||
Television – 1.2% | ||||||||||
226,905 | CBS Corp. – Class B | 6,158,202 | ||||||||
Tobacco – 1.1% | ||||||||||
72,225 | Philip Morris International, Inc. | 5,668,218 | ||||||||
Toys – 0.6% | ||||||||||
106,356 | Mattel, Inc. | 2,952,443 | ||||||||
Transportation – Railroad – 0.2% | ||||||||||
10,610 | Union Pacific Corp. | 1,124,023 | ||||||||
Transportation – Services – 2.5% | ||||||||||
125,765 | C.H. Robinson Worldwide, Inc. | 8,775,882 | ||||||||
103,700 | Expeditors International of Washington, Inc. | 4,247,552 | ||||||||
13,023,434 | ||||||||||
Wireless Equipment – 1.4% | ||||||||||
161,435 | Crown Castle International Corp.* | 7,232,288 | ||||||||
Total Common Stock (cost $445,446,305) | 509,391,207 | |||||||||
Money Market – 3.9% | ||||||||||
20,499,925 | Janus Cash Liquidity Fund LLC, 0% (cost $20,499,925) | 20,499,925 | ||||||||
Total Investments (total cost $465,946,230) – 99.7% | 529,891,132 | |||||||||
Cash, Receivables and Other Assets, net of Liabilities – 0.3% | 1,766,591 | |||||||||
Net Assets – 100% | $ | 531,657,723 | ||||||||
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Belgium | $ | 9,897,723 | 1.9% | |||||
Brazil | 4,780,817 | 0.9% | ||||||
Canada | 9,821,867 | 1.9% | ||||||
Curacao | 4,516,316 | 0.8% | ||||||
France | 6,343,441 | 1.2% | ||||||
Guernsey | 6,051,926 | 1.1% | ||||||
Ireland | 9,913,903 | 1.9% | ||||||
Italy | 4,241,282 | 0.8% | ||||||
Japan | 7,485,926 | 1.4% | ||||||
Netherlands | 16,938,946 | 3.2% | ||||||
Switzerland | 18,974,389 | 3.6% | ||||||
Taiwan | 5,218,806 | 1.0% | ||||||
United Kingdom | 18,126,779 | 3.4% | ||||||
United States†† | 407,579,011 | 76.9% | ||||||
Total | $ | 529,891,132 | 100.0% |
†† | Includes Cash Equivalents (73.0% excluding Cash Equivalents). |
Forward Currency Contracts, Open
Currency Units | Currency | Unrealized | ||||||||||
Counterparty/Currency Sold and Settlement Date | Sold | Value U.S. $ | Appreciation | |||||||||
Credit Suisse Securities (USA) LLC: | ||||||||||||
British Pound 1/19/12 | 3,080,000 | $ | 4,776,327 | $ | 49,971 | |||||||
Euro 1/19/12 | 2,200,000 | 2,847,288 | 126,298 | |||||||||
7,623,615 | 176,269 | |||||||||||
HSBC Securities (USA), Inc.: | ||||||||||||
British Pound 2/2/12 | 2,225,000 | 3,453,682 | 3,444 | |||||||||
Euro 2/2/12 | 4,700,000 | 6,083,434 | 53,189 | |||||||||
9,537,116 | 56,633 | |||||||||||
JPMorgan Chase & Co.: | ||||||||||||
British Pound 1/12/12 | 1,410,000 | 2,189,117 | 11,005 | |||||||||
Euro 1/12/12 | 3,425,000 | 4,432,509 | 148,173 | |||||||||
6,621,626 | 159,178 | |||||||||||
RBC Capital Markets Corp.: | ||||||||||||
British Pound 1/5/12 | 2,000,000 | 3,105,364 | 82,956 | |||||||||
Euro 1/5/12 | 3,390,000 | 4,387,015 | 242,132 | |||||||||
7,492,379 | 325,088 | |||||||||||
Total | $ | 31,274,736 | $ | 717,168 |
See Notes to Schedule of Investments and Financial Statements.
10 | DECEMBER 31, 2011
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
As of December 31, 2011 | Janus | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 465,946 | ||||||||
Unaffiliated investments at value | $ | 509,391 | ||||||||
Affiliated investments at value | 20,500 | |||||||||
Cash | 822 | |||||||||
Receivables: | ||||||||||
Investments sold | 994 | |||||||||
Portfolio shares sold | 20 | |||||||||
Dividends | 327 | |||||||||
Foreign dividend tax reclaim | 34 | |||||||||
Non-interested Trustees’ deferred compensation | 16 | |||||||||
Other assets | 14 | |||||||||
Forward currency contracts | 717 | |||||||||
Total Assets | 532,835 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Investments purchased | 82 | |||||||||
Portfolio shares repurchased | 651 | |||||||||
Dividends | – | |||||||||
Advisory fees | 215 | |||||||||
Fund administration fees | 5 | |||||||||
Distribution fees and shareholder servicing fees | 38 | |||||||||
Non-interested Trustees’ fees and expenses | 10 | |||||||||
Non-interested Trustees’ deferred compensation fees | 16 | |||||||||
Accrued expenses and other payables | 160 | |||||||||
Total Liabilities | 1,177 | |||||||||
Net Assets | $ | 531,658 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 623,572 | ||||||||
Undistributed net investment income* | 1,651 | |||||||||
Undistributed net realized loss from investment and foreign currency transactions* | (158,224) | |||||||||
Unrealized net appreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 64,659 | |||||||||
Total Net Assets | $ | 531,658 | ||||||||
Net Assets - Institutional Shares | $ | 352,646 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 15,442 | |||||||||
Net Asset Value Per Shares | $ | 22.84 | ||||||||
Net Assets - Service Shares | $ | 179,012 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 7,922 | |||||||||
Net Asset Value Per Share | $ | 22.60 |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
Janus Aspen Series | 11
Statement of Operations
Janus Aspen | ||||||
For the fiscal year ended December 31, 2011 | Janus | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | 1 | ||||
Dividends | 8,875 | |||||
Dividends from affiliates | 15 | |||||
Foreign tax withheld | (198) | |||||
Total Investment Income | 8,693 | |||||
Expenses: | ||||||
Advisory fees | 3,428 | |||||
Shareholder reports expense | 121 | |||||
Transfer agent fees and expenses | 1 | |||||
Registration fees | 17 | |||||
Custodian fees | 27 | |||||
Professional fees | 62 | |||||
Non-interested Trustees’ fees and expenses | 14 | |||||
Fund administration fees | 28 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 538 | |||||
Other expenses | 62 | |||||
Non-recurring costs (Note 4) | 1 | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | (1) | |||||
Total Expenses | 4,298 | |||||
Expense and Fee Offset | – | |||||
Net Expenses | 4,298 | |||||
Net Investment Income | 4,395 | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 80,451 | |||||
Net realized loss from swap contracts | (181) | |||||
Net realized gain from written options contracts | 319 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (115,859) | |||||
Change in unrealized net appreciation/(depreciation) of swap contracts | (326) | |||||
Change in unrealized net appreciation/(depreciation) of written option contracts | (135) | |||||
Net Loss on Investments | (35,731) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (31,336) |
See Notes to Financial Statements.
12 | DECEMBER 31, 2011
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Janus | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment income | $ | 4,395 | $ | 6,244 | ||||||
Net realized gain from investment and foreign currency transactions(1) | 80,589 | 324,394 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (116,320) | (267,824) | ||||||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (31,336) | 62,814 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | (2,290) | (4,351) | ||||||||
Service Shares | (943) | (855) | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | – | – | ||||||||
Service Shares | – | – | ||||||||
Net Decrease from Dividends and Distributions | (3,233) | (5,206) | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 13,914 | 16,839 | ||||||||
Service Shares | 13,008 | 97,297 | ||||||||
Reinvested Dividends and Distributions | ||||||||||
Institutional Shares | 2,290 | 4,351 | ||||||||
Service Shares | 943 | 855 | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (65,293) | (88,860) | ||||||||
Service Shares | (64,807) | (1,910,734) | ||||||||
Net Decrease from Capital Share Transactions | (99,945) | (1,880,252) | ||||||||
Net Decrease in Net Assets | (134,514) | (1,822,644) | ||||||||
Net Assets: | ||||||||||
Beginning of period | 666,172 | 2,488,816 | ||||||||
End of period | $ | 531,658 | $ | 666,172 | ||||||
Undistributed Net Investment Income* | $ | 1,651 | $ | 968 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Certain prior year amounts have been reclassified to conform with current year presentation. |
See Notes to Financial Statements.
Janus Aspen Series | 13
Financial Highlights
Institutional Shares
Janus Aspen Janus Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $24.26 | $21.43 | $15.81 | $26.43 | $23.12 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .20 | .16 | .12 | .22 | .24 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (1.48) | 2.91 | 5.60 | (10.68) | 3.25 | |||||||||||||||||
Total from Investment Operations | (1.28) | 3.07 | 5.72 | (10.46) | 3.49 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.14) | (.24) | (.10) | (.16) | (.18) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Total Distributions | (.14) | (.24) | (.10) | (.16) | (.18) | |||||||||||||||||
Net Asset Value, End of Period | $22.84 | $24.26 | $21.43 | $15.81 | $26.43 | |||||||||||||||||
Total Return | (5.30)% | 14.52% | 36.26% | (39.70)% | 15.14% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $352,646 | $424,037 | $441,921 | $353,051 | $677,593 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $393,230 | $409,886 | $380,924 | $525,042 | $686,441 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.62% | 0.70%(1) | 0.68% | 0.66% | 0.66% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.62% | 0.70%(1) | 0.68% | 0.66% | 0.66% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.81% | 0.60% | 0.59% | 0.87% | 0.89% | |||||||||||||||||
Portfolio Turnover Rate | 90% | 43% | 56% | 69% | 78% |
Service Shares
Janus Aspen Janus Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $24.03 | $21.11 | $15.59 | $26.08 | $22.84 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .09 | .03 | .07 | .14 | .32 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (1.41) | 2.97 | 5.52 | (10.50) | 3.07 | |||||||||||||||||
Total from Investment Operations | (1.32) | 3.00 | 5.59 | (10.36) | 3.39 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.11) | (.08) | (.07) | (.13) | (.15) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Total Distributions | (.11) | (.08) | (.07) | (.13) | (.15) | |||||||||||||||||
Net Asset Value, End of Period | $22.60 | $24.03 | $21.11 | $15.59 | $26.08 | |||||||||||||||||
Total Return | (5.54)% | 14.26% | 35.93% | (39.85)% | 14.84% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $179,012 | $242,135 | $2,046,895 | $1,152,236 | $1,211,381 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $216,273 | $962,905 | $1,528,802 | $1,251,357 | $569,659 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.87% | 0.92%(1) | 0.92% | 0.91% | 0.91% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.87% | 0.92%(1) | 0.92% | 0.91% | 0.91% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.56% | 0.39% | 0.32% | 0.61% | 0.58% | |||||||||||||||||
Portfolio Turnover Rate | 90% | 43% | 56% | 69% | 78% |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Ratio of Gross Expenses to Average Net Assets and Ratio of Net Expenses to Average Net Assets include any applicable dividends and interest on short positions and may include stock loan fees. The ratios would have been 0.70% and 0.70%, respectively, in 2010 for Institutional Shares and 0.92% and 0.92%, respectively, in 2010 for Service Shares without the inclusion of any applicable dividends and interest on short positions and any stock loan fees. |
See Notes to Financial Statements.
14 | DECEMBER 31, 2011
Notes to Schedule of Investments
Core Growth Index | An internally-calculated, hypothetical combination of unmanaged indices that combines total returns from the Russell 1000® Growth Index (50%) and the S&P 500® Index (50%). | |
Lipper Variable Annuity Large-Cap Growth Funds | Funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) above Lipper’s U.S. Diversified Equity large-cap floor. Large-cap growth funds typically have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P 500® Index. | |
Russell 1000® Growth Index | Measures the performance of those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. | |
S&P 500® Index | A commonly recognized, market-capitalization weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance. | |
ADR | American Depositary Receipt | |
PLC | Public Limited Company | |
U.S. Shares | Securities of foreign companies trading on an American Stock Exchange. |
* | Non-income producing security. | |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. |
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Janus Portfolio | |||||||||||
Common Stock | |||||||||||
Oil Companies – Integrated | $ | – | $ | 2,037,824 | $ | – | |||||
All Other | 507,353,383 | – | – | ||||||||
Money Market | – | 20,499,925 | – | ||||||||
Total Investments in Securities | $ | 507,353,383 | $ | 22,537,749 | $ | – | |||||
Other Financial Instruments(a): | $ | – | $ | 717,168 | $ | – | |||||
(a) | Other financial instruments include futures, forward currency, written option, and swap contracts. Forward currency contracts and swap contracts are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. Futures are reported at their variation margin at measurement date, which represents the amount due to/from the Portfolio at that date. Options are reported at their market value at measurement date. |
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Janus Portfolio | $ | 91,764,002 | |||
Janus Aspen Series | 15
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | Organization and Significant Accounting Policies |
Janus Aspen Janus Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests primarily in common stocks. The Portfolio is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers two classes of shares: Institutional Shares and Service Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Each class of shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general
16 | DECEMBER 31, 2011
expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and
Janus Aspen Series | 17
Notes to Financial Statements (continued)
repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3 Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are
18 | DECEMBER 31, 2011
summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
There were no Level 3 securities during the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | Derivative Instruments |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. Each derivative instrument that was held by the Portfolio during the fiscal year ended December 31, 2011 is discussed in further detail below. A summary of derivative activity is reflected in the tables at the end of this section.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. | |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. |
Janus Aspen Series | 19
Notes to Financial Statements (continued)
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The Portfolio may enter into forward currency contracts for hedging purposes, including, but not limited to, reducing exposure to changes in foreign currency exchange rates on foreign portfolio holdings and locking in the U.S. dollar cost of firm purchase and sale commitments for securities denominated in or exposed to foreign currencies. The Portfolio may also invest in forward currency contracts for nonhedging purposes such as seeking to enhance returns. The Portfolio is subject to currency risk in the normal course of pursuing its investment objective through its investments in forward currency contracts.
The gain or loss arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing a contract is included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations (if applicable).
Forward currency contracts held by the Portfolio are fully collateralized by other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The collateral is evaluated daily to ensure its market value equals or exceeds the current market value of the corresponding forward currency contracts. Such collateral is in the possession of the Portfolio’s custodian.
Options Contracts
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. The Portfolio may purchase or write covered and uncovered put and call options on swap contracts (“swaptions”), futures contracts, and on portfolio securities for hedging purposes or as a substitute for an investment. The Portfolio is subject to interest rate risk, liquidity risk, equity risk, and currency risk in the normal course of pursuing its investment objective through its investments in options contracts. The Portfolio may use options contracts to hedge against changes in interest rates, the values of equities, or foreign currencies. The Portfolio may utilize American-style and European-style options. An American-style option is an option contract that can be exercised at any time between the time of purchase and the option’s expiration date. A European-style option is an option contract that can only be exercised on the option’s expiration date. The Portfolio may also purchase or write put and call options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. The Portfolio may also invest in long-term equity anticipation securities, which are long-term option contracts that can be maintained for a period of up to three years. The Portfolio may also enter into a swaption contract which grants the purchaser the right, but not the obligation, to enter into a swap transaction at preset terms detailed in the underlying agreement within a specified period of time. Entering into a swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk, associated with both option contracts and swap contracts. The Portfolio generally invests in options to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Portfolio receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. In writing an option, the Portfolio bears the risk of an unfavorable change in the price of the security underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio buying or selling a security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option are adjusted by the amount of premium received or paid.
The Portfolio may also purchase and write exchange-listed and OTC put and call options on domestic securities indices, and on foreign securities indices listed on domestic and foreign securities exchanges. Options on securities indices are similar to options on securities except that (1) the expiration cycles of securities index options are monthly, while those of securities options are currently quarterly, and (2) the delivery requirements are different. Instead of giving the right to take or make
20 | DECEMBER 31, 2011
delivery of securities at a specified price, an option on a securities index gives the holder the right to receive a cash “exercise settlement amount” equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed “index multiplier.” Receipt of this cash amount will depend upon the closing level of the securities index upon which the option is based being greater than, in the case of a call, or less than, in the case of a put, the exercise price of the index and the exercise price of the option times a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount.
Options traded on an exchange are regulated and the terms of the options are standardized. Options traded OTC expose the Portfolio to counterparty risk in the event that the counterparty does not perform. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by having the counterparty post collateral to cover the Portfolio’s exposure to the counterparty.
Holdings of the Portfolio designated to cover outstanding written options are noted on the Schedule of Investments (if applicable). Options written are reported as a liability on the Statement of Assets and Liabilities as “Options written at value” (if applicable). Realized gains and losses are reported as “Net realized gain/(loss) from written options contracts” on the Statement of Operations (if applicable).
The risk in writing call options is that the Portfolio gives up the opportunity for profit if the market price of the security increases and the options are exercised. The risk in writing put options is that the Portfolio may incur a loss if the market price of the security decreases and the options are exercised. The risk in buying options is that the Portfolio pays a premium whether or not the options are exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. A lack of correlation between the value of an instrument underlying an option and the asset being hedged, or unexpected adverse price movements, could render the Portfolio’s hedging strategy unsuccessful. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased or sold. There is no limit to the loss the Portfolio may recognize due to written call options.
Written option activity for the fiscal year ended December 31, 2011 is indicated in the tables below:
Number of | Premiums | |||||||
Call Options | Contracts | Received | ||||||
Janus Aspen Janus Portfolio | ||||||||
Options outstanding at December 31, 2010 | 6,505 | $ | 585,842 | |||||
Options written | 1,522 | 237,371 | ||||||
Options closed | (6,946) | (591,572) | ||||||
Options expired | (392) | (84,536) | ||||||
Options exercised | (689) | (147,105) | ||||||
Options outstanding at December 31, 2011 | – | $ | – | |||||
Number of | Premiums | |||||||
Put Options | Contracts | Received | ||||||
Janus Aspen Janus Portfolio | ||||||||
Options outstanding at December 31, 2010 | 5,005 | $ | 1,190,913 | |||||
Options written | 1,000 | 162,000 | ||||||
Options closed | (5,860) | (1,289,879) | ||||||
Options expired | (145) | (63,034) | ||||||
Options exercised | – | – | ||||||
Options outstanding at December 31, 2011 | – | $ | – | |||||
Swaps
A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The Portfolio may utilize swap agreements as a means to gain exposure to certain common stocks and/or to “hedge” or protect its portfolio from adverse movements in securities prices or interest rates. The Portfolio is subject to equity risk and interest rate risk in the normal course of pursuing its investment objective through investments in swap contracts. Swap agreements entail the risk that a party will default on its payment obligation to the Portfolio. If the other party to a swap defaults, the Portfolio would risk the loss of the net amount of the payments that it contractually is entitled to receive. If the Portfolio utilizes a swap at the wrong time or judges market conditions incorrectly, the swap may result in a loss to the Portfolio and reduce the Portfolio’s total return. Swap contracts of the Portfolio are reported as an asset or liability on the Statement of Assets and Liabilities (if applicable). Realized gains and losses of the Portfolio are reported in “Net realized gain/(loss) from swap contracts” on the Statement of Operations (if applicable).
Dividend swap agreements involve an exchange by the parties of their respective commitments to pay or right to receive the changes in a dividend index point. The Portfolio gains exposure by either paying or receiving an amount in respect of an increase or decrease in the change of the relevant dividend index point based on a
Janus Aspen Series | 21
Notes to Financial Statements (continued)
notional amount. For example, if the Portfolio took a long position on a dividend index swap, the Portfolio would receive payments if the relevant index point increased in value and would be obligated to pay if that index point decreased in value.
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
The following table, grouped by derivative type, provides information about the fair value and location of derivatives within the Statement of Assets and Liabilities as of December 31, 2011.
Fair Value of Derivative Instruments as of December 31, 2011
Derivatives not accounted for | Asset Derivatives | Liability Derivatives | ||||||||||
as hedging instruments | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Foreign Exchange Contracts | Forward currency contracts | $ | 717,168 | |||||||||
Total | $ | 717,168 | ||||||||||
The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the fiscal year ended December 31, 2011.
The effect of Derivative Instruments on the Statement of Operations for the fiscal year ended December 31, 2011
Amount of Realized Gain/(Loss) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | (180,849 | ) | $ | (130,775 | ) | $ | – | $ | (311,624 | ) | |||||||
Foreign Exchange Contracts | – | – | – | (87,391 | ) | (87,391 | ) | |||||||||||||
Total | $ | – | $ | (180,849 | ) | $ | (130,775 | ) | $ | (87,391 | ) | $ | (399,015 | ) | ||||||
Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | (326,427 | ) | $ | (152,711 | ) | $ | – | $ | (479,138 | ) | |||||||
Foreign Exchange Contracts | – | – | – | 450,816 | 450,816 | |||||||||||||||
Total | $ | – | $ | (326,427 | ) | $ | (152,711 | ) | $ | 450,816 | $ | (28,322 | ) | |||||||
Please see the Portfolio’s Statement of Operations for the Portfolio’s “Net Realized and Unrealized Gain/(Loss) on Investments.”
The value of derivative instruments at period end and the effect of derivatives on the Statement of Operations are indicative of the Portfolio’s volume throughout the fiscal year.
3. | Other Investments and Strategies |
Additional Investment Risk
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial
22 | DECEMBER 31, 2011
institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
Emerging Market Investing
Investing in emerging markets may involve certain risks and considerations not typically associated with investing in the United States and imposes risks greater than, or in addition to, the risks associated with investing in securities of more developed foreign countries. Emerging markets securities are exposed to a number of additional risks, which may result from less government supervision and regulation of business and industry practices (including the potential lack of strict finance and accounting controls and standards), stock exchanges, brokers, and listed companies, making these investments potentially more volatile in price and less liquid than investments in developed securities markets, resulting in greater risk to investors. In addition, the Portfolio’s investments may be denominated in foreign currencies and therefore, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the Portfolio’s investments. To the extent that the Portfolio invests a significant portion of its assets in the securities of issuers in or companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region, which could have a negative impact on the Portfolio’s performance.
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the
Janus Aspen Series | 23
Notes to Financial Statements (continued)
Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a
24 | DECEMBER 31, 2011
specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio managers anticipate that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s “base” fee rate prior to any performance adjustment (expressed as an annual rate).
Base Fee | |||||
Rate (%) | |||||
Portfolio | (annual rate) | ||||
Janus Aspen Janus Portfolio | 0.64 | ||||
For the Portfolio, the investment advisory fee rate is determined by calculating a base fee and applying a performance adjustment. The base fee rate is the same as the contractual investment advisory fee rate shown in the table above. The performance adjustment either increases or decreases the base fee depending on how well the Portfolio has performed relative to its benchmark index, as shown below:
Portfolio | Benchmark Index | ||||
Janus Aspen Janus Portfolio | Core Growth Index | ||||
Only the base fee rate applied until July 2011 for the Portfolio. The calculation of the performance adjustment applies as follows:
Investment Advisory Fee = Base Fee Rate +/- Performance Adjustment
The investment advisory fee rate paid to Janus Capital by the Portfolio consists of two components: (1) a base fee calculated by applying the contractual fixed rate of the advisory fee to the Portfolio’s average daily net assets during the previous month (“Base Fee Rate”), plus or minus (2) a performance-fee adjustment (“Performance Adjustment”) calculated by applying a variable rate of up to 0.15% (positive or negative) to the Portfolio’s average daily net assets during the applicable performance measurement period. The performance measurement period generally is the previous 36 months, although no Performance Adjustment is made until the Portfolio’s performance-based fee structure has been in effect for at least 12 months. When the Portfolio’s performance-based fee structure has been in effect for at least 12 months, but less than 36 months, the performance measurement period is equal to the time that has elapsed since the performance-based fee structure took effect. As noted above, any applicable Performance Adjustment began July 2011 for the Portfolio.
No Performance Adjustment is applied unless the difference between the Portfolio’s investment performance and the cumulative investment record of the Portfolio’s benchmark index is 0.50% or greater (positive or
Janus Aspen Series | 25
Notes to Financial Statements (continued)
negative) during the applicable performance measurement period. The Base Fee Rate is subject to an upward or downward Performance Adjustment for every full 0.50% increment by which the Portfolio outperforms or underperforms its benchmark index. Because the Performance Adjustment is tied to the Portfolio’s relative performance compared to its benchmark index (and not its absolute performance), the Performance Adjustment could increase Janus Capital’s fee even if the Portfolio’s Shares lose value during the performance measurement period and could decrease Janus Capital’s fee even if the Portfolio’s Shares increase in value during the performance measurement period. For purposes of computing the Base Fee Rate and the Performance Adjustment, net assets are averaged over different periods (average daily net assets during the previous month for the Base Fee Rate, versus average daily net assets during the performance measurement period for the Performance Adjustment). Performance of the Portfolio is calculated net of expenses, whereas the Portfolio’s benchmark index does not have any fees or expenses. Reinvestment of dividends and distributions is included in calculating both the performance of the Portfolio and the Portfolio’s benchmark index. The Base Fee Rate is calculated and accrued daily. The Performance Adjustment is calculated monthly in arrears and is accrued throughout the month. The investment fee is paid monthly in arrears. Under extreme circumstances involving underperformance by a rapidly shrinking Portfolio, the dollar amount of the Performance Adjustment could be more than the dollar amount of the Base Fee Rate. In such circumstances, Janus Capital would reimburse the Portfolio.
The investment performance of the Portfolio’s Service Shares for the performance measurement period is used to calculate the Performance Adjustment. After Janus Capital determines whether the Portfolio’s performance was above or below its benchmark index by comparing the investment performance of the Portfolio’s Service Shares against the cumulative investment record of its benchmark index, Janus Capital applies the same Performance Adjustment (positive or negative) across each other class of shares of the Portfolio, as applicable.
It is not possible to predict the effect of the Performance Adjustment on future overall compensation to Janus Capital since it depends on the performance of the Portfolio relative to the record of the Portfolio’s benchmark index and future changes to the size of the Portfolio.
The Portfolio’s prospectuses and statements of additional information contain additional information about performance-based fees. The amount shown as advisory fees on the Statement of Operations reflects the Base Fee Rate plus/minus any Performance Adjustment. During the fiscal year ended December 31, 2011, the Portfolio recorded a Performance Adjustment of $(472,854).
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares at an annual rate of up to 0.25% of Service Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the
26 | DECEMBER 31, 2011
Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio may be used to purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio is eligible to participate in the cash sweep program (the “Investing Fund”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
During the fiscal year ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Dividend | Value | |||||||||||
Shares/Cost | Shares/Cost | Income | at 12/31/11 | |||||||||||
Janus Aspen Janus Portfolio | ||||||||||||||
Janus Cash Liquidity Fund LLC | $ | 204,806,222 | $ | (189,863,230) | $ | 15,354 | $ | 20,499,925 | ||||||
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Janus Aspen Series | 27
Notes to Financial Statements (continued)
Undistributed | Undistributed | Late-Year | Other Book | Net Tax | ||||||||||||||||
Ordinary | Long-Term | Accumulated | Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Janus Portfolio(1) | $ | 1,670,808 | $ | 9,516,485 | $ | (158,757,732) | $ | (6,854,709) | $ | (18,986) | $ | 62,529,602 | ||||||||
(1) | Capital loss carryover is subject to annual limitations. |
Accumulated capital losses noted below represent net capital loss carryovers, as of December 31, 2011, that may be available to offset future realized capital gains and thereby reduce future taxable gains distributions. Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Portfolio will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may more likely expire unused. Also, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. The following table shows the expiration dates of the carryovers.
Capital Loss Carryover Expiration Schedule
For the year ended December 31, 2011
Accumulated | ||||||||||||||
Portfolio | December 31, 2017 | Capital Losses | ||||||||||||
Janus Aspen Janus Portfolio(1) | $ | (158,757,732) | $ | (158,757,732) | ||||||||||
(1) | Capital loss carryover is subject to annual limitations. |
During the fiscal year ended December 31, 2011, the following capital loss carryovers were utilized by the Portfolio:
Capital Loss | ||||||||||||||||||||||||||
Portfolio | Carryover Utilized | |||||||||||||||||||||||||
Janus Aspen Janus Portfolio | $ | 67,320,307 | ||||||||||||||||||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary differences between book and tax appreciation or depreciation of investments are wash sale loss deferrals and partnerships.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Janus Portfolio | $ | 467,361,530 | $ | 85,385,836 | $ | (22,856,234) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Janus Portfolio | $ | 3,232,215 | $ | – | $ | – | $ | – | |||||||||
28 | DECEMBER 31, 2011
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Janus Portfolio | $ | 5,206,471 | $ | – | $ | – | $ | – | |||||||||
6. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Janus Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 573 | 744 | ||||||||
Reinvested dividends and distributions | 94 | 208 | ||||||||
Shares repurchased | (2,702) | (4,098) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (2,035) | (3,146) | ||||||||
Shares Outstanding, Beginning of Period | 17,477 | 20,623 | ||||||||
Shares Outstanding, End of Period | 15,442 | 17,477 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 544 | 4,545 | ||||||||
Reinvested dividends and distributions | 39 | 39 | ||||||||
Shares repurchased | (2,736) | (91,484) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (2,153) | (86,900) | ||||||||
Shares Outstanding, Beginning of Period | 10,075 | 96,975 | ||||||||
Shares Outstanding, End of Period | 7,922 | 10,075 |
7. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Janus Portfolio | $ | 539,198,738 | $ | 654,396,683 | $ | – | $ | – | ||||||
8. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
Janus Aspen Series | 29
Notes to Financial Statements (continued)
9. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
30 | DECEMBER 31, 2011
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Janus Portfolio:
of Janus Aspen Janus Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Janus Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
Janus Aspen Series | 31
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
Approval of Advisory Agreements During the Period
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
32 | DECEMBER 31, 2011
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
Janus Aspen Series | 33
Additional Information (unaudited) (continued)
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
34 | DECEMBER 31, 2011
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The total annual fund operating expenses ratio is based on average net assets as of the fiscal period ended December 31, 2010. The ratio also includes expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, this ratio may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
2a. Forward Currency Contracts
A table listing forward currency contracts follows the Portfolio’s Schedule of Investments (if applicable). Forward currency contracts are agreements to deliver or receive a preset amount of currency at a future date. Forward currency contracts are used to hedge against foreign currency risk in the Portfolio’s long-term holdings.
The table provides the name of the foreign currency, the settlement date of the contract, the amount of the contract, the value of the currency in U.S. dollars and the amount of unrealized gain or loss. The amount of unrealized gain or loss reflects the change in currency exchange rates from the time the contract was opened to the last day of the reporting period.
2b. Options
A table listing written options contracts follows the Portfolio’s Schedule of Investments (if applicable). Written options contracts are contracts that obligate the Portfolio to sell or purchase an underlying security at a fixed price, upon exercise of the option. Options are used to hedge against adverse movements in securities prices, currency risk or interest rates.
The table provides the name of the contract, number of contracts held, the expiration date, exercise price, value and premiums received.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid.
Janus Aspen Series | 35
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
Additionally, there may be other assets and liabilities such as unrealized gain or loss on forward currency contracts.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios
36 | DECEMBER 31, 2011
reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio managers. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
Janus Aspen Series | 37
Designation Requirements (unaudited)
For federal income tax purposes, the Portfolio designated the following for the year ended December 31, 2011:
Dividends Received Deduction Percentage
Portfolio | ||||||||||
Janus Aspen Janus Portfolio | 100% | |||||||||
38 | DECEMBER 31, 2011
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
Janus Aspen Series | 39
Trustees and Officers (unaudited) (continued)
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments -HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
40 | DECEMBER 31, 2011
Officers
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Jonathan D. Coleman 151 Detroit Street Denver, CO 80206 DOB: 1971 | Executive Vice President and Co-Portfolio Manager Janus Aspen Janus Portfolio | 11/07-Present | Co-Chief Investment Officer and Executive Vice President of Janus Capital, and Portfolio Manager for other Janus accounts. | |||
Burton H. Wilson 151 Detroit Street Denver, CO 80206 DOB: 1963 | Executive Vice President and Co-Portfolio Manager Janus Aspen Janus Portfolio | 5/11-Present | Vice President and Assistant Director of Equity Research of Janus Capital, and Portfolio Manager for other Janus accounts. Formerly, Research Analyst (2004-2009) for Janus Capital. | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. | |||
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
Janus Aspen Series | 41
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
C-0112-126 | 109-02-81111 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
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10 | ||
11 | ||
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40 |
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s manager as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
Please keep in mind that the opinions expressed by the Portfolio’s manager in the Management Commentary are just that: opinions. They are a reflection of the manager’s best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the manager’s opinions. These views are unique to the manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Janus Capital Management LLC (“Janus Capital”) has contractually agreed to waive the Portfolio’s total annual fund operating expenses, excluding any expenses of an underlying fund (acquired fund fees and expenses), the distribution and shareholder servicing (12b-1) fees applicable to Service Shares, brokerage commissions, interest, dividends, taxes, and extraordinary expenses, to certain limits until at least May 1, 2013. Expenses in the examples reflect the application of this waiver. Had the waiver not been in effect, your expenses would have been higher. More information regarding the waiver is available in the Portfolio’s prospectuses.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Moderate Allocation Portfolio (unaudited)
Portfolio Snapshot We believe a fund of funds asset allocation portfolio, diversified among investment managers and optimized to a fixed asset mix, can provide attractive long-term returns. Using an institutional-quality asset allocation model, we combine mutual funds from three distinct investment managers into a series of portfolios, defined by specific risk targets, seeking to provide a core solution for long-term investors. | Dan Scherman portfolio manager |
Performance Overview
Since inception on August 31, 2011 through December 31, 2011, Janus Aspen Moderate Allocation Portfolio’s Institutional Shares and Service Shares returned -0.38% and -0.38%, respectively, compared with a 0.86% return by the Moderate Allocation Index. The index is an internally calculated, hypothetical combination of unmanaged indices that combines the total returns from the Dow Jones Wilshire 5000 Index (40%), the Barclays Capital U.S. Aggregate Bond Index (40%), the MSCI EAFE Index (18%) and the MSCI Emerging Markets Index (2%). The Portfolio’s primary benchmark, the S&P 500 Index, returned 3.96% during the period.
Economic Overview
Equities touched their lows in September on the increasing probability of a Greece default and investor disquiet over the U.S. Federal Reserve’s (the “Fed”) downbeat economic outlook. Stocks later rebounded on hopes European leaders were taking steps to resolve the region’s debt crisis. Improving economic data in the U.S. also boosted sentiment. Following a period of spiking European government bond yields, particularly in Italy and Spain, and changes in governments in Greece, Italy and Spain, central banks announced a coordinated plan to make dollar funding cheaper for European banks. China also announced the reserve requirement ratio for its banks would be lowered in an effort to boost liquidity after having raised the ratio six times during the year. Later in the period, German and French officials announced plans for a new euro-zone fiscal program to combat the debt crisis. Meanwhile, in the U.S., employment, manufacturing and housing data showed improvement. The U.S. Federal Reserve’s assessment of the economy was guardedly more upbeat, but it was still marked by “significant downside risks.”
Fixed income markets remained volatile throughout the period, as pressure to resolve the European debt crisis ratcheted higher and U.S. politicians continued to demonstrate near paralysis over U.S. fiscal policy. Meanwhile, data continued to reflect a strengthening U.S. economy, with signs of increased hiring and rising consumer confidence. Long maturity Treasuries led aggregate fixed income indices higher during the period, as the 30-year Treasury Bond yield dipped from 3.60% to 2.89%. Corporate investment grade bond spreads widened moderately, while high-yield spreads slightly tightened.
Portfolio Overview
The Portfolio underperformed the Moderate Allocation Index due to its non-U.S. equity allocation. International lagged domestic stocks during the period as a consequence of ongoing worries over Europe and an expected slowdown in global growth. Our fixed income allocation helped insulate the Portfolio’s performance during the sell-off in September, but it wasn’t enough to offset our international equity exposure. Individually, Janus Aspen Overseas Portfolio was the largest absolute detractor followed by Janus International Equity Fund and INTECH International Fund, reflecting their relative aggressiveness with Janus Aspen Overseas Portfolio as the most active. Contributors were led by INTECH U.S. Value Fund, Janus Aspen Flexible Bond Portfolio and INTECH U.S. Growth Fund.
We do not expect to change our international allocation either as a percentage of the Portfolio or to the underlying fund allocations themselves. In terms of our overall allocation to equities, the percent allocated to non-U.S. equity is a strategic decision that is not driven by near-term results or a desire to be tactical. Within our international allocation, we like exposure to a range of options (aggressively active in Janus Aspen Overseas Portfolio, moderately active in Janus International Equity Fund and mathematical in INTECH International Fund).
There were few changes to the Portfolio during the period. Among those was adding to our position in Janus Global Real Estate Fund and lowering our exposure to the Janus Research Fund.
2 | DECEMBER 31, 2011
(unaudited)
Looking ahead, we’re hopeful the easing in the market’s crisis mentality that we have seen recently will continue, which should offer an opportunity for asset diversification to provide investors with strong risk-adjusted performance.
Thank you for investing in Janus Aspen Moderate Allocation Portfolio.
Janus Aspen Series | 3
Janus Aspen Moderate Allocation Portfolio (unaudited)
Janus Aspen Moderate Allocation Portfolio (% of Total Investments)
Janus Aspen Flexible Bond Portfolio – Institutional Shares | 34.4% | |||
INTECH U.S. Value Fund(1) – Class I Shares | 10.5% | |||
Perkins Large Cap Value Fund – Class I Shares | 10.1% | |||
Janus International Equity Fund – Class I Shares | 8.5% | |||
INTECH U.S. Growth Fund(2) – Class I Shares | 7.1% | |||
Janus Short-Term Bond Fund – Class I Shares | 5.0% | |||
INTECH International Fund(3) – Class I Shares | 4.7% | |||
Janus Aspen Overseas Portfolio – Institutional Shares | 4.6% | |||
Janus Research Fund – Class I Shares | 4.6% | |||
Janus Global Real Estate Fund – Class I Shares | 2.4% | |||
Janus Triton Fund – Class I Shares | 2.1% | |||
Janus Fund – Class I Shares | 2.0% | |||
Janus Twenty Fund – Class D Shares | 2.0% | |||
Perkins Small Cap Value Fund – Class I Shares | 2.0% | |||
(1) | Formerly named INTECH Risk-Managed Value Fund. | |
(2) | Formerly named INTECH Risk-Managed Growth Fund. | |
(3) | Formerly named INTECH Risk-Managed International Fund. |
Janus Aspen Moderate Allocation Portfolio At A Glance
Asset Allocation – (% of Total Investments)
As of December 31, 2011
4 | DECEMBER 31, 2011
(unaudited)
Performance
Cumulative Total Return – for the periods ended December 31, 2011 | Expense Ratios – estimated for the fiscal year | ||||||
Since | Total Annual Fund | Net Annual Fund | |||||
Inception* | Operating Expenses | Operating Expenses | |||||
Janus Aspen Moderate Allocation Portfolio – Institutional Shares | –0.38% | 1.55% | 1.12%(a) | ||||
Janus Aspen Moderate Allocation Portfolio – Service Shares | –0.38% | 1.80% | 1.37%(b) | ||||
S&P 500® Index | 3.96% | ||||||
Moderate Allocation Index | 0.86% | ||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
A Portfolio which redeems or exchanges certain underlying funds’ shares held for 90 days or less may be subject to an underlying fund’s 2.00% redemption fee, if any.
(a) Janus Capital has contractually agreed to waive the Portfolio’s total annual fund operating expenses (excluding any expenses of an underlying fund (acquired fund fees and expenses), brokerage commissions, interest, dividends, taxes, and extraordinary expenses) to a certain limit until at least May 1, 2013. The contractual waiver may be terminated or modified prior to this date only at the discretion of the Board of Trustees. Returns shown include fee waivers, if any, and without such waivers, returns would have been lower.
(b) Janus Capital has contractually agreed to waive the Portfolio’s total annual fund operating expenses (excluding any expenses of an underlying fund (acquired fund fees and expenses), the distribution and shareholder servicing fees, brokerage commissions, interest, dividends, taxes, and extraordinary expenses) to a certain limit until at least May 1, 2013. The contractual waiver may be terminated or modified prior to this date only at the discretion of the Board of Trustees. Returns shown include fee waivers, if any, and without such waivers, returns would have been lower.
The expense information shown reflects estimated annualized expenses that the share classes of the Portfolio expect to incur during their initial fiscal year. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. Contractual waivers agreed to by Janus Capital, where applicable, are included under “Net Annual Fund Operating Expenses.” All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
See important disclosures on the next page.
Janus Aspen Series | 5
Janus Aspen Moderate Allocation Portfolio (unaudited)
An underlying fund’s performance may be affected by risks that include those associated with nondiversification, non-investment grade debt securities, undervalued or overlooked companies, investments in specific industries or countries and potential conflicts of interest with the Janus “funds of funds.” Additional risks to the Portfolio may also include, but are not limited to, those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), real estate investment trusts (“REITs”), derivatives and companies with relatively small market capitalizations. Each underlying fund has different risks. Please see a Janus prospectus or janus.com/ janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
Because Janus Capital is the adviser to the Portfolio and to the underlying funds held within the Portfolio, it is subject to certain potential conflicts of interest when allocating the assets of the Portfolio among underlying Janus funds. Performance of the Portfolio depends on that of the underlying funds, which are subject to the volatility of the financial markets.
For a period of three years subsequent to the Portfolio’s commencement of operations, Janus Capital may recover from the Portfolio fees and expenses previously waived or reimbursed, which could be considered a deferral, if the Portfolio’s expense ratio, including recovered expenses, falls below the expense limit.
The Portfolio’s performance for very short time periods may not be indicative of future performance.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Lipper does not rank this Portfolio as it is less than one year old.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the indices. The indices are unmanaged and are not available for direct investment; therefore, their performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
* | The Portfolio’s inception date – August 31, 2011 |
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (8/31/11) | (12/31/11) | (8/31/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 996.20 | $ | 3.36 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (8/31/11) | (12/31/11) | (8/31/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 996.20 | $ | 3.36* | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | ||||||||
† | Actual Expenses paid reflect only the inception period (August 31, 2011 to December 31, 2011). Therefore actual expenses shown are lower than would be expected for a six-month period. Actual expenses are equal to the annualized expense ratio of 1.00% for Institutional Shares and 1.00% for Service Shares multiplied by the average account value over the period, multiplied by 123/365 (to reflect the period); however, hypothetical expenses are multiplied by 184/365 (to reflect the one-half year period). Expenses include effect of contractual waivers by Janus Capital. | |
* | Pursuant to a contractual agreement, Janus waived certain fees and expenses during the period for Service Shares. Without these waivers, the expenses paid during the period would have been $4.20 for Service Shares. |
6 | DECEMBER 31, 2011
Janus Aspen Moderate Allocation Portfolio
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Mutual Funds(1) – 138.7% | ||||||||||
Equity Funds – 84.1% | ||||||||||
2,468 | INTECH International Fund(2) – Class I Shares | $ | 16,242 | |||||||
1,900 | INTECH U.S. Growth Fund(3) – Class I Shares | 24,701 | ||||||||
3,814 | INTECH U.S. Value Fund(4) – Class I Shares | 36,233 | ||||||||
418 | Janus Aspen Overseas Portfolio – Institutional Shares | 15,965 | ||||||||
252 | Janus Fund – Class I Shares | 6,888 | ||||||||
1,021 | Janus Global Real Estate Fund – Class I Shares | 8,145 | ||||||||
3,037 | Janus International Equity Fund – Class I Shares | 29,335 | ||||||||
571 | Janus Research Fund – Class I Shares | 16,024 | ||||||||
439 | Janus Triton Fund – Class I Shares | 7,176 | ||||||||
134 | Janus Twenty Fund – Class D Shares | 6,833 | ||||||||
2,765 | Perkins Large Cap Value Fund – Class I Shares | 34,780 | ||||||||
348 | Perkins Small Cap Value Fund – Class I Shares | 7,101 | ||||||||
209,423 | ||||||||||
Fixed Income Funds – 54.6% | ||||||||||
9,660 | Janus Aspen Flexible Bond Portfolio – Institutional Shares | 118,631 | ||||||||
5,685 | Janus Short-Term Bond Fund – Class I Shares | 17,339 | ||||||||
135,970 | ||||||||||
Total Investments (total cost $352,641) – 138.7% | 345,393 | |||||||||
Liabilities, net of Cash, Receivables and Other Assets– (38.7)% | (96,392) | |||||||||
Net Assets – 100% | $ | 249,001 | ||||||||
(1) | The Portfolio invests in mutual funds within the Janus family of funds and they may be deemed to be under common control because they share the same Board of Trustees. | |
(2) | Formerly named INTECH Risk-Managed International Fund. | |
(3) | Formerly named INTECH Risk-Managed Growth Fund. | |
(4) | Formerly named INTECH Risk-Managed Value Fund. |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 7
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
As of December 31, 2011 | Moderate | |||||||||
(all numbers in thousands except net asset value per share) | Allocation Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 353 | ||||||||
Affiliated investments at value | $ | 345 | ||||||||
Receivables: | ||||||||||
Dividends | – | |||||||||
Non-interested Trustees’ deferred compensation | – | |||||||||
Other assets | – | |||||||||
Total Assets | 345 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Investments purchased | 27 | |||||||||
Advisory fees | 29 | |||||||||
Fund administration fees | – | |||||||||
Distribution fees and shareholder servicing fees | – | |||||||||
Non-interested Trustees’ fees and expenses | – | |||||||||
Non-interested Trustees’ deferred compensation fees | – | |||||||||
Audit fees | 31 | |||||||||
Accrued expenses and other payables | 9 | |||||||||
Total Liabilities | 96 | |||||||||
Net Assets | $ | 249 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 254 | ||||||||
Undistributed net investment income* | – | |||||||||
Undistributed net realized gain from investment and foreign currency transactions* | 2 | |||||||||
Unrealized net depreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (7) | |||||||||
Total Net Assets | $ | 249 | ||||||||
Net Assets - Institutional Shares | $ | 125 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 13 | |||||||||
Net Asset Value Per Shares | $ | 9.79 | ||||||||
Net Assets - Service Shares | $ | 124 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 13 | |||||||||
Net Asset Value Per Share | $ | 9.79 |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
8 | DECEMBER 31, 2011
Statement of Operations
Janus Aspen | ||||||
For the fiscal period ended December 31, 2011 | Moderate | |||||
(all numbers in thousands) | Allocation Portfolio(1) | |||||
Investment Income: | ||||||
Dividends from affiliates | $ | 5 | ||||
Total Investment Income | 5 | |||||
Expenses: | ||||||
Advisory fees | – | |||||
Shareholder reports expense | 7 | |||||
Transfer agent fees and expenses | 1 | |||||
Registration fees | 13 | |||||
Professional fees | 34 | |||||
Non-interested Trustees’ fees and expenses | – | |||||
Fund administration fees | – | |||||
Distribution fees and shareholder servicing fees - Service Shares | – | |||||
Other expenses | 3 | |||||
Total Expenses | 58 | |||||
Net Expenses | 58 | |||||
Less: Excess Expense Reimbursement | (57) | |||||
Net Expenses after Expense Reimbursement | 1 | |||||
Net Investment Income | 4 | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized loss from investment and foreign currency transactions(2) | (1) | |||||
Capital gain distributions from Underlying Funds | 3 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (7) | |||||
Net Loss on Investments | (5) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (1) |
(1) | Period from August 31, 2011 (inception date) through December 31, 2011. | |
(2) | Includes realized gain/(loss) from affiliated investment companies. See Note 4 in Notes to Financial Statements. |
See Notes to Financial Statements.
Janus Aspen Series | 9
Statement of Changes in Net Assets
Janus Aspen | ||||||
Moderate Allocation | ||||||
For the fiscal period ended December 31 | Portfolio | |||||
(all numbers in thousands) | 2011(1) | |||||
Operations: | ||||||
Net investment income | $ | 4 | ||||
Net realized gain/(loss) from investment and foreign currency transactions(2) | (1) | |||||
Capital gain distribution from Underlying Funds | 3 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (7) | |||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (1) | |||||
Dividends and Distributions to Shareholders: | ||||||
Net Investment Income* | ||||||
Institutional Shares | (2) | |||||
Service Shares | (2) | |||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||
Institutional Shares | – | |||||
Service Shares | – | |||||
Net Decrease from Dividends and Distributions | (4) | |||||
Capital Share Transactions: | ||||||
Shares Sold | ||||||
Institutional Shares | 125 | |||||
Service Shares | 125 | |||||
Reinvested Dividends and Distributions | ||||||
Institutional Shares | 2 | |||||
Service Shares | 2 | |||||
Net Increase from Capital Share Transactions | 254 | |||||
Net Increase in Net Assets | 249 | |||||
Net Assets: | ||||||
Beginning of period | – | |||||
End of period | $ | 249 | ||||
Undistributed Net Investment Income* | $ | – |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Period from August 31, 2011 (inception date) through December 31, 2011. | |
(2) | Includes realized gain/(loss) from affiliated investment companies. See affiliates table in Notes to Schedules of Investments. |
See Notes to Financial Statements.
10 | DECEMBER 31, 2011
Financial Highlights
Institutional Shares
Janus Aspen | ||||||
Moderate Allocation | ||||||
Portfolio | ||||||
For a share outstanding during the fiscal period ended December 31 | 2011(1) | |||||
Net Asset Value, Beginning of Period | $10.00 | |||||
Income from Investment Operations: | ||||||
Net investment income | .17 | |||||
Net loss on investments (both realized and unrealized) | (.21) | |||||
Total from Investment Operations | (.04) | |||||
Less Distributions: | ||||||
Dividends (from net investment income)* | (.17) | |||||
Distributions (from capital gains)* | – | |||||
Total Distributions | (.17) | |||||
Net Asset Value, End of Period | $9.79 | |||||
Total Return** | (0.38)% | |||||
Net Assets, End of Period (in thousands) | $125 | |||||
Average Net Assets for the Period (in thousands) | $123 | |||||
Ratio of Gross Expenses to Average Net Assets***(2)(3) | 1.00% | |||||
Ratio of Net Expenses to Average Net Assets***(2)(3) | 1.00% | |||||
Ratio of Net Investment Income to Average Net Assets*** | 5.27% | |||||
Portfolio Turnover Rate*** | 22% |
Service Shares
Janus Aspen | ||||||
Moderate Allocation | ||||||
Portfolio | ||||||
For a share outstanding during the fiscal period ended December 31 | 2011(1) | |||||
Net Asset Value, Beginning of Period | $10.00 | |||||
Income from Investment Operations: | ||||||
Net investment income | .17 | |||||
Net loss on investments (both realized and unrealized) | (.21) | |||||
Total from Investment Operations | (.04) | |||||
Less Distributions: | ||||||
Dividends (from net investment income)* | (.17) | |||||
Distributions (from capital gains)* | – | |||||
Total Distributions | (.17) | |||||
Net Asset Value, End of Period | $9.79 | |||||
Total Return** | (0.38)% | |||||
Net Assets, End of Period (in thousands) | $124 | |||||
Average Net Assets for the Period (in thousands) | $123 | |||||
Ratio of Gross Expenses to Average Net Assets***(2)(3) | 1.00%(4) | |||||
Ratio of Net Expenses to Average Net Assets***(2)(3) | 1.00%(4) | |||||
Ratio of Net Investment Income to Average Net Assets*** | 5.28% | |||||
Portfolio Turnover Rate*** | 22% |
* | See Note 5 in Notes to Financial Statements. | |
** | Total return not annualized for periods of less than one full year. | |
*** | Annualized for periods of less than one full year. | |
(1) | Period from August 31, 2011 (inception date) through December 31, 2011. | |
(2) | See Note 6 in Notes to Financial Statements. | |
(3) | Ratios do not include expenses of the underlying funds and/or investment companies in which the Portfolio invests. | |
(4) | Pursuant to a contractual agreement, Janus waived certain fees and expenses during the period. The Ratio of Gross Expenses to Average Net Assets and Ratio of Net Expenses to Average Net Assets would be 1.25% and 1.25%, respectively, without the waiver of these fees and expenses. |
See Notes to Financial Statements.
Janus Aspen Series | 11
Notes to Schedule of Investments
Barclays Capital U.S. Aggregate Bond Index | Made up of the Barclays Capital U.S. Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million. | |
Dow Jones Wilshire 5000 Index | Measures the performance of all U.S. headquartered equity securities with readily available price data. Over 5,000 capitalization-weighted security returns are used and the Dow Jones Wilshire 5000 Index is considered one of the premier measures of the entire U.S. stock market. | |
Moderate Allocation Index | An internally calculated, hypothetical combination of unmanaged indices that combines the total returns from the Dow Jones Wilshire 5000 Index (40%), the Barclays Capital U.S. Aggregate Bond Index (40%), the MSCI EAFE® Index (18%) and the MSCI Emerging Markets IndexSM (2%). | |
Morgan Stanley Capital International EAFE® Index | A free float-adjusted market capitalization weighted index designed to measure developed market equity performance. The MSCI EAFE® Index is composed of companies representative of the market structure of developed market countries. The index includes reinvestment of dividends, net of foreign withholding taxes. | |
Morgan Stanley Capital International Emerging Markets IndexSM | A free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. | |
S&P 500® Index | A commonly recognized, market-capitalization weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance. |
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Moderate Allocation Portfolio | |||||||||||
Mutual Funds | |||||||||||
Equity Funds | $ | – | $ | 209,423 | $ | – | |||||
Fixed-Income Funds | – | 135,970 | – | ||||||||
Total Investments in Securities | $ | – | $ | 345,393 | $ | – | |||||
12 | DECEMBER 31, 2011
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | Organization and Significant Accounting Policies |
Janus Aspen Moderate Allocation Portfolio (the “Portfolio”) is a series fund. The Portfolio operates as a “fund of funds,” meaning substantially all of the Portfolio’s assets will be invested in other Janus funds (the “underlying funds”). The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The financial statements include information for the period ended December 31, 2011. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio in this report is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers two classes of shares: Institutional Shares and Service Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Underlying Funds
The Portfolio invests in a variety of underlying funds to pursue a target allocation of stocks and bonds, and may also invest in money market instruments or cash/cash equivalents. The Portfolio has a target allocation, which is how the Portfolio’s investments generally will be allocated among the major asset classes over the long term, as well as normal ranges within which the Portfolio’s asset class allocations generally will vary over short-term periods. The normal asset allocation ranges are as follows: 55%-65% stocks and 35%-45% bonds and money market instruments for the Portfolio. The following information provides a brief description of the investment objectives and strategies of each of the underlying funds that are available within the various asset classes. Additional details are available in the underlying funds’ prospectuses. The Trustees of the underlying Janus funds may change the investment objectives or strategy of the underlying funds at any time without prior notice to Fund shareholders.
POTENTIAL UNDERLYING FUNDS INCLUDED IN THE EQUITY SECURITIES ASSET CATEGORY
INTECH GLOBAL DIVIDEND FUND seeks long-term growth of capital and income. The fund invests, under normal circumstances, at least 80% of its net assets in dividend-paying securities. The fund invests primarily in common stocks from the universe of the Morgan Stanley Capital International (“MSCI”) World High Dividend Yield Index, utilizing INTECH’s mathematical investment process. The MSCI World High Dividend Yield Index is designed to reflect the performance of the high dividend yield securities contained within the broader MSCI World IndexSM. The fund may also invest in foreign equity and debt securities.
INTECH INTERNATIONAL FUND (formerly named INTECH RISK-MANAGED INTERNATIONAL FUND) seeks long-term growth of capital. The fund invests primarily in common stocks from the universe of the MSCI EAFE® (Europe, Australasia, Far East) Index, utilizing INTECH’s mathematical investment process. The MSCI EAFE® Index is an MSCI index that is designed to measure the performance of the developed markets of Europe, Australasia, and the Far East. The fund may also invest in foreign equity and debt securities.
INTECH U.S. CORE FUND (formerly named INTECH RISK-MANAGED CORE FUND) seeks long-term growth of capital. The fund invests, under normal circumstances, at least 80% of its net assets in U.S. common stocks from the universe of the S&P 500® Index, utilizing INTECH’s mathematical investment process. The S&P 500® Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the United States.
INTECH U.S. GROWTH FUND (formerly named INTECH RISK-MANAGED GROWTH FUND) seeks long-term growth of capital. The fund invests under normal circumstances, at least 80% of its net assets in U.S. common stocks from the universe of the Russell 1000® Growth Index, utilizing INTECH’s mathematical investment process. The Russell 1000® Growth Index is an unmanaged index that measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
INTECH U.S. VALUE FUND (formerly named INTECH RISK-MANAGED VALUE FUND) seeks long-term growth of capital. The fund invests, under normal circumstances,
Janus Aspen Series | 13
Notes to Financial Statements (continued)
at least 80% of its net assets in U.S. common stocks from the universe of the Russell 1000® Value Index, utilizing INTECH’s mathematical investment process. The Russell 1000® Value Index is an unmanaged index that measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
JANUS ASIA EQUITY FUND seeks long-term growth of capital. The fund pursues its investment objective by investing, under normal circumstances, at least 80% of its net assets in equity securities of Asian issuers (excluding Japanese issuers). An Asian issuer is generally considered to be any company that (i) is incorporated or has its principal business activities in one or more Asian countries; (ii) is primarily listed on the trading market of an Asian country; or (iii) derives 50% or more of its revenue from, or has 50% or more of its assets in, an Asian country. The fund considers “Asian countries” to include, but not be limited to, Hong Kong, China, South Korea, Taiwan, Singapore, Malaysia, Thailand, Indonesia, Philippines, India, Vietnam, Pakistan, Russia, and Sri Lanka. Some of these countries may represent developing or emerging markets. The fund generally invests in equity securities, which consist primarily of common stocks, preferred stocks, depositary receipts, and convertible securities, but may also include other types of instruments, such as equity-linked securities and real estate investment trusts issued by Asian real estate companies. The fund may invest in companies of any market capitalization. While the fund intends to diversify its investments across a number of different countries, including emerging market countries, it may, under unusual circumstances, invest all or a significant portion of its assets in a single Asian country. To a more limited degree, the fund may also invest in U.S. and foreign debt securities.
JANUS ASPEN BALANCED PORTFOLIO – INSTITUTIONAL SHARES and JANUS BALANCED FUND seek long-term capital growth, consistent with preservation of capital and balanced by current income. Each fund pursues its investment objective by normally investing 35-65% of its assets in equity securities and the remaining assets in fixed-income securities and cash equivalents. Each fund normally invests at least 25% of its assets in fixed-income senior securities. Fixed-income securities may include corporate debt securities, U.S. Government obligations, mortgage-backed securities and other mortgage-related products, and short-term securities. Each fund may also invest in foreign equity and debt securities, which may include investments in emerging markets.
JANUS ASPEN ENTERPRISE PORTFOLIO – INSTITUTIONAL SHARES and JANUS ENTERPRISE FUND seek long-term growth of capital. Each fund pursues its investment objective by investing primarily in common stocks selected for their growth potential and normally invests at least 50% of its equity assets in medium-sized companies. Medium-sized companies are those whose market capitalization falls within the range of companies in the Russell Midcap® Growth Index. Each fund may also invest in foreign equity and debt securities, which may include investments in emerging markets.
JANUS ASPEN FORTY PORTFOLIO – INSTITUTIONAL SHARES and JANUS FORTY FUND seek long-term growth of capital. Each fund pursues its investment objective by normally investing primarily in a core group of 20-40 common stocks selected for their growth potential. Each fund may invest in companies of any size, from larger, well-established companies to smaller, emerging growth companies. Each fund may also invest in foreign equity and debt securities, which may include investments in emerging markets.
JANUS ASPEN GLOBAL TECHNOLOGY PORTFOLIO – INSTITUTIONAL SHARES and JANUS GLOBAL TECHNOLOGY FUND seek long-term growth of capital. Each fund invests, under normal circumstances, at least 80% of its net assets in securities of companies that the portfolio manager believes will benefit significantly from advances or improvements in technology. These companies generally fall into two categories: (i) companies that the portfolio manager believes have or will develop products, processes, or services that will provide significant technological advancements or improvements and (ii) companies that the portfolio manager believes rely extensively on technology in connection with their operations or services. Each fund implements this policy by investing primarily in equity securities of U.S. and foreign companies selected for their growth potential. Each fund normally invests in issuers from several different countries, which may include the United States. Each fund may, under unusual circumstances, invest in a single country. Each fund may have significant exposure to emerging markets. The fund may also invest in U.S. and foreign debt securities.
JANUS ASPEN JANUS PORTFOLIO – INSTITUTIONAL SHARES and JANUS FUND seek long-term growth of capital. Each fund pursues its investment objective by investing primarily in common stocks selected for their growth potential. Although each fund may invest in companies of any size, they generally invest in larger, more established companies. Each fund may also invest in foreign equity and debt securities, which may include investments in emerging markets.
JANUS ASPEN OVERSEAS PORTFOLIO – INSTITUTIONAL SHARES and JANUS OVERSEAS FUND seeks long-term growth of capital. The fund invests, under
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normal circumstances, at least 80% of its net assets in securities of issuers from countries outside of the United States. Each fund normally invests in securities of issuers from several different countries, excluding the United States. Although each fund typically invests 80% or more of their assets in issuers located outside the United States, they also may invest up to 20% of its assets, measured at the time of purchase, in U.S. issuers, and it may, under unusual circumstances, invest all or substantially all of their assets in a single country. Each fund may have significant exposure to emerging markets. Each fund may also invest in U.S. and foreign debt securities.
JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO – INSTITUTIONAL SHARES and PERKINS MID CAP VALUE FUND seek capital appreciation. Each fund pursues its investment objective by investing primarily in common stocks selected for their capital appreciation potential. Each fund primarily invests in the common stocks of mid-sized companies whose stock prices the portfolio managers believe to be undervalued. Each fund invests, under normal circumstances, at least 80% of its net assets in equity securities of companies whose market capitalization falls, at the time of purchase, within the 12-month average of the capitalization range of the Russell Midcap® Value Index. Each fund may also invest in foreign equity and debt securities, which may include investments in emerging markets. Each fund may invest, under normal circumstances, up to 20% of their assets in securities of companies having market capitalizations outside of the aforementioned market capitalization ranges or in cash or cash equivalents.
JANUS ASPEN WORLDWIDE PORTFOLIO – INSTITUTIONAL SHARES and JANUS WORLDWIDE FUND seek long-term growth of capital. Each fund pursues its investment objective by investing primarily in equity securities, which include, but are not limited to, common stocks, preferred stocks, and depositary receipts of companies of any size located throughout the world. Each fund normally invests in issuers from several different countries, including the United States. Each fund may, under unusual circumstances, invest in a single country. Each fund may have significant exposure to emerging markets. Each fund may also invest in foreign equity and debt securities.
JANUS CONTRARIAN FUND seeks long-term growth of capital. The fund pursues its investment objective by investing, under normal circumstances, at least 80% of its net assets in equity securities with the potential for long-term growth of capital. The portfolio manager emphasizes investments in companies with attractive price/free cash flow, which is the relationship between the price of a stock and the company’s available cash from operations minus capital expenditures. The portfolio manager will typically seek attractively valued companies that are improving their free cash flow and returns on invested capital. Such companies may also include special situations companies that are experiencing management changes and/or are currently out of favor. The fund may also invest in foreign equity and debt securities, which may include investments in emerging markets.
JANUS EMERGING MARKETS FUND seeks long-term growth of capital. The fund invests, under normal circumstances, at least 80% of its net assets in securities of issuers in emerging market countries. The fund normally invests in securities of issuers that (i) are primarily listed on the trading market of an emerging market country; (ii) are incorporated or have their principal business activities in an emerging market country; or (iii) derive 50% or more of their revenues from, or have 50% or more of their assets in, an emerging market country. An emerging market country is any country that has been determined by an international organization, such as the World Bank, to have a low to middle income economy and/or any country that is not included in the MSCI World IndexSM, which measures the equity market performance of developed markets. The fund generally invests in equity securities, which consist primarily of common stocks, preferred stocks and convertible securities, but may also invest in other types of instruments, such as equity-linked securities and exchange-traded funds (“ETFs”). The fund may invest in companies of any market capitalization.
JANUS GLOBAL LIFE SCIENCES FUND seeks long-term growth of capital. The fund invests, under normal circumstances, at least 80% of its net assets in securities of companies that the portfolio manager believes have a life science orientation. Generally speaking, the “life sciences” relate to maintaining or improving quality of life. The fund implements this policy by investing primarily in equity securities of U.S. and foreign companies selected for their growth potential. The fund normally invests in issuers from several different countries, which may include the United States. The fund may, under unusual circumstances, invest in a single country. The fund may have significant exposure to emerging markets. The fund may also invest in U.S. and foreign debt securities. As a fundamental policy, the fund normally invests at least 25% of its total assets in the “life sciences” sector, which may include companies in the following industry groups: health care; pharmaceuticals; agriculture; cosmetics/personal care; and biotechnology.
JANUS GLOBAL MARKET NEUTRAL FUND (formerly named JANUS LONG/SHORT FUND) seeks long-term capital appreciation independent of stock market direction. The fund’s market neutral strategy attempts to create a
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Notes to Financial Statements (continued)
portfolio that limits stock market risk and delivers absolute returns. Under normal circumstances, the fund generally pursues its investment objective by taking both long and short positions in domestic and foreign equity securities, including those in emerging markets, and ETFs in an effort to insulate the fund’s performance from general stock market movements. The fund seeks a combination of long and short positions that may provide positive returns regardless of market direction, through a complete market cycle. The fund will generally buy long securities that the portfolio manager believes will go up in price and will sell short ETFs and other equity securities the portfolio manager believes will go down in price. The fund may also take long and short positions in derivative instruments that provide exposure to the equity markets, including swaps, options, futures, and other index-based instruments. The fund’s investments may include holdings across different industries, sectors, and regions. The fund normally invests in issuers from several different countries, including the United States. The fund may, under unusual circumstances, invest in a single country. The fund may also have significant exposure to emerging markets.
JANUS GLOBAL REAL ESTATE FUND seeks total return through a combination of capital appreciation and current income. The fund invests, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes in equity and debt securities of real estate-related companies. Such companies may include those in the real estate industry or real estate-related industries. These securities may include common stocks, preferred stocks, and other equity securities, including, but not limited to, real estate investment trusts (“REITs”) and similar REIT-like entities. As a fundamental policy, the fund will concentrate 25% or more of its net assets in securities of issuers in real estate or real estate-related industries. The fund’s investment in companies engaged in businesses outside the real estate industry which possess significant real estate holdings will be deemed to be in the real estate industry for purposes of the fund’s investment objective and its policy on industry concentration. The fund expects under normal market conditions to maintain investments in issuers from several different developed countries, including the United States. Under unusual circumstances, the fund may invest all of its assets in a single country. The fund may invest in emerging markets but will normally limit such investments to 15% of its net assets, measured at the time of purchase.
JANUS GLOBAL RESEARCH FUND seeks long-term growth of capital. The fund pursues its investment objective by investing primarily in common stocks selected for their growth potential. The fund may invest in companies of any size, located anywhere in the world, from larger, well-established companies to smaller, emerging growth companies. The fund normally invests at least 40% of its net assets in securities of issuers from different countries located throughout the world, excluding the United States. The fund may have significant exposure to emerging markets. The fund may also invest in foreign equity and debt securities.
JANUS GLOBAL SELECT FUND seeks long-term growth of capital. The fund pursues its investment objective by normally investing primarily in a core group of 30-50 domestic and foreign common stocks selected for their growth potential and normally investing at least 40% of its net assets in securities of issuers from different countries located throughout the world, excluding the United States. The fund may invest in companies of any size, located anywhere in the world, from larger, well-established companies to smaller, emerging growth companies. The fund may also invest in U.S. and foreign debt securities. The fund may have significant exposure to emerging markets.
JANUS GROWTH AND INCOME FUND seeks long-term capital growth and current income. The fund pursues its investment objective by normally emphasizing investments in common stocks. The fund will normally invest up to 75% of its assets in equity securities selected primarily for their growth potential and at least 25% of its assets in securities the portfolio manager believes have income potential. Eligible equity securities in which the fund may invest include: (i) domestic and foreign common stocks; (ii) preferred stocks; (iii) securities convertible into common stocks or preferred stocks, such as convertible preferred stocks, bonds, and debentures; and (iv) other securities with equity characteristics.
JANUS INTERNATIONAL EQUITY FUND seeks long-term growth of capital. The fund invests, under normal circumstances, at least 80% of its net assets in equity securities. The fund normally invests in a core group of 60-100 equity securities of issuers from different countries located throughout the world, excluding the United States. The fund may, under unusual circumstances, invest all of its assets in a single country. The fund may invest in emerging markets but will normally limit such investments to 20% of its net assets, measured at the time of purchase. The fund may also invest in foreign debt securities.
JANUS PROTECTED SERIES – GLOBAL seeks long-term growth of capital and capital preservation. The fund seeks growth of capital to the extent consistent with maintaining protection against significant downside movement of the net asset value (“NAV”) per share of each share class of the fund. Specifically, the portfolio manager manages the fund’s assets in an effort to ensure that the NAV for any
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share class will not fall below 80% of the highest NAV attained separately by each share class during the life of the fund, reduced for dividends, distributions, any extraordinary expenses, and certain extraordinary items (for each share class, the “Protected NAV”). In order to minimize the effect of equity market volatility on the NAV per share for a share class, the fund allocates its portfolio assets between two investment components. Through its first component, the “Equity Component,” the fund seeks to achieve growth of capital by investing primarily in common stocks selected for their growth potential. The fund may invest in companies of any size located anywhere in the world, from larger, well-established companies to smaller, emerging growth companies. The fund normally invests at least 40% of its net assets in securities of issuers or companies from different countries located throughout the world, excluding the United States. The fund may have significant exposure to emerging markets. As part of the Equity Component, the fund may also invest in foreign equity and debt securities. The Equity Component may also consist of derivatives such as swaps, futures, and options. Through its second component, the “Protection Component,” the fund seeks to limit downside risk by investing in cash and other investments including, but not limited to, money market instruments, U.S. Treasuries, and other equity market risk reducing instruments, such as short index futures. Due to equity market conditions and the fund’s overall risk profile, the amount of fund assets allocated to the Protection Component may, at times, be significant. The fund’s allocation between the Equity Component and the Protection Component will vary over time. Up to 100% of assets may be allocated to either component.
JANUS PROTECTED SERIES – GROWTH seeks long-term growth of capital and capital preservation. The fund seeks growth of capital to the extent consistent with maintaining protection against significant downside movement of the NAV per share of each share class of the fund. Specifically, the portfolio manager manages the fund’s assets in an effort to ensure that the NAV for each share class will not fall below 80% of the highest NAV attained separately by each share class during the life of the fund, reduced for dividends, distributions, any extraordinary expenses, and certain extraordinary items (for each share class, the “Protected NAV”). In order to minimize the effect of equity market volatility on the NAV per share for a share class, the fund allocates its portfolio assets between two investment components. Through its first component, the “Equity Component,” the fund seeks to achieve growth of capital by investing primarily in common stocks selected for their growth potential. Although the fund may invest in companies of any size, it generally invests in larger, more established companies. The Equity Component may also consist of derivatives such as swaps, futures, and options. Through its second component, the “Protection Component,” the fund seeks to limit downside risk by investing in cash and other investments including, but not limited to, money market instruments, U.S. Treasuries, and other equity market risk reducing instruments, such as short index futures. Due to equity market conditions and the fund’s overall risk profile, the amount of fund assets allocated to the Protection Component may, at times, be significant. The fund’s allocation between the Equity Component and the Protection Component will vary over time. Up to 100% of assets may be allocated to either component.
JANUS REAL RETURN ALLOCATION FUND seeks real return consistent with preservation of capital. Under normal market conditions, the fund seeks to allocate its assets among the following inflation-related investment categories: global inflation-linked securities, commodity-linked investments, emerging market debt, emerging market equity, global real estate, and short-duration debt. Inflation-related investment categories are those which may provide what is known as “real return,” or a rate of return above the rate of inflation over a market cycle. The fund has wide flexibility to allocate assets across categories, and may at times, allocate assets to less than all categories. The fund’s Allocation Committee utilizes a “top down” analysis of macroeconomic factors to determine the overall allocation to each of the fund’s investment categories. Individual portfolio managers generally utilize a “bottom up” approach in choosing investments where the portfolio managers look at companies one at a time to determine if an investment is an attractive investment opportunity and if it is consistent with the fund’s investment policies, but may also consider macroeconomic factors.
JANUS RESEARCH FUND seeks long-term growth of capital. The fund pursues its investment objective by investing primarily in common stocks selected for their growth potential. The fund may invest in companies of any size, from larger, well-established companies to smaller, emerging growth companies. The fund may also invest in foreign equity and debt securities, which may include investments in emerging markets.
JANUS TRITON FUND seeks long-term growth of capital. The fund pursues its investment objective by investing primarily in common stocks selected for their growth potential. In pursuing that objective, the fund invests in equity securities of small- and medium-sized companies. Generally, small- and medium-sized companies have a market capitalization of less than $10 billion.
JANUS TWENTY FUND seeks long-term growth of capital. The fund pursues its investment objective by normally investing primarily in a core group of 20-30 common
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Notes to Financial Statements (continued)
stocks selected for their growth potential. The fund may also invest in foreign equity and debt securities, which may include investments in emerging markets.
JANUS VENTURE FUND seeks capital appreciation. The fund pursues its investment objective by investing at least 50% of its equity assets in small-sized companies. The fund may also invest in larger companies with strong growth potential or relatively well-known and large companies with potential for capital appreciation. Small-sized companies are defined by the portfolio managers as those companies whose market capitalization falls within the range of companies in the Russell 2000® Growth Index. Companies whose capitalization or revenues fall outside these ranges after the fund’s initial purchase continue to be considered small-sized.
PERKINS GLOBAL VALUE FUND seeks capital appreciation. The fund pursues its investment objective by investing primarily in common stocks of companies of any size located throughout the world, including emerging markets. The fund normally invests in issuers from several different countries, which may include the United States. The fund may, under unusual circumstances, invest in a single country. The fund may have significant exposure to emerging markets. The fund may also invest in U.S. and foreign equity and debt securities.
PERKINS LARGE CAP VALUE FUND seeks capital appreciation. The fund pursues its investment objective by investing primarily in common stocks selected for their capital appreciation potential. The fund primarily invests in the common stocks of large-sized companies whose stock prices the portfolio managers believe to be undervalued. The fund invests, under normal circumstances, at least 80% of its net assets in equity securities of companies having, at the time of purchase, market capitalizations equal to or greater than the median market capitalization of companies included in the Russell 1000® Value Index. The fund may also invest in foreign equity and debt securities, which may include investments in emerging markets. The fund may invest, under normal circumstances, up to 20% of its assets in securities of companies having market capitalizations outside of the aforementioned market capitalization ranges or in cash or cash equivalents.
PERKINS SELECT VALUE FUND seeks capital appreciation. The fund pursues its investment objective by investing primarily in common stocks selected for their capital appreciation potential. The fund primarily invests in the common stocks of companies of any size whose stock prices the portfolio managers believe to be undervalued. The fund may also invest in foreign equity and debt securities, which may include investments in emerging markets.
PERKINS SMALL CAP VALUE FUND seeks capital appreciation. The fund pursues its investment objective by investing primarily in the common stocks of small companies whose stock prices are believed to be undervalued by the fund’s portfolio managers. The fund invests, under normal circumstances, at least 80% of its net assets in equity securities of small companies whose market capitalization, at the time of initial purchase, is less than the 12-month average of the maximum market capitalization for companies included in the Russell 2000® Value Index. The fund may also invest in foreign equity and debt securities, which may include investments in emerging markets. The fund may invest, under normal circumstances, up to 20% of its assets in securities of companies having market capitalizations outside of the aforementioned market capitalization ranges or in cash or cash equivalents.
PERKINS VALUE PLUS INCOME FUND seeks capital appreciation and current income. The fund pursues its investment objective by normally investing 40-60% of its assets in equity securities selected primarily for capital appreciation and investing the remainder in fixed-income securities and cash equivalents. The fund’s equity investments generate total return from a combination of capital appreciation and, to a lesser degree, current income. Such equity investments may include companies of any size, but the fund will invest primarily in large- and mid-sized companies whose stock prices the portfolio managers believe to be undervalued or have the potential for high relative dividend yields, or both. The fund’s fixed-income investments generate total return from a combination of current income and capital appreciation, but income is usually the dominant portion. The fund normally invests the portion of its assets allocated to fixed-income investments in debt securities (including, but not limited to, government bonds, corporate bonds, mortgage-backed securities, and zero-coupon bonds), convertible securities, and short-term securities. The fund invests at least 50% of the fixed-income portion of its assets in investment grade debt securities. The fund will limit its investment in high-yield/high-risk bonds, also known as “junk” bonds, to 50% or less of the fixed-income portion of its net assets.
POTENTIAL UNDERLYING FUNDS INCLUDED IN THE FIXED-INCOME SECURITIES ASSET CATEGORY
JANUS ASPEN FLEXIBLE BOND PORTFOLIO – INSTITUTIONAL SHARES and JANUS FLEXIBLE BOND FUND seek to obtain maximum total return, consistent with preservation of capital. Each fund pursues its investment objective by primarily investing, under normal circumstances, at least 80% of its net assets in bonds. Bonds include, but are not limited to, government bonds,
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corporate bonds, convertible bonds, mortgage-backed securities, and zero-coupon bonds. Each fund will invest at least 65% of its assets in investment grade debt securities. Each fund will limit its investment in high-yield/high-risk bonds, also known as “junk bonds,” to 35% or less of its net assets. Each fund generates total return from a combination of current income and capital appreciation, but income is usually the dominant portion.
JANUS GLOBAL BOND FUND seeks total return, consistent with preservation of capital. The fund pursues its investment objective by investing, under normal circumstances, at least 80% of its net assets in bonds. Bonds include, but are not limited to, corporate bonds, government bonds, convertible bonds, mortgage-backed securities, and zero-coupon bonds. The fund invests in securities of issuers located in developed and emerging market countries. The fund may invest across all fixed-income sectors, including U.S. and non-U.S. government securities. The fund’s investments may be denominated in local currency or U.S. dollar-denominated. The fund may invest in debt securities with a range of maturities from short- to long-term. The fund may invest up to 35% of its net assets in high-yield/high-risk debt securities. The fund may also invest in preferred and common stock, money market instruments, municipal bonds, commercial and residential mortgage-backed securities, asset-backed securities, other securitized and structured debt products, private placements, and other investment companies, including ETFs. The fund may also invest in floating rate loans, buy backs or dollar rolls, and reverse repurchase agreements.
JANUS HIGH-YIELD FUND seeks to obtain high current income. Capital appreciation is a secondary investment objective when consistent with its primary objective. The fund pursues its investment objectives by investing, under normal circumstances, at least 80% of its net assets in high-yield/high-risk securities rated below investment grade. Securities rated below investment grade may include their unrated equivalents or other high-yielding securities the portfolio managers believe offer attractive risk/return characteristics. The fund may at times invest all of its assets in such securities.
JANUS SHORT-TERM BOND FUND seeks as high a level of current income as is consistent with preservation of capital. The fund invests, under normal circumstances, at least 80% of its net assets in short- and intermediate-term securities such as corporate bonds or notes or government securities, including agency securities. The fund may invest up to 35% of its net assets in high-yield/high-risk bonds, also known as “junk bonds.” The fund expects to maintain an average-weighted effective maturity of three years or less under normal circumstances.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
The Portfolio’s NAV is partially calculated based upon the NAV of each of the underlying funds in which the Portfolio invests on the day of valuation. The NAV for each class of an underlying fund is computed by dividing the total value of securities and other assets allocated to the class, less liabilities allocated to that class, by the total number of shares outstanding for the class.
Securities held by the underlying funds are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities held by the underlying funds traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the underlying funds’ Trustees. Short-term securities held by the underlying funds with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities held by the underlying funds with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies held by the underlying funds are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the underlying funds are identified between the closing of their principal markets and the time the NAV is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the underlying funds’ Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading
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Notes to Financial Statements (continued)
halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The underlying funds may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the underlying funds’ Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities held by the underlying funds will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income of the underlying funds is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Additionally, the Portfolio, as a shareholder in the underlying funds, will also indirectly bear its pro rata share of the expenses incurred by the underlying funds. Each class of shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The underlying funds do not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses of the underlying funds are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts of the underlying funds may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
The underlying funds may make certain investments in REITs which pay dividends to their shareholders based upon funds available from operations. It is quite common for these dividends to exceed the REITs’ taxable earnings and profits, resulting in the excess portion of such dividends being designated as a return of capital. If the underlying funds distribute such amounts, such distributions could constitute a return of capital to shareholders for federal income tax purposes.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
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In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the period ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants,
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Notes to Financial Statements (continued)
swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the period.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3 Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the period.
There were no Level 3 securities during the period.
The Portfolio recognizes transfers between the levels as of the beginning of the period.
2. | Derivative Instruments |
The underlying funds may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The underlying funds may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives.
The underlying funds may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the underlying funds invest in a derivative for speculative purposes, the underlying funds will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The underlying funds may not use any derivative to gain exposure to an asset or class of assets prohibited by their investment restrictions from purchasing directly. An underlying fund’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the underlying funds to additional risks that they would not be subject to if they invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, certain underlying funds may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, certain underlying funds may require the counterparty to post collateral if an underlying fund has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that
22 | DECEMBER 31, 2011
counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of their investment objectives, each underlying fund may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to an underlying fund. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, an underlying fund could receive lower interest payments or experience a reduction in the value of the derivative to below what the underlying fund paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. | |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause an underlying fund’s NAV to likewise decrease, and vice versa. | |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. An underlying fund creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
There were no derivatives held by the Portfolio during the period ended December 31, 2011.
3. | Other Investments and Strategies |
Additional Investment Risk
The underlying funds, particularly Janus Aspen Flexible Bond Portfolio – Institutional Shares, Janus Flexible Bond Fund, Janus Global Bond Fund, Janus High-Yield Fund and Janus Short-Term Bond Fund, may be invested in lower-rated debt securities that have a higher risk of default or loss of value since these securities may be sensitive to economic changes, political changes or adverse developments specific to the issuer. INTECH International Fund, INTECH U.S. Core Fund, INTECH U.S. Growth Fund, and INTECH U.S. Value Fund (the “Mathematical funds”) do not intend to invest in high-yield/high-risk bonds.
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on an underlying fund, such as a decline in the value and liquidity of many securities held by the underlying fund, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in underlying fund expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude an underlying fund’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to
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Notes to Financial Statements (continued)
understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by an underlying fund including potentially limiting or completely restricting the ability of the underlying fund to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s or an underlying fund’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio or the underlying fund invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Bank Loans
Certain underlying funds, particularly Janus Aspen Balanced Portfolio – Institutional Shares, Janus Aspen Flexible Bond Portfolio – Institutional Shares, Janus Aspen Global Technology Portfolio – Institutional Shares, Janus Balanced Fund, Janus Flexible Bond Fund, Janus Global Bond Fund, Janus Global Market Neutral Fund, Janus Global Technology Fund, Janus High-Yield Fund, Janus Short-Term Bond Fund, and Perkins Value Plus Income Fund, may invest in bank loans, which include institutionally traded floating rate securities generally acquired as an assignment from another holder of, or participation interest in, loans originated by a bank or financial institution (the “Lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the underlying funds have the right to receive payments of principal, interest and any fees to which they are entitled only from the Lender selling the loan agreement and only upon receipt by the Lender of payments from the borrower. The underlying funds generally have no right to enforce compliance with the terms of the loan agreement with the borrower. Assignments and participations involve credit, interest rate, and liquidity risk. Interest rates on floating rate securities adjust with general interest rate changes and/or issuer credit quality. The interest rates paid on a floating rate security in which the underlying funds invest generally are readjusted periodically to an increment over a designated benchmark rate, such as the one-month, three-month, six-month, or one-year London Interbank Offered Rate (“LIBOR”). LIBOR is a short-term interest rate that banks charge one another and is generally representative of the most competitive and current cash rates.
The underlying funds may have difficulty trading assignments and participations to third parties. There may be restrictions on transfer and only limited opportunities may exist to sell such securities in secondary markets. As a result, the underlying funds may be unable to sell assignments or participations at the desired time or may be able to sell only at a price less than fair market value. The underlying funds utilize an independent third party to value individual bank loans on a daily basis.
Borrowing
The underlying Janus Global Market Neutral Fund may borrow money from banks for investment purposes to the extent permitted by the 1940 Act. This practice is known as leverage. Currently, under the 1940 Act, Janus Global Market Neutral Fund may borrow from banks up to one-third of its total assets (including the amount borrowed) provided that it maintains continuous asset coverage of 300% with respect to such borrowings and sells (within three days) sufficient portfolio holdings to restore such
24 | DECEMBER 31, 2011
coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if disadvantageous from an investment standpoint. Janus Global Market Neutral Fund may also borrow money to meet redemptions in order to avoid forced, unplanned sales of portfolio securities or for other temporary or emergency purposes. This allows Janus Global Market Neutral Fund greater flexibility to buy and sell portfolio securities for investment or tax considerations, rather than for cash flow considerations.
The use of borrowing by Janus Global Market Neutral Fund involves special risk considerations that may not be associated with other funds that may only borrow for temporary or emergency purposes. Because substantially all of Janus Global Market Neutral Fund’s assets fluctuate in value, whereas the interest obligation resulting from a borrowing will be fixed by the terms of Janus Global Market Neutral Fund’s agreement with its lender, the NAV per share of Janus Global Market Neutral Fund will tend to increase more when its portfolio securities increase in value and decrease more when its portfolio securities decrease in value than would otherwise be the case if Janus Global Market Neutral Fund did not borrow funds. In addition, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds. Under adverse market conditions, Janus Global Market Neutral Fund might have to sell portfolio securities to meet interest or principal payments at a time when fundamental investment considerations would not favor such sales. The interest that Janus Global Market Neutral Fund must pay on borrowed money, together with any additional fees to maintain a line of credit or any minimum average balances required to be maintained, are additional costs that will reduce or eliminate any net investment income and may also offset any potential capital gains. Unless the appreciation and income, if any, on assets acquired with borrowed funds exceed the costs of borrowing, the use of leverage will diminish the investment performance of Janus Global Market Neutral Fund compared with what it would have been without leverage.
Counterparties
Portfolio or underlying fund transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio or underlying funds (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio or underlying funds. The Portfolio or underlying funds may be unable to recover their investments from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s or underlying funds’ exposure to counterparty risk in respect to financial assets approximates their carrying value as recorded on each respective Statement of Assets and Liabilities, if applicable.
The Portfolio or underlying funds may be exposed to counterparty risk through participation in various programs including, but not limited to, lending their securities to third parties, cash sweep arrangements whereby the Portfolio’s or underlying funds’ cash balances are invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio or underlying funds intend to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio or underlying funds focus their transactions with a limited number of counterparties, they will have greater exposure to the risks associated with one or more counterparties.
Emerging Market Investing
Within the parameters of its specific investment policies, an underlying fund may invest in securities of issuers or companies from or with exposure to one or more “developing countries” or “emerging markets.” Investing in emerging markets may involve certain risks and considerations not typically associated with investing in the United States and imposes risks greater than, or in addition to, the risks associated with investing in securities of more developed foreign countries. Emerging markets securities are exposed to a number of additional risks, which may result from less government supervision and regulation of business and industry practices (including the potential lack of strict finance and accounting controls and standards), stock exchanges, brokers, and listed companies, making these investments potentially more volatile in price and less liquid than investments in developed securities markets, resulting in greater risk to investors. In addition, the underlying fund’s investments may be denominated in foreign currencies and therefore, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the underlying fund’s investments. To the extent that an underlying fund invests a significant portion of its assets in the securities of issuers in or companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region, which could have a negative impact on the underlying fund’s performance.
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Notes to Financial Statements (continued)
Exchange-Traded Funds
The underlying funds may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the underlying funds would bear their pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the underlying funds bear directly in connection with their own operations.
Exchange-Traded Notes
The underlying funds may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the underlying funds’ total returns. The underlying funds may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the underlying funds invest in ETNs, they will bear their proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the underlying funds’ right to redeem their investment in an ETN, which is meant to be held until maturity. An underlying fund’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Floating Rate Loans
Certain underlying funds, particularly Janus Aspen Balanced Portfolio – Institutional Shares, Janus Aspen Flexible Bond Portfolio – Institutional Shares, Janus Balanced Fund, Janus Flexible Bond Fund, Janus Global Bond Fund, Janus Global Market Neutral Fund, Janus High-Yield Fund, Janus Short-Term Bond Fund, and Perkins Value Plus Income Fund, may invest in floating rate loans. Floating rate loans are debt securities that have floating interest rates, which adjust periodically, and are tied to a benchmark lending rate, such as LIBOR. In other cases, the lending rate could be tied to the prime rate offered by one or more major U.S. banks or the rate paid on large certificates of deposit traded in the secondary markets. If the benchmark lending rate changes, the rate payable to lenders under the loan will change at the next scheduled adjustment date specified in the loan agreement. Floating rate loans are typically issued to companies (“borrowers”) in connection with recapitalizations, acquisitions, and refinancings. Floating rate loan investments are generally below investment grade. Senior floating rate loans are secured by specific collateral of a borrower and are senior in the borrower’s capital structure. The senior position in the borrower’s capital structure generally gives holders of senior loans a claim on certain of the borrower’s assets that is senior to subordinated debt and preferred and common stock in the case of a borrower’s default. Floating rate loan investments may involve foreign borrowers, and investments may be denominated in foreign currencies. Floating rate loans often involve borrowers whose financial condition is troubled or uncertain and companies that are highly leveraged. The underlying funds may invest in obligations of borrowers who are in bankruptcy proceedings. Floating rate loans may include fully funded term loans or revolving lines of credit.
Purchasers of floating rate loans may pay and/or receive certain fees. The underlying funds may receive fees such as covenant waiver fees or prepayment penalty fees. The underlying funds may pay fees such as facility fees. Such fees may affect the underlying funds’ returns.
Initial Public Offerings
The underlying funds may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on an underlying fund with a small asset base. An underlying fund may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the underlying funds may be party to interfund lending agreements between the underlying funds and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of a borrowing underlying fund’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Mortgage- and Asset-Backed Securities
The underlying funds may purchase fixed or variable rate mortgage-backed securities issued by the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or other governmental or government-related entities. Historically, Fannie Maes and Freddie Macs were not
26 | DECEMBER 31, 2011
backed by the full faith and credit of the U.S. Government, and may not be in the future. In September 2008, the Federal Housing Finance Agency (“FHFA”), an agency of the U.S. Government, placed Fannie Mae and Freddie Mac under conservatorship to provide stability in the financial markets, mortgage availability and taxpayer protection by preserving Fannie Mae’s and Freddie Mac’s assets, and placing them in a sound and solvent condition. Under the conservatorship, the management of Fannie Mae and Freddie Mac was replaced. The effect that the FHFA’s conservatorship will have on Fannie Mae’s and Freddie Mac’s debt and equities is unclear. The underlying funds may purchase other mortgage- and asset-backed securities through single- and multi-seller conduits, collateralized debt obligations, structured investment vehicles, and other similar securities. Asset-backed securities may be backed by automobile loans, equipment leases, credit card receivables, or other collateral. In the event the underlying securities fail to perform, these investment vehicles could be forced to sell the assets and recognize losses on such assets, which could impact the underlying funds’ yield and the underlying funds’ return.
Unlike traditional debt instruments, payments on these securities include both interest and a partial payment of principal. Prepayment risk, which results from prepayments of the principal of underlying loans at a faster pace than expected, may shorten the effective maturities of these securities and may result in an underlying fund having to reinvest proceeds at a lower interest rate. In addition to prepayment risk, investments in mortgage-backed securities, including those comprised of subprime mortgages, and investments in other asset-backed securities comprised of under-performing assets may be subject to a higher degree of credit risk, valuation risk, and liquidity risk. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.
Mortgage- and asset-backed securities are also subject to extension risk, which is the risk that rising interest rates could cause mortgages or other obligations underlying these securities to be paid more slowly than expected, increasing an underlying fund’s sensitivity to interest changes and causing its price to decline.
Mortgage Dollar Rolls
Certain underlying funds, particularly Janus Aspen Flexible Bond Portfolio – Institutional Shares, Janus Flexible Bond Fund, Janus Global Bond Fund, Janus Global Market Neutral Fund, Janus Global Real Estate Fund, Janus High-Yield Fund, and Janus Short-Term Bond Fund, may enter into “mortgage dollar rolls.” In a “mortgage dollar roll” transaction, the underlying funds sell a mortgage-related security (such as a Ginnie Mae security) to a dealer and simultaneously agree to repurchase a similar security (but not the same security) in the future at a predetermined price. The underlying funds will not be entitled to receive interest and principal payments while the dealer holds the security. The difference between the sale price and the future purchase price is recorded as an adjustment to investment income of the underlying funds.
The underlying funds’ obligations under a dollar roll agreement must be covered by cash, U.S. Government securities or other liquid high-grade debt obligations equal in value to the securities subject to repurchase by the underlying funds, maintained in a segregated account. To the extent that the underlying funds collateralize their obligations under a dollar roll agreement, the asset coverage requirements of the 1940 Act will not apply to such transactions. Furthermore, under certain circumstances, an underlying mortgage-backed security that is part of a dollar roll transaction may be considered illiquid.
Successful use of mortgage dollar rolls depends on the portfolio managers’ ability to predict interest rates and mortgage payments. Dollar roll transactions involve the risk that the market value of the securities the underlying funds are required to purchase may decline below the agreed upon repurchase price.
Real Estate Investing
The underlying funds may invest in equity and debt securities of U.S. and non-U.S. real estate-related companies. Such companies may include those in the real estate industry or real estate-related industries. These securities may include common stocks, preferred stocks, and other equity securities, including, but not limited to, REITs and similar REIT-like entities such as foreign entities that have REIT characteristics.
Restricted Security Transactions
Restricted securities held by the underlying funds may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the underlying funds to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Janus Aspen Series | 27
Notes to Financial Statements (continued)
Securities Lending
Under procedures adopted by the Trustees, the underlying funds may seek to earn additional income through lending their securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The underlying funds may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of their total assets as determined at the time of the loan origination. When an underlying fund lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The underlying funds may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the underlying funds may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the underlying funds may experience delays and costs in recovering the security or gaining access to the collateral provided to the underlying funds to collateralize the loan. If the underlying funds are unable to recover a security on loan, the underlying funds may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the underlying funds. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the underlying funds’ direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the underlying funds’ Schedules of Investments in their most recent annual or semiannual reports (if applicable). The lending fees and an underlying fund’s portion of the interest income earned on cash collateral are included on the underlying fund’s Statement of Operations in its most recent annual or semiannual reports (if applicable).
Securities Traded on a To-Be-Announced Basis
Certain underlying funds, particularly Janus Aspen Flexible Bond Portfolio – Institutional Shares, Janus Flexible Bond Fund, Janus Global Bond Fund, Janus Global Market Neutral Fund, Janus Global Real Estate Fund, Janus High-Yield Fund, and Janus Short-Term Bond Fund, may trade securities on a to-be-announced (“TBA”) basis. In a TBA transaction, the underlying funds commit to purchasing or selling securities for which specific information is not yet known at the time of the trade, particularly the face amount and maturity date in Ginnie Mae, Fannie Mae and/or Freddie Mac transactions.
Securities purchased on a TBA basis are not settled until they are delivered to the underlying funds, normally 15 to 45 days later. Beginning on the date the underlying funds enter into a TBA transaction, cash, U.S. Government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
Short Sales
The underlying funds, except the Mathematical funds, may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the underlying funds own or selling short a security that the underlying funds have the right to obtain, for delivery at a specified date in the future. The underlying funds may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The underlying funds do not deliver from their portfolios the securities sold short and do not immediately receive the proceeds of the short sale. The underlying funds borrow the securities sold short and receive proceeds from the short sale only when they deliver the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the underlying funds lose the opportunity to participate in the gain.
The underlying funds, except the Mathematical funds, may also engage in other short sales. The underlying funds may engage in short sales when the portfolio managers and/or investment personnel anticipate that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the underlying funds must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the underlying funds’ net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The underlying funds may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. The underlying Janus Global Market Neutral Fund is not subject to any such limit. Although the potential for gain as a result of a short sale is limited to the price at which an underlying fund sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance that the underlying funds will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the underlying funds are fully collateralized by restricted cash or other securities,
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which are denoted on the underlying funds’ Schedules of Investments in their most recent annual or semiannual reports (if applicable). The underlying funds are also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, an underlying fund may or may not receive any payments (including interest) on collateral it has deposited with the broker. The underlying funds pay stock loan fees, disclosed on their Statements of Operations (if applicable), on assets borrowed from the security broker.
The underlying funds may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the underlying funds to similar risks. To the extent that the underlying funds enter into short derivative positions, the underlying funds may be exposed to risks similar to those associated with short sales, including the risk that the underlying funds’ losses are theoretically unlimited.
When-Issued Securities
The underlying funds may purchase or sell securities on a when-issued or forward commitment basis. The price of the underlying securities and date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to changes in the market value of the securities or from the inability of counterparties to meet the terms of the contract. In connection with such purchases, the underlying funds may hold liquid assets as collateral with the underlying funds’ custodian sufficient to cover the purchase price.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s contractual investment advisory fee rate (expressed as an annual rate).
Contractual | ||||||||
Average | Investment | |||||||
Daily Net | Advisory | |||||||
Assets | Fee (%) | |||||||
Portfolio | of the Portfolio | (annual rate) | ||||||
Janus Aspen Moderate Allocation Portfolio | All Asset Levels | 0.05 | ||||||
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s and the underlying funds’ transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares at an annual rate of up to 0.25% of Service Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
Janus Capital has agreed to reimburse the Portfolio until at least May 1, 2013 by the amount, if any, the Portfolio’s normal operating expenses in any fiscal year, including the investment advisory fee, but excluding any expenses of an underlying fund (acquired fund fees and expenses), the distribution and shareholder servicing (12b-1) fees applicable to Service Shares, brokerage commissions, interest, dividends, taxes and extraordinary expenses, exceed the annual rate noted below. If applicable, amounts reimbursed to the Portfolio by Janus Capital are disclosed as “Excess Expense Reimbursement” on the Statement of Operations.
Expense | |||||
Portfolio | Limit (%) | ||||
Janus Aspen Moderate Allocation Portfolio | 0.39 | ||||
For a period of three years subsequent to the Portfolio’s commencement of operations, Janus Capital may recover from the Portfolio fees and expenses previously waived or reimbursed, which could be then considered a deferral, if the Portfolio’s expense ratio, including recovered expenses, fails below the expense limit. The recoupment for such reimbursement expires August 31, 2014. For the fiscal period ended December 31, 2011, total reimbursement by Janus Capital was $57,122 for the Portfolio. As of December 31, 2011, the recoupment that may be potentially made to Janus Capital is $57,122.
Janus Capital has entered into an agreement with Wilshire Associates Inc. (“Wilshire”), a global investment technology, investment consulting, and investment management firm, to act as a consultant to Janus Capital. Wilshire provides research and advice regarding asset allocation methodologies, which Janus Capital may use when determining asset class allocations for the Portfolio. For its consulting services, Janus Capital pays Wilshire an annual
Janus Aspen Series | 29
Notes to Financial Statements (continued)
fee, payable monthly, that is comprised of a combination of an initial program establishment fee, fixed fee, and an asset-based fee.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statements of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statements of Assets and Liabilities. Deferred compensation expenses for the period ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the period ended December 31, 2011.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the period ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal period reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio and the underlying funds may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio and underlying funds may be used to purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio and underlying funds are eligible to participate in the cash sweep program (the “Investing Funds”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
30 | DECEMBER 31, 2011
During the period ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Realized | Dividend | Value | |||||||||||||||||
Shares | Cost | Shares | Cost | (Loss) | Income | at 12/31/11 | |||||||||||||||
Janus Aspen Moderate Allocation Portfolio | |||||||||||||||||||||
INTECH International Fund(1) – Class I Shares | 2,600 | $ | 18,285 | (132) | $ | (956) | $ | (101) | $ | 152 | $ | 16,242 | |||||||||
INTECH U.S. Growth Fund(2) – Class I Shares | 1,993 | 25,599 | (93) | (1,222) | (25) | 212 | 24,701 | ||||||||||||||
INTECH U.S. Value Fund(3) – Class I Shares | 3,995 | 36,868 | (181) | (1,722) | (12) | 602 | 36,233 | ||||||||||||||
Janus Aspen Flexible Bond Portfolio – Institutional Shares | 10,185 | 125,303 | (524) | (6,488) | (75) | 1,998 | 118,631 | ||||||||||||||
Janus Aspen Overseas Portfolio – Institutional Shares | 478 | 20,633 | (60) | (2,659) | (304) | – | 15,965 | ||||||||||||||
Janus Fund – Class I Shares | 265 | 7,299 | (13) | (354) | (12) | 46 | 6,888 | ||||||||||||||
Janus Global Real Estate Fund – Class I Shares | 1,085 | 9,166 | (64) | (567) | (58) | 142 | 8,145 | ||||||||||||||
Janus International Equity Fund – Class I Shares | 3,198 | 33,431 | (161) | (1,734) | (196) | 491 | 29,335 | ||||||||||||||
Janus Research Fund – Class I Shares | 638 | 17,999 | (67) | (1,946) | (59) | 138 | 16,024 | ||||||||||||||
Janus Short-Term Bond Fund – Class I Shares | 5,966 | 18,285 | (281) | (863) | (8) | 120 | 17,339 | ||||||||||||||
Janus Triton Fund – Class I Shares | 460 | 7,501 | (21) | (359) | (17) | 19 | 7,176 | ||||||||||||||
Janus Twenty Fund – Class D Shares | 141 | 8,270 | (7) | (424) | (82) | 12 | 6,833 | ||||||||||||||
Perkins Large Cap Value Fund – Class I Shares | 2,902 | 37,408 | (137) | (1,825) | (115) | 978 | 34,780 | ||||||||||||||
Perkins Small Cap Value Fund – Class I Shares | 365 | 8,102 | (17) | (389) | (48) | 285 | 7,101 | ||||||||||||||
$ | 374,149 | $ | (21,508) | $ | (1,112) | $ | 5,195 | $ | 345,393 | ||||||||||||
(1) | Formerly named INTECH Risk-Managed International Fund. | |
(2) | Formerly named INTECH Risk-Managed Growth Fund. | |
(3) | Formerly named INTECH Risk-Managed Value Fund. |
Janus Capital or an affiliate invested and/or redeemed initial seed capital during the period ended December 31, 2011, as indicated in the following table. As of December 31, 2011, 100% of the outstanding shares of the Portfolio were held by Janus Capital.
Seed | Seed | |||||||||||||||||||
Capital at | Date of | Date of | Capital at | |||||||||||||||||
Portfolio | 8/31/11 | Purchases | Purchases | Redemptions | Redemption | 12/31/11 | ||||||||||||||
Janus Aspen Moderate Allocation Portfolio - Institutional Shares | $ | – | $ | 125,000 | 8/31/11 | $ | – | – | $ | 125,000 | ||||||||||
Janus Aspen Moderate Allocation Portfolio - Service Shares | – | 125,000 | 8/31/11 | – | – | 125,000 | ||||||||||||||
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Undistributed | Undistributed | Other Book | Net Tax | |||||||||||||||||
Ordinary | Long-Term | Accumulated | Late-Year Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferral | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Moderate Allocation Portfolio | $ | 283 | $ | 2,826 | $ | – | $ | (42) | $ | (7) | $ | (8,318) | ||||||||
Janus Aspen Series | 31
Notes to Financial Statements (continued)
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary difference between book and tax appreciation or depreciation of investments is wash sale loss deferrals.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Moderate Allocation Portfolio | $ | 353,711 | $ | 1,401 | ($ | 9,719) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
For the fiscal period ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Moderate Allocation Portfolio | $ | 4,260 | $ | – | $ | – | $ | – | |||||||||
6. | Expense Ratios |
The expense ratios listed in the Financial Highlights reflect expenses prior to any expense offsets (gross expense ratio) and after expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursement). Listed below are the gross expense ratios for the Portfolio that would have been in effect, absent the waiver of certain fees and offsets and do not include expenses of the underlying funds and/or investment companies in which the Portfolio invests.
For the fiscal period ended December 31
Janus Aspen Moderate | ||||
Allocation Portfolio | ||||
Institutional Shares | ||||
2011(1) | 69.84% | |||
Service Shares | ||||
2011(1) | 70.08% |
(1) | Period from August 31, 2011 (inception date) through December 31, 2011. |
32 | DECEMBER 31, 2011
7. | Capital Share Transactions |
Janus Aspen Moderate | ||||||
Allocation Portfolio | ||||||
For the fiscal period ended December 31 | 2011(1) | |||||
Transactions in Portfolio Shares – Institutional Shares: | ||||||
Shares sold | 13 | |||||
Reinvested dividends and distributions | – | |||||
Shares repurchased | – | |||||
Net Increase/(Decrease) in Portfolio Shares | 13 | |||||
Shares Outstanding, Beginning of Period | – | |||||
Shares Outstanding, End of Period | 13 | |||||
Transactions in Portfolio Shares – Service Shares: | ||||||
Shares sold | 13 | |||||
Reinvested dividends and distributions | – | |||||
Shares repurchased | – | |||||
Net Increase/(Decrease) in Portfolio Shares | 13 | |||||
Shares Outstanding, Beginning of Period | – | |||||
Shares Outstanding, End of Period | 13 |
(1) | Period from August 31, 2011 (inception date) through December 31, 2011. |
8. | Purchases and Sales of Investment Securities |
For the period ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Moderate Allocation Portfolio | $ | 374,149 | $ | 20,396 | $ | – | $ | – | ||||||
9. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
10. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
Janus Aspen Series | 33
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Moderate Allocation Portfolio:
of Janus Aspen Moderate Allocation Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Moderate Allocation Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations, the changes in its net assets, and the financial highlights for the period August 31, 2011 (commencement of operations) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2011 by correspondence with the transfer agent, provides a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
34 | DECEMBER 31, 2011
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, each of whom serves as an “independent” Trustee (the “Trustees”), and none of whom has ever been affiliated with Janus Capital, the investment adviser of Janus Aspen Moderate Allocation Portfolio (the “New Portfolio”), considered the proposed investment advisory agreement for the New Portfolio at meetings held in 2009, 2010 and most recently on June 23, 2011. In the course of their consideration of the agreement, the Trustees met in executive session and were advised by their independent legal counsel. The Trustees received and reviewed a substantial amount of information provided by Janus Capital in response to requests of the Trustees and their counsel, and also considered information provided by their independent fee consultant. Throughout their consideration of the agreement, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreement, and also met separately with their independent legal counsel. Based on the Trustees’ evaluation of information provided to them, as well as other information, including information previously provided to them by Janus Capital in connection with their consideration of the continuation of other investment advisory agreements entered into with Janus Capital on behalf of other Portfolios, the Trustees unanimously approved the investment advisory agreement for the New Portfolio for an initial term through February 1, 2013, subject to earlier termination as provided for in the agreement.
In considering the agreement and reaching their conclusions, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent, and quality of the services to be provided by Janus Capital, taking into account the investment objective and strategy of the New Portfolio. In addition, the Trustees reviewed the financial condition of Janus Capital, as well as its resources and key personnel that will be providing investment and risk management services to the New Portfolio. The Trustees also considered other services provided to the New Portfolio by Janus Capital, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions, assuming certain risks while serving as the New Portfolio’s administrator, monitoring adherence to the New Portfolio’s investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders, overseeing the activities of other services providers, and monitoring compliance with various Portfolio policies and procedures, and those of its underlying funds, and with applicable securities laws and regulations.
The Trustees concluded that the nature, extent, and quality of the services to be provided by Janus Capital were appropriate and consistent with the terms of the proposed investment advisory agreement. They also concluded that Janus Capital had sufficient personnel, with the appropriate education and experience, to serve the New Portfolio effectively.
Costs of Services Provided
The Trustees noted the information regarding the proposed fees and expenses of the New Portfolio in comparison to similar information for other comparable funds. The Trustees noted that they had previously reviewed management fees charged by Janus Capital to its separate account clients and to non-affiliated funds subadvised by Janus Capital (for which Janus Capital provides only portfolio management services). The Trustees noted servicing that is provided by Janus Capital for the New Portfolio relative to those other clients, including administration services, oversight of services providers, Trustee support, regulatory compliance and other administration services, and that, in serving the New
Janus Aspen Series | 35
Additional Information (unaudited) (continued)
Portfolio, Janus Capital assumes many legal risks that it does not assume in servicing its other clients.
The Trustees concluded that the advisory fee payable by the New Portfolio to Janus Capital was reasonable in relation to the nature, extent and quality of the services to be provided, taking into account the fees charged by other advisers for managing comparable mutual funds with similar strategies, the fees Janus Capital charges to other clients, and the expense limitation agreement agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the New Portfolio increases and investments in the underlying Janus funds. The Trustees noted that the New Portfolio is part of the overall Janus funds complex, which means, among other things, that the New Portfolio may share directly in economies of scale through the lower charges of certain third-party service providers that are based in part on the combined scale of all of the Janus funds. The Trustees considered any benefits realized based on the competitive market for the New Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationship with the New Portfolio. They recognized that two affiliates of Janus Capital separately serve the New Portfolio as transfer agent and distributor, respectively. They also considered Janus Capital’s proposed use of commissions to be paid by the underlying funds to be held by the New Portfolio on its portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the New Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit the New Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreement and the fees to be paid by the New Portfolio therefor (and fees of the underlying funds), the New Portfolio and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital may benefit from the receipt of research products and services acquired through commissions paid on portfolio transactions of the underlying funds and that the New Portfolio would indirectly benefit from Janus Capital’s receipt of those products and services, as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of the New Portfolio could attract other business to Janus Capital or its other funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the New Portfolio.
After full consideration of the above factors, as well as other factors, all of the Trustees, all of whom are independent Trustees, concluded that approval of the New Portfolio’s agreement was in the best interest of the New Portfolio and its shareholders.
36 | DECEMBER 31, 2011
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The net annual fund operating expenses ratio (if applicable) includes contractual waivers of Janus Capital and reflects the Portfolio’s subsidized expense ratio. Both the total annual fund operating expenses ratio and net annual fund operating expenses ratio are based on average net assets as of the fiscal year ended December 31, 2010. The ratios also include expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, these ratios may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the types of securities held in the Portfolio on the last day of the reporting period. Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on underlying fund shares owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid. Additionally, there may be other assets and liabilities.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from underlying fund shares and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the
Janus Aspen Series | 37
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. “Redemption Fees” (if applicable) refers to the fee paid to the Portfolio for shares held for 60 days or less by a shareholder. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments, changes in the target allocations, and the investment style and/or outlook of the portfolio manager. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
38 | DECEMBER 31, 2011
Designation Requirements (unaudited)
For federal income tax purposes, the Portfolio designated the following for the period ended December 31, 2011:
Dividends Received Deduction Percentage
Portfolio | ||||||||||
Janus Aspen Moderate Allocation Portfolio | 32% | |||||||||
Janus Aspen Series | 39
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
40 | DECEMBER 31, 2011
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments -HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
Janus Aspen Series | 41
Trustees and Officers (unaudited) (continued)
OFFICERS
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Daniel G. Scherman 151 Detroit Street Denver, CO 80206 DOB: 1961 | Executive Vice President and Portfolio Manager Janus Aspen Moderate Allocation Portfolio | 5/09 - Present | Senior Vice President and Chief Risk Officer of Janus Capital and Portfolio Manager for other Janus accounts. Formerly, Vice President and Director of Risk and Trading for Janus Capital (2006). | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. |
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
42 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 43
Notes
44 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 45
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
C-0112-126 | 109-02-81125 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
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14 | ||
15 | ||
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19 | ||
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35 | ||
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41 | ||
42 |
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s manager as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s manager may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s manager in the Management Commentary are just that: opinions. They are a reflection of the manager’s best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the manager’s opinions. These views are unique to the manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares and Service II Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Overseas Portfolio (unaudited)
Portfolio Snapshot I believe that company fundamentals drive share prices over the long term. I use fundamental research to make high-conviction, long-term investments in the most compelling international growth companies regardless of geography. | Brent Lynn portfolio manager |
Performance Overview
Janus Aspen Overseas Portfolio’s Institutional Shares, Service Shares and Service II Shares returned -32.17%, -32.34% and -32.33%, respectively, over the 12-month period ended December 31, 2011. The Portfolio’s primary benchmark, the MSCI All Country World ex-U.S. Index, returned -13.71%, and its secondary benchmark, the MSCI EAFE Index, returned -12.14% during the period.
In a difficult market environment, the Portfolio fell sharply and significantly underperformed its indices. I don’t believe in sugarcoating: the performance of Janus Aspen Overseas Portfolio this year has been simply terrible. I am very disappointed with the short-term performance of the Portfolio, but my investment approach has not changed, and I remain optimistic about the attractive valuations and long-term prospects for the companies in our Portfolio. Difficult markets can present tremendous investment opportunities. I am finding a number of strong franchises on sale around the world. I believe I can take advantage of the global market downturn by concentrating the Portfolio in our highest conviction ideas.
Economic Update
Riskier assets struggled this year. The combination of uprisings in the Middle East, a tragic earthquake in Japan, the political impasse over fiscal policy in the United States, and the sovereign debt crisis in Europe created tremendous global uncertainty and weakened markets. In particular, political fighting in Europe raised fears that excessive government debt levels in a few European countries could create financial market instability around the globe. Investors took shelter in perceived safe havens, such as U.S. Treasuries and defensive stocks. Global equity markets rebounded somewhat late on hopes European leaders were taking steps to resolve the region’s debt crisis. We saw policymakers moving toward stronger fiscal integration but we remain far from a comprehensive solution. Positive signs included changes to more fiscally conservative governments in Spain, Italy and Greece; more aggressive market intervention by the European Central Bank and the early pieces of a pan-European agreement.
Economic growth in the U.S., Europe and Japan was below my expectations due to government austerity programs, low levels of consumer confidence and an unwillingness by corporations to take risk. Growth in key emerging markets such as China, India, and Brazil slowed recently but remains at robust levels. I am surprised that despite significantly better short-term and long-term growth prospects and generally stronger sovereign balance sheets, these key emerging markets sharply underperformed the major developed markets over the past 12 months. I believe this underperformance stems from inflationary fears in emerging markets and decreased risk tolerance among investors.
Portfolio Positioning
While always opportunistic, Janus Aspen Overseas Portfolio has taken a particularly contrarian approach over the past few years. We added significant investments in beaten up financial stocks, cyclical stocks, and emerging market stocks. This approach achieved some success in prior years, but in the 2011 environment of extreme risk aversion, contrarian investing clearly has not worked. I believe, however, there are reasons for optimism. The global economic slowdown is easing inflationary pressures in emerging markets and should allow for some relaxation of monetary policies in these countries. Also, I believe that European leaders finally have realized that a comprehensive approach to sovereign debt issues is the only way to prevent the crisis from spreading to the core of Europe. Most importantly for the Portfolio, I see a tremendous disconnect between the intrinsic value of many of our key companies and their stock prices. I believe we have invested in a number of strong companies that have attractive valuations and that can emerge as long-term winners in their industries. With all eyes seemingly on Europe, I can’t predict when risk appetite once again returns to the markets, but I am optimistic that over time the valuations of our companies
2 | DECEMBER 31, 2011
(unaudited)
will not be based on indiscriminate market fear, but on earnings, cash flows, and business fundamentals.
During this difficult market environment, I tried to concentrate the Portfolio in our highest conviction ideas. I believe that our top holdings have strong, durable franchises and compelling valuations. I took advantage of weakness to add to some of our favorite international companies such as Li & Fung, the global leader in sourcing logistics for retailers; Reliance Industries, the leading Indian energy conglomerate; BBVA, a leading bank in Spain and Latin America; Adani Enterprises, a leading company in power, ports, and coal in India; Petrobras, one of the world’s fastest growing large oil companies; and Nintendo, one of the world’s leading games companies. These stocks fell sharply during the market downturn and offered what I considered attractive valuations. As a result of significant emerging market underperformance, we found a number of compelling investment opportunities in India, Brazil, Hong Kong and China, and I increased the Portfolio’s overall weight in emerging markets during the period.
Although they are within the guidelines of the Portfolio, our positions in the U.S. warrant discussion. Janus Aspen Overseas Portfolio is opportunistic and has made investments in special situations companies and at times in the U.S. In the aftermath of the 2008 global financial crisis and subsequent global economic downturn, I found a greater number of special situations than usual and a number of them were U.S.-based companies. Our U.S. exposure rose. More recently, the Portfolio’s weight in the U.S. declined when I sold holdings in Celgene, Valero, and Bank of America.
Detractors from Performance
Broadly speaking, the Portfolio’s heavy weighting in emerging markets hurt performance. On a geographic basis, holdings in India, Brazil, the U.S. and Hong Kong were significant negative contributors to performance during the period. Holdings in the U.K. had the largest positive contribution of all countries. On a sector basis, investments in financials, consumer discretionary, and energy had the greatest negative impact on relative performance. Investments in technology had a positive impact on performance.
Currency detracted from the Portfolio’s absolute performance and from the Portfolio’s performance relative to its primary benchmark, the MSCI All Country World ex-U.S. Index. During the period, currency detracted approximately 3.48% from the Portfolio’s return. Relative to the MSCI All Country World ex-U.S. Index, currency including currency hedges had a negative impact of approximately 2%. I hedged most of our yen exposure due to my concerns that Japan’s high level of government debt would eventually lead to a weaker yen. The yen rose versus the dollar during the period, but I continue to be concerned about Japan’s fiscal situation. I maintained the Portfolio’s yen hedge.
India, which was among the weakest performing large markets in the world for the year, desperately needs large infrastructure projects and other economic reforms. A well-intentioned, grass roots campaign to expose government corruption, however, fostered an environment where politicians and bureaucrats were reluctant to approve projects or change policies. Inflation also remained higher than desired. This environment hurt our core Indian holdings, specifically Adani Enterprises and Reliance Industries. I still believe in the long-term opportunities for these companies.
Hong Kong based Li & Fung, the Portfolio’s largest position, was the second biggest individual detractor during the period. Concerns about the outlook for U.S. and European retail sales and cost pressures associated with the Wal-Mart deal hurt the stock. In economic downturns, I believe the company can improve its competitive position by taking advantage of its scale, diverse network of supplier relationships and strong balance sheet. Also, Li & Fung has the opportunity to increase dramatically its business with Wal-Mart in the medium- to long-term. I took advantage of the fall in the stock price to buy more shares of Li & Fung during the period.
Contributors to Performance
U.K. semiconductor intellectual property company, ARM Holdings, was the largest positive contributor to performance during the period. ARM’s competitive advantages in designing low-power semiconductor processors and widespread acceptance from semiconductor customers positioned the company to grow rapidly across a wide variety of end markets including smartphones, autos, and appliances. We believe that the company will continue to see rapid growth, but after several years of strong stock performance, the valuation of ARM no longer appeared as compelling relative to other ideas. As a result, I significantly cut the position.
U.K. software company, Autonomy, was the second largest contributor to performance. Autonomy’s software provides users with more advanced ways to search and organize unstructured data. We believe the company has significant competitive advantages and exciting growth opportunities in a world that is experiencing explosive email and Internet
Janus Aspen Series | 3
Janus Aspen Overseas Portfolio (unaudited)
growth. During the period, Hewlett-Packard announced an acquisition of Autonomy and I sold our position in the company.
Derivatives
In aggregate, derivatives detracted from performance during the period. In addition to the currency hedge on the Japanese yen mentioned earlier, the portfolio also very selectively utilized swaps and options during the period. Reasons for using these instruments included hedging downside risks, achieving market access, and establishing positions more quickly. Please see the Derivative Instruments section in the “Notes to Financial Statements” for derivatives used by the Portfolio.
Investment Strategy and Outlook
The underperformance of the Portfolio has been painful. Conviction always is important but in difficult times, it is critical. My conviction in the portfolio comes from our team’s tremendous, in-depth fundamental research. Janus’ investment team travels millions of miles every year to meet with companies and their competitors, suppliers and customers. These meetings help us understand our companies better and lay the foundation for high-conviction investments.
I did not foresee this difficult year for global financial markets. I am a steward of your money. I take my responsibility very seriously. I recognize that you have entrusted me and Janus with your hard-earned savings.
Despite a bad year and a relatively bleak near-term outlook for the global economy, I remain optimistic about the long-term. Sovereign debt issues will not hold back global growth forever. New technologies, urbanization, infrastructure development, trade, and the desire of people around the world for a better life will continue to drive long-term economic growth. The market downturn offers the opportunity to buy some great companies at bargain prices. I continue to believe that the best way to generate solid long-term returns is to make high conviction, long-term investments in world-class companies with exciting prospects and undeservedly low valuations. As manager of the Portfolio, my sole focus is to deliver strong, long-term performance for you. I will perform this job to the best of my ability.
Thank you for your continued investment in Janus Aspen Overseas Portfolio.
4 | DECEMBER 31, 2011
(unaudited)
Janus Aspen Overseas Portfolio At A Glance
5 Top Performers – Holdings
Contribution | ||||
ARM Holdings PLC | 1.20% | |||
Autonomy Corp. PLC | 0.89% | |||
Valeant Pharmaceuticals International, Inc. | 0.56% | |||
Valero Energy Corp. | 0.49% | |||
ASML Holding N.V. | 0.36% |
5 Bottom Performers – Holdings
Contribution | ||||
Reliance Industries, Ltd. | –2.28% | |||
Li & Fung, Ltd. | –2.17% | |||
Adani Enterprises, Ltd. | –1.84% | |||
Ford Motor Co. | –1.73% | |||
Bank of America Corp. | –1.68% |
5 Top Performers – Sectors*
Portfolio Weighting | MSCI All Country World ex-U.S. | |||||||||||
Portfolio Contribution | (Average % of Equity) | IndexSM Weighting | ||||||||||
Information Technology | 2.09% | 10.07% | 6.44% | |||||||||
Materials | 0.71% | 5.17% | 12.68% | |||||||||
Utilities | 0.21% | 0.86% | 4.17% | |||||||||
Other** | 0.17% | 0.79% | 0.00% | |||||||||
Health Care | –0.48% | 1.39% | 6.33% |
5 Bottom Performers – Sectors*
Portfolio Weighting | MSCI All Country World ex-U.S. | |||||||||||
Portfolio Contribution | (Average % of Equity) | IndexSM Weighting | ||||||||||
Financials | –5.13% | 26.83% | 24.14% | |||||||||
Consumer Discretionary | –4.19% | 21.46% | 9.10% | |||||||||
Energy | –3.42% | 12.01% | 11.37% | |||||||||
Industrials | –2.87% | 16.64% | 10.73% | |||||||||
Consumer Staples | –2.54% | 4.38% | 9.04% |
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. | ||
* | Based on sector classification according to the Global Industry Classification Standard (“GICS”) codes, which are the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
** | Not a GICS classified sector. |
Janus Aspen Series | 5
Janus Aspen Overseas Portfolio (unaudited)
5 Largest Equity Holdings – (% of Net Assets)
As of December 31, 2011
Li & Fung, Ltd. Distribution/Wholesale | 8.5% | |||
Ford Motor Co. Automotive – Cars and Light Trucks | 5.2% | |||
United Continental Holdings, Inc. Airlines | 5.1% | |||
Delta Air Lines, Inc. Airlines | 5.0% | |||
Reliance Industries, Ltd. Oil Refining and Marketing | 4.3% | |||
28.1% |
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Emerging markets comprised 25.5% of total net assets.
Top Country Allocations – Long Positions (% of Investment Securities)
As of December 31, 2011
6 | DECEMBER 31, 2011
(unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||
One | Five | Ten | Since | Total Annual Fund | |||||||
Year | Year | Year | Inception* | Operating Expenses | |||||||
Janus Aspen Overseas Portfolio – Institutional Shares | –32.17% | –1.28% | 8.10% | 10.40% | 0.68% | ||||||
Janus Aspen Overseas Portfolio – Service Shares | –32.34% | –1.52% | 7.83% | 10.28% | 0.93% | ||||||
Janus Aspen Overseas Portfolio – Service II Shares | –32.33% | –1.50% | 7.89% | 10.32% | 0.93% | ||||||
Morgan Stanley Capital International All Country World ex-U.S. IndexSM | –13.71% | –2.92% | 6.31% | N/A** | |||||||
Morgan Stanley Capital International EAFE® Index | –12.14% | –4.72% | 4.67% | 3.83% | |||||||
Lipper Quartile – Institutional Shares | 4th | 1st | 1st | 1st | |||||||
Lipper Ranking – Institutional Shares based on total returns for Variable Annuity International Funds | 303/305 | 21/215 | 8/131 | 1/34 | |||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
For Service II Shares, a 1% redemption fee may be imposed on shares held for 60 days or less. Performance shown does not reflect this redemption fee and, if reflected, performance would have been lower.
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio has a performance-based management fee that adjusts up or down based on the Portfolio’s performance relative to an approved benchmark index over a performance measurement period. See the Portfolio’s Prospectus or Statement of Additional Information for more details.
See important disclosures on the next page.
Janus Aspen Series | 7
Janus Aspen Overseas Portfolio (unaudited)
The Portfolio’s performance may be affected by risks that include those associated with investments in specific industries or countries and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), and derivatives. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
The Portfolio may invest in derivatives which can be highly volatile and involve additional risks than if the underlying securities were held directly by the Portfolio. Such risks include gains or losses which, as a result of leverage, can be substantially greater than the derivatives’ original cost. There is also a possibility that derivatives may not perform as intended which can reduce opportunity for gains or result in losses by offsetting positive returns in other securities the Portfolio owns.
Foreign securities have additional risks including exchange rate changes, political and economic upheaval, the relative lack of information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. These risks are magnified in emerging markets. The prices of foreign securities held by the Portfolio, and therefore the Portfolio’s performance, may decline in response to such risks.
This Portfolio may have significant exposure to emerging markets. In general, emerging market investments have historically been subject to significant gains and/or losses. As such, the Portfolio’s returns and NAV may be subject to volatility.
Janus Aspen Overseas Portfolio held approximately 11.3% of its assets in Indian securities as of December 31, 2011, and the Portfolio may have experienced significant gains or losses due, in part, to its investments in India. While holdings are subject to change without notice, the Portfolio’s returns and NAV may be affected to a large degree by fluctuations in currency exchange rates or political or economic conditions in India.
The Portfolio will normally invest at least 80% of its net assets, measured at the time of purchase, in the type of securities described by its name.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Returns shown for Service Shares and Service II Shares for periods prior to December 31, 1999 and December 31, 2001, respectively, are derived from the historical performance of Institutional Shares, adjusted to reflect the higher operating expenses of Service Shares and Service II Shares.
Net dividends reinvested are the dividends that remain to be reinvested after foreign tax obligations have been met. Such obligations vary from country to country.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Institutional Share class only; other classes may have different performance characteristics.
May 31, 1994 is the date used to calculate the since-inception Lipper ranking, which is slightly different from when the Portfolio began operations since Lipper provides fund rankings as of the last day of the month.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the indices. The indices are unmanaged and are not available for direct investment; therefore, their performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
* | The Portfolio’s inception date – May 2, 1994 | |
** | Since inception return is not shown for the index because the index’s inception date differs significantly from the Portfolio’s inception date. |
8 | DECEMBER 31, 2011
(unaudited)
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 734.80 | $ | 2.67 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,022.13 | $ | 3.11 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 733.80 | $ | 3.76 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.87 | $ | 4.38 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service II Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 733.80 | $ | 3.80 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.82 | $ | 4.43 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.61% for Institutional Shares, 0.86% for Service Shares and 0.87% for Service II Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
Janus Aspen Series | 9
Janus Aspen Overseas Portfolio
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Common Stock – 96.8% | ||||||||||
Agricultural Chemicals – 1.0% | ||||||||||
276,284 | Potash Corp. of Saskatchewan, Inc. | $ | 11,422,994 | |||||||
103,410 | Potash Corp. of Saskatchewan, Inc. (U.S. Shares) | 4,268,765 | ||||||||
15,691,759 | ||||||||||
Agricultural Operations – 0.2% | ||||||||||
46,586,847 | Chaoda Modern Agriculture Holdings, Ltd.ß, | 3,299,224 | ||||||||
Airlines – 12.2% | ||||||||||
9,579,237 | Delta Air Lines, Inc.* | 77,496,027 | ||||||||
14,567,628 | International Consolidated Airlines Group S.A.* | 33,340,606 | ||||||||
4,149,388 | United Continental Holdings, Inc.*,** | 78,298,952 | ||||||||
189,135,585 | ||||||||||
Automotive – Cars and Light Trucks – 5.2% | ||||||||||
7,508,974 | Ford Motor Co.** | 80,796,560 | ||||||||
Building – Residential and Commercial – 1.3% | ||||||||||
3,624,800 | MRV Engenharia e Participacoes S.A. | 20,802,017 | ||||||||
Chemicals – Diversified – 1.0% | ||||||||||
348,334 | K+S A.G. | 15,741,159 | ||||||||
Commercial Banks – 9.1% | ||||||||||
6,748,744 | Banco Bilbao Vizcaya Argentaria S.A. | 58,339,946 | ||||||||
10,700 | Banco do Brasil S.A. | 136,010 | ||||||||
14,734,068 | Commercial Bank of Ceylon PLC | 12,941,649 | ||||||||
6,438,600 | Hatton National Bank PLC | 8,556,523 | ||||||||
9,198,532 | Intesa Sanpaolo S.P.A. | 15,403,500 | ||||||||
15,195,231 | Lloyds Banking Group PLC* | 6,111,926 | ||||||||
1,637,655 | Punjab National Bank, Ltd. | 24,080,622 | ||||||||
486,890 | State Bank of India, Ltd. | 14,845,560 | ||||||||
140,415,736 | ||||||||||
Distribution/Wholesale – 10.2% | ||||||||||
4,803,903 | Adani Enterprises, Ltd. | 26,561,693 | ||||||||
71,291,940 | Li & Fung, Ltd. | 132,003,412 | ||||||||
158,565,105 | ||||||||||
Diversified Banking Institutions – 6.0% | ||||||||||
950,571 | BNP Paribas | 37,334,459 | ||||||||
967,144 | Deutsche Bank A.G. | 36,840,184 | ||||||||
824,394 | Societe Generale – Class A | 18,355,072 | ||||||||
92,529,715 | ||||||||||
Diversified Operations – 1.5% | ||||||||||
1,707,000 | Aitken Spence & Co. PLC | 1,805,207 | ||||||||
22,233,465 | Melco International Development, Ltd. | 16,518,431 | ||||||||
302,885 | Orascom Development Holding A.G. | 4,628,754 | ||||||||
22,952,392 | ||||||||||
Diversified Operations – Commercial Services – 1.8% | ||||||||||
18,303,333 | John Keells Holdings PLC | 27,362,558 | ||||||||
Electric – Integrated – 1.2% | ||||||||||
1,285,000 | Centrais Eletricas Brasileiras S.A. | 18,504,827 | ||||||||
Electronic Components – Semiconductors – 1.6% | ||||||||||
2,646,191 | ARM Holdings PLC | 24,323,723 | ||||||||
Entertainment Software – 0.3% | ||||||||||
279,100 | Nexon Co., Ltd.** | 4,015,123 | ||||||||
Finance – Investment Bankers/Brokers – 1.5% | ||||||||||
7,411,600 | Nomura Holdings, Inc.** | 22,441,882 | ||||||||
Finance – Mortgage Loan Banker – 0.8% | ||||||||||
1,069,135 | Housing Development Finance Corp. | 13,128,615 | ||||||||
Food – Meat Products – 0.7% | ||||||||||
3,274,000 | JBS S.A. | 10,676,278 | ||||||||
Hotels and Motels – 2.6% | ||||||||||
23,407,835 | Shangri-La Asia, Ltd. | 40,387,957 | ||||||||
Internet Content – Entertainment – 0.9% | ||||||||||
850,238 | Youku.com, Inc. (ADR)* | 13,323,230 | ||||||||
Medical – Generic Drugs – 0.6% | ||||||||||
229,625 | Teva Pharmaceutical S.P. (ADR) | 9,267,665 | ||||||||
Metal – Diversified – 2.0% | ||||||||||
1,721,734 | Ivanhoe Mines, Ltd.* | 30,580,430 | ||||||||
Oil and Gas Drilling – 1.7% | ||||||||||
1,343,952 | Karoon Gas Australia, Ltd.* | 6,198,204 | ||||||||
1,200,330 | Nabors Industries, Ltd.* | 20,813,722 | ||||||||
27,011,926 | ||||||||||
Oil Companies – Exploration and Production – 3.3% | ||||||||||
3,116,098 | Cairn Energy PLC* | 12,836,172 | ||||||||
405,417 | Niko Resources, Ltd. | 19,198,097 | ||||||||
2,525,100 | OGX Petroleo e Gas Participacoes S.A.* | 18,445,622 | ||||||||
50,479,891 | ||||||||||
Oil Companies – Integrated – 2.0% | ||||||||||
1,258,200 | Petroleo Brasileiro S.A. (ADR)** | 31,266,270 | ||||||||
Oil Refining and Marketing – 4.3% | ||||||||||
5,114,549 | Reliance Industries, Ltd. | 66,744,383 | ||||||||
Property and Casualty Insurance – 0.9% | ||||||||||
3,104,013 | Reliance Capital, Ltd. | 13,737,157 | ||||||||
Real Estate Operating/Development – 10.2% | ||||||||||
29,200,684 | China Overseas Land & Investment, Ltd. | 48,803,790 | ||||||||
2,403,110 | Cyrela Brazil Realty S.A. | 19,126,925 | ||||||||
1,998,991 | DLF, Ltd. | 6,892,943 | ||||||||
70,494,732 | Evergrande Real Estate Group, Ltd. | 29,227,951 | ||||||||
12,938,000 | Hang Lung Properties, Ltd. | 36,816,734 | ||||||||
5,510,620 | PDG Realty S.A. Empreendimentos e Participacoes | 17,437,736 | ||||||||
158,306,079 | ||||||||||
Retail – Miscellaneous/Diversified – 2.1% | ||||||||||
2,460,276 | SM Investments Corp. | 32,857,137 | ||||||||
Semiconductor Components/Integrated Circuits – 0% | ||||||||||
1 | Taiwan Semiconductor Manufacturing Co., Ltd. | 3 | ||||||||
Semiconductor Equipment – 3.1% | ||||||||||
1,155,278 | ASML Holding N.V. | 48,551,457 | ||||||||
Sugar – 2.4% | ||||||||||
7,836,042 | Bajaj Hindusthan, Ltd.* | 3,512,199 | ||||||||
426,300 | Bajaj Hindusthan, Ltd. (GDR) | 191,068 | ||||||||
3,032,876 | Cosan, Ltd. – Class A | 33,240,321 | ||||||||
36,943,588 | ||||||||||
Telecommunication Services – 0.3% | ||||||||||
3,915,909 | Reliance Communications, Ltd. | 5,165,903 | ||||||||
Toys – 2.9% | ||||||||||
329,000 | Nintendo Co., Ltd.** | 45,320,338 |
See Notes to Schedule of Investments and Financial Statements.
10 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares | Value | |||||||||
Web Portals/Internet Service Providers – 1.9% | ||||||||||
1,844,555 | Yahoo!, Inc.*,** | $ | 29,752,672 | |||||||
Total Common Stock (cost $1,606,846,916) | 1,500,078,344 | |||||||||
Money Market – 3.0% | ||||||||||
46,269,118 | Janus Cash Liquidity Fund LLC, 0% (cost $46,269,118) | 46,269,118 | ||||||||
Total Investments (total cost $1,653,116,034) – 99.8% | 1,546,347,462 | |||||||||
Cash, Receivables and Other Assets, net of Liabilities**– 0.2% | 2,882,262 | |||||||||
Net Assets – 100% | $ | 1,549,229,724 | ||||||||
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Australia | $ | 6,198,204 | 0.4% | |||||
Bermuda | 226,445,412 | 14.7% | ||||||
Brazil | 136,395,685 | 8.8% | ||||||
Canada | 65,470,286 | 4.2% | ||||||
Cayman Islands | 45,850,405 | 3.0% | ||||||
France | 55,689,531 | 3.6% | ||||||
Germany | 52,581,343 | 3.4% | ||||||
Hong Kong | 102,138,955 | 6.6% | ||||||
India | 174,860,143 | 11.3% | ||||||
Israel | 9,267,665 | 0.6% | ||||||
Italy | 15,403,500 | 1.0% | ||||||
Japan | 71,777,343 | 4.7% | ||||||
Netherlands | 48,551,457 | 3.1% | ||||||
Philippines | 32,857,137 | 2.1% | ||||||
Spain | 91,680,552 | 5.9% | ||||||
Sri Lanka | 50,665,937 | 3.3% | ||||||
Switzerland | 4,628,754 | 0.3% | ||||||
Taiwan | 3 | 0.0% | ||||||
United Kingdom | 43,271,821 | 2.8% | ||||||
United States†† | 312,613,329 | 20.2% | ||||||
Total | $ | 1,546,347,462 | 100.0% |
†† | Includes Cash Equivalents (17.2% excluding Cash Equivalents). |
Forward Currency Contracts, Open
Unrealized | ||||||||||||
Currency Units | Currency | Appreciation/ | ||||||||||
Counterparty/Currency Sold and Settlement Date | Sold | Value U.S. $ | (Depreciation) | |||||||||
Credit Suisse Securities (USA) LLC: Japanese Yen 1/19/12 | 3,815,000,000 | $ | 49,591,943 | $ | (430,839) | |||||||
HSBC Securities (USA), Inc.: Japanese Yen 2/2/12 | 3,405,000,000 | 44,274,865 | (464,312) | |||||||||
JPMorgan Chase & Co.: Japanese Yen 1/12/12 | 3,041,000,000 | 39,524,866 | (396,725) | |||||||||
RBC Capital Markets Corp.: Japanese Yen 1/5/12 | 2,000,000,000 | 25,990,903 | 5,068 | |||||||||
Total | $ | 159,382,577 | $ | (1,286,808) |
Total Return Swaps outstanding at December 31, 2011
Notional | Return Paid | Return Received | Unrealized | ||||||||||||
Counterparty | Amount | by the Portfolio | by the Portfolio | Termination Date | Depreciation | ||||||||||
Goldman Sachs International | 4,306,489,663 JPY | 1-month JPY LIBOR plus 35 basis points | Custom Japanese Bank Stock Basket | 12/24/12 | $ | (363,844) | |||||||||
Morgan Stanley & Co. International PLC | 3,963,567,617 JPY | 1-month JPY LIBOR plus 50 basis points | Custom Japanese Bank Stock Basket | 12/28/12 | (138,768) | ||||||||||
Morgan Stanley & Co. International PLC | 16,797,060 | 1-month USD LIBOR plus 85 basis points | Sberbank | 1/17/13 | (2,500,895) | ||||||||||
UBS A.G. | 23,781,850 | 1-month USD LIBOR plus 85 basis points | Sberbank | 7/16/12 | (5,039,588) | ||||||||||
Total | $ | (8,043,095) | |||||||||||||
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 11
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
As of December 31, 2011 | Overseas | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 1,653,116 | ||||||||
Unaffiliated investments at value | $ | 1,500,078 | ||||||||
Affiliated investments at value | 46,269 | |||||||||
Restricted cash (Note 1) | 15,894 | |||||||||
Receivables: | ||||||||||
Portfolio shares sold | 1,648 | |||||||||
Dividends | 35 | |||||||||
Foreign dividend tax reclaim | 173 | |||||||||
Non-interested Trustees’ deferred compensation | 46 | |||||||||
Other assets | 39 | |||||||||
Forward currency contracts | 5 | |||||||||
Total Assets | 1,564,187 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Due to custodian | 3,194 | |||||||||
Portfolio shares repurchased | 1,266 | |||||||||
Dividends | – | |||||||||
Outstanding swap contracts at value | 8,043 | |||||||||
Advisory fees | 603 | |||||||||
Fund administration fees | 14 | |||||||||
Distribution fees and shareholder servicing fees | 238 | |||||||||
Non-interested Trustees’ fees and expenses | 36 | |||||||||
Non-interested Trustees’ deferred compensation fees | 46 | |||||||||
Accrued expenses and other payables | 225 | |||||||||
Forward currency contracts | 1,292 | |||||||||
Total Liabilities | 14,957 | |||||||||
Net Assets | $ | 1,549,230 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 1,579,105 | ||||||||
Undistributed net investment income* | 7,979 | |||||||||
Undistributed net realized gain from investment and foreign currency transactions* | 78,264 | |||||||||
Unrealized net depreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (116,118) | |||||||||
Total Net Assets | $ | 1,549,230 | ||||||||
Net Assets - Institutional Shares | $ | 473,616 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 12,413 | |||||||||
Net Asset Value Per Shares | $ | 38.15 | ||||||||
Net Assets - Service Shares | $ | 896,544 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 23,984 | |||||||||
Net Asset Value Per Share | $ | 37.38 | ||||||||
Net Assets - Service II Shares | $ | 179,070 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 4,762 | |||||||||
Net Asset Value Per Share | $ | 37.60 |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
12 | DECEMBER 31, 2011
Statement of Operations
Janus Aspen | ||||||
For the fiscal year ended December 31, 2011 | Overseas | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | 3 | ||||
Dividends | 29,566 | |||||
Dividends from affiliates | 43 | |||||
Foreign tax withheld | (1,697) | |||||
Total Investment Income | 27,915 | |||||
Expenses: | ||||||
Advisory fees | 12,817 | |||||
Shareholder reports expense | 214 | |||||
Transfer agent fees and expenses | 2 | |||||
Registration fees | 62 | |||||
Custodian fees | 380 | |||||
Professional fees | 89 | |||||
Non-interested Trustees’ fees and expenses | 83 | |||||
Fund administration fees | 91 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 3,082 | |||||
Distribution fees and shareholder servicing fees - Service II Shares | 677 | |||||
Other expenses | 68 | |||||
Non-recurring costs (Note 4) | 1 | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | (1) | |||||
Total Expenses | 17,565 | |||||
Expense and Fee Offset | (5) | |||||
Net Expenses | 17,560 | |||||
Net Investment Income | 10,355 | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 101,958 | |||||
Net realized loss from swap contracts | (40,667) | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (838,291) | |||||
Change in unrealized net appreciation/(depreciation) of swap contracts | (14,368) | |||||
Net Loss on Investments | (791,368) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (781,013) |
See Notes to Financial Statements.
Janus Aspen Series | 13
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Overseas | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment income | $ | 10,355 | $ | 6,930 | ||||||
Net realized gain from investment and foreign currency transactions(1) | 61,291 | 224,950 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (852,659) | 291,317 | ||||||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (781,013) | 523,197 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | (2,940) | (4,679) | ||||||||
Service Shares | (4,676) | (7,168) | ||||||||
Service II Shares | (1,005) | (1,887) | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | (6,131) | – | ||||||||
Service Shares | (12,299) | – | ||||||||
Service II Shares | (2,677) | – | ||||||||
Net Decrease from Dividends and Distributions | (29,728) | (13,734) | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 80,885 | 91,356 | ||||||||
Service Shares | 191,200 | 199,565 | ||||||||
Service II Shares | 19,176 | 46,195 | ||||||||
Redemption Fees | ||||||||||
Service II Shares | 22 | 62 | ||||||||
Reinvested Dividends and Distributions | ||||||||||
Institutional Shares | 9,062 | 4,661 | ||||||||
Service Shares | 16,975 | 7,168 | ||||||||
Service II Shares | 3,681 | 1,887 | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (125,552) | (209,547) | ||||||||
Service Shares | (319,424) | (277,236) | ||||||||
Service II Shares | (92,445) | (124,115) | ||||||||
Net Decrease from Capital Share Transactions | (216,420) | (260,004) | ||||||||
Net Increase/(Decrease) in Net Assets | (1,027,161) | 249,459 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 2,576,391 | 2,326,932 | ||||||||
End of period | $ | 1,549,230 | $ | 2,576,391 | ||||||
Undistributed Net Investment Income* | $ | 7,979 | $ | 3,442 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Certain prior year amounts have been reclassified to conform with current year presentation. |
See Notes to Financial Statements.
14 | DECEMBER 31, 2011
Financial Highlights
Institutional Shares
Janus Aspen Overseas Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $57.10 | $45.89 | $26.49 | $65.36 | $51.21 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .42 | .41 | .43 | .76 | .50 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (18.65) | 11.15 | 20.22 | (30.76) | 14.02 | |||||||||||||||||
Total from Investment Operations | (18.23) | 11.56 | 20.65 | (30.00) | 14.52 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.23) | (.35) | (.21) | (.63) | (.37) | |||||||||||||||||
Distributions (from capital gains)* | (.49) | – | (1.04) | (8.24) | – | |||||||||||||||||
Total Distributions | (.72) | (.35) | (1.25) | (8.87) | (.37) | |||||||||||||||||
Net Asset Value, End of Period | $38.15 | $57.10 | $45.89 | $26.49 | $65.36 | |||||||||||||||||
Total Return | (32.25)% | 25.33% | 79.15% | (52.04)% | 28.41% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $473,616 | $751,518 | $716,237 | $402,911 | $987,570 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $632,218 | $708,368 | $554,581 | $736,913 | $915,608 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.65% | 0.68% | 0.70% | 0.69% | 0.70% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.65% | 0.68% | 0.70% | 0.69% | 0.70% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.66% | 0.47% | 0.64% | 1.31% | 0.70% | |||||||||||||||||
Portfolio Turnover Rate | 32% | 30% | 44% | 56% | 59% |
Service Shares
Janus Aspen Overseas Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $56.04 | $45.08 | $26.07 | $64.56 | $50.62 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .27 | .20 | .34 | .68 | .38 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (18.25) | 11.03 | 19.86 | (30.36) | 13.82 | |||||||||||||||||
Total from Investment Operations | (17.98) | 11.23 | 20.20 | (29.68) | 14.20 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.19) | (.27) | (.15) | (.57) | (.26) | |||||||||||||||||
Distributions (from capital gains)* | (.49) | – | (1.04) | (8.24) | – | |||||||||||||||||
Total Distributions | (.68) | (.27) | (1.19) | (8.81) | (.26) | |||||||||||||||||
Net Asset Value, End of Period | $37.38 | $56.04 | $45.08 | $26.07 | $64.56 | |||||||||||||||||
Total Return | (32.41)% | 25.02% | 78.66% | (52.15)% | 28.09% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $896,544 | $1,475,804 | $1,254,824 | $757,331 | $1,549,980 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $1,232,913 | $1,328,827 | $1,001,144 | $1,251,214 | $1,326,458 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.90% | 0.93% | 0.95% | 0.94% | 0.95% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.90% | 0.93% | 0.95% | 0.94% | 0.95% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.41% | 0.21% | 0.39% | 1.10% | 0.44% | |||||||||||||||||
Portfolio Turnover Rate | 32% | 30% | 44% | 56% | 59% |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
Janus Aspen Series | 15
Financial Highlights (continued)
Service II Shares
Janus Aspen Overseas Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $56.37 | $45.34 | $26.20 | $64.83 | $50.80 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .22 | .17 | .34 | .67 | .38 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (18.32) | 11.12 | 19.98 | (30.51) | 13.89 | |||||||||||||||||
Total from Investment Operations | (18.10) | 11.29 | 20.32 | (29.84) | 14.27 | |||||||||||||||||
Less Distributions and Other: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.18) | (.27) | (.15) | (.57) | (.26) | |||||||||||||||||
Distributions (from capital gains)* | (.49) | – | (1.04) | (8.24) | – | |||||||||||||||||
Redemption fees | –(1) | .01 | .01 | .02 | .02 | |||||||||||||||||
Total Distributions and Other | (.67) | (.26) | (1.18) | (8.79) | (.24) | |||||||||||||||||
Net Asset Value, End of Period | $37.60 | $56.37 | $45.34 | $26.20 | $64.83 | |||||||||||||||||
Total Return | (32.42)% | 25.02% | 78.77% | (52.15)% | 28.17% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $179,070 | $349,069 | $355,871 | $201,067 | $438,573 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $270,750 | $346,296 | $275,760 | $364,379 | $363,622 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.90% | 0.93% | 0.95% | 0.94% | 0.95% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.90% | 0.93% | 0.95% | 0.94% | 0.95% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.41% | 0.23% | 0.38% | 1.07% | 0.42% | |||||||||||||||||
Portfolio Turnover Rate | 32% | 30% | 44% | 56% | 59% |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Redemption fees aggregated less than $.01 on a per share basis. |
See Notes to Financial Statements.
16 | DECEMBER 31, 2011
Notes to Schedule of Investments
Lipper Variable Annuity International Funds | Funds that invest their assets in securities with primary trading markets outside of the United States. | |
Morgan Stanley Capital International All Country World ex-U.S. IndexSM | An unmanaged, free float-adjusted, market capitalization weighted index composed of stocks of companies located in countries throughout the world, excluding the United States. It is designed to measure equity market performance in global developed and emerging markets outside the United States. The index includes reinvestment of dividends, net of foreign withholding taxes. | |
Morgan Stanley Capital International EAFE® Index | A free float-adjusted market capitalization weighted index designed to measure developed market equity performance. The MSCI EAFE® Index is composed of companies representative of the market structure of developed market countries. The index includes reinvestment of dividends, net of foreign withholding taxes. | |
ADR | American Depositary Receipt | |
GDR | Global Depositary Receipt | |
PLC | Public Limited Company | |
U.S. Shares | Securities of foreign companies trading on an American Stock Exchange. |
* | Non-income producing security. | |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. | |
ß | Security is illiquid. |
∞ Schedule of Fair Valued Securities (as of December 31, 2011)
Value as a | |||||||
Value | % of Net Assets | ||||||
Janus Aspen Overseas Portfolio | |||||||
Chaoda Modern Agriculture Holdings, Ltd. | $ | 3,299,224 | 0.2% | ||||
$ | 3,299,224 | 0.2% | |||||
Securities are valued at “fair value” pursuant to procedures adopted by the Portfolio’s Trustees. The Schedule of Fair Valued Securities does not include international equity securities fair valued pursuant to systematic fair valuation models.
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Overseas Portfolio | |||||||||||
Common Stock | |||||||||||
Agricultural Operations | $ | – | $ | – | $ | 3,299,224 | |||||
Internet Content – Entertainment | – | 13,323,230 | – | ||||||||
Medical – Generic Drugs | – | 9,267,665 | – | ||||||||
Oil Companies – Integrated | – | 31,266,270 | – | ||||||||
Retail – Miscellaneous/Diversified | – | 32,857,137 | – | ||||||||
Sugar | 36,752,520 | 191,068 | – | ||||||||
All Other | 1,373,121,230 | – | – | ||||||||
Money Market | – | 46,269,118 | – | ||||||||
Total Investments in Securities | $ | 1,409,873,750 | $ | 133,174,488 | $ | 3,299,224 | |||||
Other Financial Instruments(a): | $ | – | $ | (9,329,903) | $ | – | |||||
(a) | Other financial instruments include futures, forward currency, written options, and swap contracts. Forward currency contracts and swap contracts are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. Futures are reported at their variation margin at measurement date, which represents the amount due to/from the Portfolio at that date. Options are reported at their market value at measurement date. |
Janus Aspen Series | 17
Notes to Schedule of Investments (continued)
Level 3 Valuation Reconciliation of Assets (as of the fiscal year ended December 31, 2011)
Change in | Transfers | ||||||||||||||||||||||
Balance as of | Unrealized | In and/or | |||||||||||||||||||||
December | Realized | Appreciation/ | Out of | Balance as of | |||||||||||||||||||
31, 2010 | Gain/(Loss)(a) | (Depreciation)(b) | Gross Purchases | Gross Sales | Level 3 | December 31, 2011 | |||||||||||||||||
Investments in Securities: | |||||||||||||||||||||||
Janus Aspen Overseas Portfolio | |||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||
Agricultural Operations | $ | – | $ | – | $ | (31,644,208) | $ | – | $ | – | $ | 34,943,432 | $ | 3,299,224 | |||||||||
Commercial Banks | – | (76,047,644)(c) | 76,047,644 | – | – | – | – | ||||||||||||||||
Food – Catering | – | (10,229,502)(d) | 10,229,502 | – | – | – | – | ||||||||||||||||
(a) | Included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations. | |
(b) | Included in “Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Operations. | |
(c) | Anglo Irish Bank Corp., Ltd. was written off during the period. | |
(d) | FUJI Food & Catering Services Holdings, Ltd. was written off during the period. |
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Overseas Portfolio | $ | 291,945,739 | |||
18 | DECEMBER 31, 2011
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Janus Aspen Overseas Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests primarily in equity securities. The Portfolio is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers three classes of shares: Institutional Shares, Service Shares and Service II Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares and Service II Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants. For Service II Shares, a redemption fee of 1% may be imposed on interests in separate accounts or plans held 60 days or less.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
Janus Aspen Series | 19
Notes to Financial Statements (continued)
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Each class of shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
20 | DECEMBER 31, 2011
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Restricted Cash
As of December 31, 2011, Janus Aspen Overseas Portfolio had restricted cash in the amount of $15,894,397. The restricted cash represents collateral received in relation to swap contracts invested in by the Portfolio at December 31, 2011. The restricted cash is held at the Portfolio’s custodian, State Street Bank and Trust Company. The carrying value of the restricted cash approximates fair value.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
Janus Aspen Series | 21
Notes to Financial Statements (continued)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3 Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are summarized under the Level 2 and Level 3 categories listed above.
The following table shows transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
Transfers In | Transfers Out | |||||||||
Level 1 to | Level 2 to | |||||||||
Portfolio | Level 2 | Level 1 | ||||||||
Janus Aspen Overseas Portfolio | $ | 30,500,682 | $ | – | ||||||
Financial assets were transferred from Level 1 to Level 2 since certain foreign equity prices were applied a fair valuation adjustment factor at the end of the fiscal year and no factor was applied at the beginning of the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | DERIVATIVE INSTRUMENTS |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. Each derivative instrument that was held by the Portfolio during the fiscal year ended December 31, 2011 is discussed in further detail below. A summary of derivative activity is reflected in the tables at the end of this section.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. |
22 | DECEMBER 31, 2011
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. | |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. | |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The Portfolio may enter into forward currency contracts for hedging purposes, including, but not limited to, reducing exposure to changes in foreign currency exchange rates on foreign portfolio holdings and locking in the U.S. dollar cost of firm purchase and sale commitments for securities denominated in or exposed to foreign currencies. The Portfolio may also invest in forward currency contracts for nonhedging purposes such as seeking to enhance returns. The Portfolio is subject to currency risk in the normal course of pursuing its investment objective through its investments in forward currency contracts.
The gain or loss arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing a contract is included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations (if applicable).
Forward currency contracts held by the Portfolio are fully collateralized by other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The collateral is evaluated daily to ensure its market value equals or exceeds the current market value of the corresponding forward currency contracts. Such collateral is in the possession of the Portfolio’s custodian.
Options Contracts
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. The Portfolio may purchase or write covered and uncovered put and call options on swap contracts (“swaptions”), futures contracts, and on portfolio securities for hedging purposes or as a substitute for an investment. The Portfolio is subject to interest rate risk, liquidity risk, equity risk, and currency risk in the normal course of pursuing its investment objective through its investments in options contracts. The Portfolio may use options contracts to hedge against changes in interest rates, the values of equities, or foreign currencies. The Portfolio may utilize American-style and European-style options. An American-style option is an option contract that can be exercised at any time between the time of purchase and the option’s expiration date. A European-style option is an option contract that can only be exercised on the option’s expiration date. The Portfolio may also purchase or write put and call options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. The Portfolio may also invest in long-term equity anticipation securities, which are long-term option contracts that can be maintained for a period of up to three years. The Portfolio may also enter into a swaption contract which grants the purchaser the right, but not the obligation, to enter into a swap transaction at preset terms detailed in the underlying agreement within a specified period of time. Entering into a swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk, associated with both option contracts and swap contracts.
Janus Aspen Series | 23
Notes to Financial Statements (continued)
The Portfolio generally invests in options to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Portfolio receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. In writing an option, the Portfolio bears the risk of an unfavorable change in the price of the security underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio buying or selling a security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option are adjusted by the amount of premium received or paid.
The Portfolio may also purchase and write exchange-listed and OTC put and call options on domestic securities indices, and on foreign securities indices listed on domestic and foreign securities exchanges. Options on securities indices are similar to options on securities except that (1) the expiration cycles of securities index options are monthly, while those of securities options are currently quarterly, and (2) the delivery requirements are different. Instead of giving the right to take or make delivery of securities at a specified price, an option on a securities index gives the holder the right to receive a cash “exercise settlement amount” equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed “index multiplier.” Receipt of this cash amount will depend upon the closing level of the securities index upon which the option is based being greater than, in the case of a call, or less than, in the case of a put, the exercise price of the index and the exercise price of the option times a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount.
Options traded on an exchange are regulated and the terms of the options are standardized. Options traded OTC expose the Portfolio to counterparty risk in the event that the counterparty does not perform. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by having the counterparty post collateral to cover the Portfolio’s exposure to the counterparty.
Holdings of the Portfolio designated to cover outstanding written options are noted on the Schedule of Investments (if applicable). Options written are reported as a liability on the Statement of Assets and Liabilities as “Options written at value” (if applicable). Realized gains and losses are reported as “Net realized gain/(loss) from written options contracts” on the Statement of Operations (if applicable).
The risk in writing call options is that the Portfolio gives up the opportunity for profit if the market price of the security increases and the options are exercised. The risk in writing put options is that the Portfolio may incur a loss if the market price of the security decreases and the options are exercised. The risk in buying options is that the Portfolio pays a premium whether or not the options are exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. A lack of correlation between the value of an instrument underlying an option and the asset being hedged, or unexpected adverse price movements, could render the Portfolio’s hedging strategy unsuccessful. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased or sold. There is no limit to the loss the Portfolio may recognize due to written call options.
Swaps
A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The Portfolio may utilize swap agreements as a means to gain exposure to certain common stocks and/or to “hedge” or protect its portfolio from adverse movements in securities prices or interest rates. The Portfolio is subject to equity risk and interest rate risk in the normal course of pursuing its investment objective through investments in swap contracts. Swap agreements entail the risk that a party will default on its payment obligation to the Portfolio. If the other party to a swap defaults, the Portfolio would risk the loss of the net amount of the payments that it contractually is entitled to receive. If the Portfolio utilizes a swap at the wrong time or judges market conditions incorrectly, the swap may result in a loss to the Portfolio and reduce the Portfolio’s total return. Swap contracts of the Portfolio are reported as an asset or liability on the Statement of Assets and Liabilities (if applicable). Realized gains and losses of the Portfolio are reported in “Net realized gain/(loss) from swap contracts” on the Statement of Operations (if applicable).
Total return swaps involve an exchange by two parties in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains over the payment period.
24 | DECEMBER 31, 2011
The Portfolio’s maximum risk of loss for total return swaps from counterparty risk or credit risk is the discounted value of the payments to be received from/paid to the counterparty over the contract’s remaining life, to the extent that the amount is positive. The risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral to the Portfolio to cover the Portfolio’s exposure to the counterparty.
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
The following table, grouped by derivative type, provides information about the fair value and location of derivatives within the Statement of Assets and Liabilities as of December 31, 2011.
Fair Value of Derivative Instruments as of December 31, 2011
Derivatives not accounted for | Asset Derivatives | Liability Derivatives | ||||||||||
as hedging instruments | Statement of Assets and Liabilities Locations | Fair Value | Statement of Assets and Liabilities Locations | Fair Value | ||||||||
Equity Contracts | Outstanding swap contracts at value | $ | 8,043,095 | |||||||||
Foreign Exchange Contracts | Forward currency contracts | $ | 5,068 | Forward currency contracts | 1,291,876 | |||||||
Total | $ | 5,068 | $ | 9,334,971 | ||||||||
The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the fiscal year ended December 31, 2011.
The effect of Derivative Instruments on the Statement of Operations for the fiscal year ended December 31, 2011
Amount of Realized Gain/(Loss) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | (40,667,347 | ) | $ | (5,541,476 | ) | $ | – | $ | (46,208,823 | ) | |||||||
Foreign Exchange Contracts | – | – | – | (20,082,959 | ) | (20,082,959 | ) | |||||||||||||
Total | $ | – | $ | (40,667,347 | ) | $ | (5,541,476 | ) | $ | (20,082,959 | ) | $ | (66,291,782 | ) | ||||||
Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | (14,368,064 | ) | $ | – | $ | – | $ | (14,368,064 | ) | ||||||||
Foreign Exchange Contracts | – | – | – | 5,635,527 | 5,635,527 | |||||||||||||||
Total | $ | – | $ | (14,368,064 | ) | $ | – | $ | 5,635,527 | $ | (8,732,537 | ) | ||||||||
Please see the Portfolio’s Statement of Operations for the Portfolio’s “Net Realized and Unrealized Gain/(Loss) on Investments.”
The value of derivative instruments at period end and the effect of derivatives on the Statement of Operations are indicative of the Portfolio’s volume throughout the fiscal year.
3. | OTHER INVESTMENTS AND STRATEGIES |
Additional Investment Risk
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are
Janus Aspen Series | 25
Notes to Financial Statements (continued)
not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
Emerging Market Investing
Investing in emerging markets may involve certain risks and considerations not typically associated with investing in the United States and imposes risks greater than, or in addition to, the risks associated with investing in securities of more developed foreign countries. Emerging markets securities are exposed to a number of additional risks, which may result from less government supervision and regulation of business and industry practices (including the potential lack of strict finance and accounting controls and standards), stock exchanges, brokers, and listed companies, making these investments potentially more volatile in price and less liquid than investments in developed securities markets, resulting in greater risk to investors. In addition, the Portfolio’s investments may be denominated in foreign currencies and therefore, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the Portfolio’s investments. To the extent that the Portfolio invests a significant portion of its assets in the securities of issuers in or companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region, which could have a negative impact on the Portfolio’s performance.
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing
26 | DECEMBER 31, 2011
their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
Janus Aspen Series | 27
Notes to Financial Statements (continued)
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio manager anticipates that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s “base” fee rate prior to any performance adjustment (expressed as an annual rate).
Base Fee | |||||
Rate (%) | |||||
Portfolio | (annual rate) | ||||
Janus Aspen Overseas Portfolio | 0.64 | ||||
For the Portfolio, the investment advisory fee rate is determined by calculating a base fee and applying a performance adjustment. The base fee rate is the same as the contractual investment advisory fee rate shown in the table above. The performance adjustment either increases or decreases the base fee depending on how well the Portfolio has performed relative to its benchmark index, as shown below:
Portfolio | Benchmark Index | ||||
Janus Aspen Overseas Portfolio | MSCI All Country World ex-U.S. IndexSM | ||||
Only the base fee rate applied until October 2011 for the Portfolio. The calculation of the performance adjustment applies as follows:
Investment Advisory Fee = Base Fee Rate +/- Performance Adjustment
The investment advisory fee rate paid to Janus Capital by the Portfolio consists of two components: (1) a base fee calculated by applying the contractual fixed rate of the advisory fee to the Portfolio’s average daily net assets during the previous month (“Base Fee Rate”), plus or minus (2) a performance-fee adjustment (“Performance Adjustment”) calculated by applying a variable rate of up to 0.15% (positive or negative) to the Portfolio’s average daily net assets during the applicable performance measurement period. The performance measurement period generally is the previous 36 months, although no Performance Adjustment is made until the Portfolio’s performance-based fee structure has been in effect for at least 15 months. When the Portfolio’s performance-based fee structure has been in effect for at least 15 months, but less than 36 months, the performance measurement period is equal to the time that has elapsed since the performance-based fee structure took effect. As noted
28 | DECEMBER 31, 2011
above, any applicable Performance Adjustment began October 2011 for the Portfolio.
No Performance Adjustment is applied unless the difference between the Portfolio’s investment performance and the cumulative investment record of the Portfolio’s benchmark index is 0.50% or greater (positive or negative) during the applicable performance measurement period. The Base Fee Rate is subject to an upward or downward Performance Adjustment for every full 0.50% increment by which the Portfolio outperforms or underperforms its benchmark index. Because the Performance Adjustment is tied to the Portfolio’s relative performance compared to its benchmark index (and not its absolute performance), the Performance Adjustment could increase Janus Capital’s fee even if the Portfolio’s Shares lose value during the performance measurement period and could decrease Janus Capital’s fee even if the Portfolio’s Shares increase in value during the performance measurement period. For purposes of computing the Base Fee Rate and the Performance Adjustment, net assets are averaged over different periods (average daily net assets during the previous month for the Base Fee Rate, versus average daily net assets during the performance measurement period for the Performance Adjustment). Performance of the Portfolio is calculated net of expenses, whereas the Portfolio’s benchmark index does not have any fees or expenses. Reinvestment of dividends and distributions is included in calculating both the performance of the Portfolio and the Portfolio’s benchmark index. The Base Fee Rate is calculated and accrued daily. The Performance Adjustment is calculated monthly in arrears and is accrued throughout the month. The investment fee is paid monthly in arrears. Under extreme circumstances involving underperformance by a rapidly shrinking Portfolio, the dollar amount of the Performance Adjustment could be more than the dollar amount of the Base Fee Rate. In such circumstances, Janus Capital would reimburse the Portfolio.
The investment performance of the Portfolio’s Service Shares for the performance measurement period is used to calculate the Performance Adjustment. After Janus Capital determines whether the Portfolio’s performance was above or below its benchmark index by comparing the investment performance of the Portfolio’s Service Shares against the cumulative investment record of its benchmark index, Janus Capital applies the same Performance Adjustment (positive or negative) across each other class of shares of the Portfolio, as applicable.
It is not possible to predict the effect of the Performance Adjustment on future overall compensation to Janus Capital since it depends on the performance of the Portfolio relative to the record of the Portfolio’s benchmark index and future changes to the size of the Portfolio.
The Portfolio’s prospectuses and statements of additional information contain additional information about performance-based fees. The amount shown as advisory fees on the Statement of Operations reflects the Base Fee Rate plus/minus any Performance Adjustment. During the fiscal year ended December 31, 2011, the Portfolio recorded a Performance Adjustment of $(852,771).
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares and Service II Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares and Service II Shares at an annual rate of up to 0.25% of Service Shares and Service II Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred
Janus Aspen Series | 29
Notes to Financial Statements (continued)
compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
A 1.00% redemption fee may be imposed on Service II Shares of the Portfolio held for 60 days or less. This fee is paid to the Portfolio rather than Janus Capital, and is designed to deter excessive short-term trading and to offset the brokerage commissions, market impact, and other costs associated with changes in the Portfolio’s asset level and cash flow due to short-term money movements in and out of the Portfolio. The redemption fee is accounted for as an addition to Paid-in Capital. Total redemption fees for the fiscal year ended December 31, 2011 were $22,335 for the Portfolio.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio may be used to purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio is eligible to participate in the cash sweep program (the “Investing Fund”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
During the fiscal year ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Dividend | Value | |||||||||||
Shares/Cost | Shares/Cost | Income | at 12/31/11 | |||||||||||
Janus Aspen Overseas Portfolio | ||||||||||||||
Janus Cash Liquidity Fund LLC | $ | 498,533,319 | $ | (490,011,201) | $ | 43,009 | $ | 46,269,118 | ||||||
30 | DECEMBER 31, 2011
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Undistributed | Undistributed | Late-Year | Other Book | Net Tax | ||||||||||||||||
Ordinary | Long-Term | Accumulated | Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Overseas Portfolio | $ | – | $ | 166,586,195 | $ | – | $ | (87,332,749) | $ | (65,639) | $ | (109,063,145) | ||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary differences between book and tax appreciation or depreciation of investments are wash sale loss deferrals and passive foreign investment companies.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Overseas Portfolio | $ | 1,655,410,607 | $ | 364,684,996 | $ | (473,748,141) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, passive foreign investment companies, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Overseas Portfolio | $ | 4,740,112 | $ | 24,987,881 | $ | – | $ | (15,175,089) | |||||||||
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Overseas Portfolio | $ | 13,734,050 | $ | – | $ | – | $ | – | |||||||||
Janus Aspen Series | 31
Notes to Financial Statements (continued)
6. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Overseas Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 1,628 | 1,846 | ||||||||
Reinvested dividends and distributions | 176 | 96 | ||||||||
Shares repurchased | (2,553) | (4,388) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (749) | (2,446) | ||||||||
Shares Outstanding, Beginning of Period | 13,162 | 15,608 | ||||||||
Shares Outstanding, End of Period | 12,413 | 13,162 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 3,918 | 4,037 | ||||||||
Reinvested dividends and distributions | 336 | 152 | ||||||||
Shares repurchased | (6,604) | (5,688) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (2,350) | (1,499) | ||||||||
Shares Outstanding, Beginning of Period | 26,334 | 27,833 | ||||||||
Shares Outstanding, End of Period | 23,984 | 26,334 | ||||||||
Transactions in Portfolio Shares – Service II Shares | ||||||||||
Shares sold | 368 | 929 | ||||||||
Reinvested dividends and distributions | 73 | 40 | ||||||||
Shares repurchased | (1,872) | (2,625) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (1,431) | (1,656) | ||||||||
Shares Outstanding, Beginning of Period | 6,193 | 7,849 | ||||||||
Shares Outstanding, End of Period | 4,762 | 6,193 |
7. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Overseas Portfolio | $ | 661,508,625 | $ | 981,516,780 | $ | – | $ | – | ||||||
8. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
32 | DECEMBER 31, 2011
9. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
Janus Aspen Series | 33
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Overseas Portfolio:
of Janus Aspen Overseas Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Overseas Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
34 | DECEMBER 31, 2011
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
Janus Aspen Series | 35
Additional Information (unaudited) (continued)
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
36 | DECEMBER 31, 2011
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
Janus Aspen Series | 37
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The total annual fund operating expenses ratio is based on average net assets as of the fiscal period ended December 31, 2010. The ratio also includes expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, this ratio may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
2a. Forward Currency Contracts
A table listing forward currency contracts follows the Portfolio’s Schedule of Investments (if applicable). Forward currency contracts are agreements to deliver or receive a preset amount of currency at a future date. Forward currency contracts are used to hedge against foreign currency risk in the Portfolio’s long-term holdings.
The table provides the name of the foreign currency, the settlement date of the contract, the amount of the contract, the value of the currency in U.S. dollars and the amount of unrealized gain or loss. The amount of unrealized gain or loss reflects the change in currency exchange rates from the time the contract was opened to the last day of the reporting period.
2b. Options
A table listing written options contracts follows the Portfolio’s Schedule of Investments (if applicable). Written options contracts are contracts that obligate the Portfolio to sell or purchase an underlying security at a fixed price, upon exercise of the option. Options are used to hedge against adverse movements in securities prices, currency risk or interest rates.
The table provides the name of the contract, number of contracts held, the expiration date, exercise price, value and premiums received.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid.
38 | DECEMBER 31, 2011
Additionally, there may be other assets and liabilities such as unrealized gain or loss on forward currency contracts.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. “Redemption Fees” (if applicable) refers to the fee paid to the Portfolio for shares held for 60 days or less by a shareholder. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the
Janus Aspen Series | 39
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio manager. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
40 | DECEMBER 31, 2011
Designation Requirements (unaudited)
For federal income tax purposes, the Portfolio designated the following for the year ended December 31, 2011:
Capital Gain Distributions
Portfolio | ||||||||||
Janus Aspen Overseas Portfolio | $ | 24,987,881 | ||||||||
Foreign Taxes Paid and Foreign Source Income
Portfolio | Foreign Taxes Paid | Foreign Source Income | ||||||||
Janus Aspen Overseas Portfolio | $ | 1,696,237 | $ | 29,211,724 | ||||||
Janus Aspen Series | 41
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
42 | DECEMBER 31, 2011
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments -HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
Janus Aspen Series | 43
Trustees and Officers (unaudited) (continued)
OFFICERS
Name, Address, and Age | Positions Held with the Trust | Term of Office* and Length of Time Served | Principal Occupations During the Past Five Years | |||
Brent A. Lynn 151 Detroit Street Denver, CO 80206 DOB: 1964 | Executive Vice President and Portfolio Manager Janus Aspen Overseas Portfolio | 1/01-Present | Vice President of Janus Capital. | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. |
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
44 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 45
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: NOT FDIC-INSURED MAY LOSE VALUE NO BANK GUARANTEE
C-0112-126 | 109-02-81120 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
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2 | ||
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14 | ||
15 | ||
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18 | ||
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33 | ||
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40 |
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s managers as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s managers may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s managers in the Management Commentary are just that: opinions. They are a reflection of the managers’ best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the managers’ opinions. These views are unique to each manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares only); administrative services fees (applicable to Service Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Janus Capital Management LLC (“Janus Capital”) has contractually agreed to waive the Portfolio’s total annual fund operating expenses, excluding any performance adjustment to management fees, the distribution and shareholder servicing (12b-1) fees applicable to Service Shares, the administrative service fees applicable to Service Shares, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses, to certain limits until at least May 1, 2013. Expenses in the examples reflect the application of this waiver. Had the waiver not been in effect, your expenses would have been higher. More information regarding the waiver is available in the Portfolio’s prospectuses.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Perkins Mid Cap Value Portfolio (unaudited)
Portfolio Snapshot This Portfolio seeks to uncover what the portfolio managers believe are fundamentally and financially strong mid-sized companies exhibiting favorable risk-reward characteristics. | Tom Perkins co-portfolio manager | Jeffrey R Kautz co-portfolio manager |
Performance Overview
During the 12 months ended December 31, 2011, Janus Aspen Perkins Mid Cap Value Portfolio’s Institutional Shares and Service Shares returned -2.64% and -2.98%, respectively, underperforming the Portfolio’s benchmark, the Russell Midcap Value Index, which returned -1.38%.
Our stock selection was positive relative to the benchmark. Not surprisingly, the Portfolio held up significantly better in the areas where the index had the largest declines (financials, industrials, information technology and telecommunication services). This is consistent with our approach of identifying higher quality stocks with less downside risk. The primary contributor to the Portfolio’s underperformance was our normal significant underweight in utilities. Utilities, which were up over 20%, detracted over 200 basis points from performance. Also detracting from performance was our small investment in index puts.
Market Commentary
Stocks gave up gains during a significant sell-off in the third quarter, as problems in Europe became much more apparent. The focus was on European sovereign debt issues and undercapitalized European banks. The inability to take substantive action to address those problems created a situation of great uncertainty and raised questions of global contagion.
The stock market rebounded from the third quarter correction, but not enough to entirely offset the losses from the third quarter. The bounce back was fueled by strong earnings reports, improving economic data, and a late December liquidity injection by the European Central Bank (ECB). Despite these short-term trend improvements, our market perspective has not changed, as we remain somewhat cautious with higher than normal cash levels. The environment remains one of extremely strong company fundamentals offset by very challenging economic and financial issues. Economic vulnerability persists with continuous headwinds from the European debt crisis coupled with ongoing governmental and consumer deleveraging, and high unemployment levels. Volatility drives market sentiment, even with the backdrop of continued monetary actions at home (securities repurchases, low interest rates), and, to date, ineffective attempts to remedy the long term capital shortage of European banks. And so, during the short term, uncertainty will likely persist until we regain footing on macro fundamentals.
Contagion risk remains as mounting European debt problems affect financial structures globally. Concerns revolve around the European banking system as many banks are thinly capitalized and carry debt of distressed “PIIGS” (Portugal, Ireland, Italy, Greece and Spain) countries at unrealistically high values. In an effort to absorb any potential shocks from the Euro zone debt crisis and encourage domestic growth, U.S. Fed policy indicates interest rates will remain somewhat artificially low well into 2013.
In spite of macroeconomic headwinds, microeconomic fundamentals remain positive. The market appears reasonably valued with the S&P 500 Index trading at period end at about 13x 2011 earnings estimates of $95, and an earnings yield of almost 8%. As compared to 10-year Treasury yields of slightly under 2%, there is a 6% risk premium to owning stocks – the highest level in three decades. Moreover, for the first time in 50 years, stocks yield more than 10-year Treasuries, as the S&P 500 dividend yield currently is over 2%. Corporate balance sheets continue to strengthen, and U.S. banks have much better capital structures than before the financial crisis. By these metrics, equities remain an attractive asset class, especially compared to bonds. Continuing high volatility provides for pricing dislocation and opportunity.
Stocks that hurt relative results
Forest Oil underperformed as the lingering negative sentiment from recent production guide downs as well as a disappointing initial public offering of its Canadian
2 | DECEMBER 31, 2011
(unaudited)
assets weighed on the shares. We believe management will need to prove it is capable of resolving its issues and posting improved performance, for which the market appears not willing to give them credit until results actually do improve. The balance sheet continues to improve and we believe that both Forest Oil and Lone Pine Resources, its Canadian asset unit, remain undervalued.
First Niagara Financial Group was also a disappointment in 2011. With a strong, high-quality earnings stream in our view, no credit problems, a large dividend and robust capital ratios First Niagara was purchased with downside protection in mind. However, two items hurt the stock. First, the bank agreed to purchase a large deposit franchise from HSBC in a deal that required a capital raise. This overhang hurt the stock more than we anticipated. Second, the collapse of interest rates in the U.S. adversely impacted highly liquid balance sheets like First Niagara as re-investment in lower yielding securities dragged down returns. The bank finally raised capital in December, and unfortunately cut the dividend. We retained our position as it sold at less than 10x current earnings as of period end and has a 3.6% dividend yield. We also appreciate the company’s liquid and strong balance sheet and what we believe are good growth prospects.
Stocks that helped relative results
Discover Financial Services continued to execute by reporting several solid quarters, raising estimates and announcing a $1 billion share buyback. We trimmed our position on strength but it remains a top holding given its strong capital position, considerable franchise value, and attractive valuation at about 7x 2011 estimated earnings.
Cabot Oil & Gas was among several energy holdings that benefited from spiking oil prices during the first quarter as a result of unrest in the Middle East and North Africa. Cabot Oil & Gas was especially strong because of a better-than-expected earnings release in which the company raised production guidance. We sold our position in Cabot Oil as we felt the risk-reward profile became less favorable.
Derivatives
Small investments in index put options were maintained during the period for hedging purposes (making an investment in an attempt to reduce the risk of adverse price movements) reflecting our concerns about macroeconomic issues. We believe that these puts provide some insurance against the small but real possibility of a significant market disruption from sovereign risk compounded by contagion and trillions of dollars of derivatives. We believe including this type of investment is consistent with our sensitivity to the need to preserve capital and our objective of providing steady, above average long-term investment returns on both an absolute and relative basis. In aggregate, these positions detracted from the Portfolio’s performance in the period. Please see “Notes to Financial Statements” for a discussion of derivatives used by the Portfolio.
Outlook and Positioning
We believe that our quality-oriented, risk-sensitive investment approach is especially important in this type of difficult environment. High-quality companies with strong balance sheets and high free cash flows will likely hold up better in stressed environments over the long term, and are better positioned against weaker competitors. We have found excellent buys in banks, health care and infrastructure. Banks, from the super regionals to the small cap thrifts, offer good values with solid capital levels in our view, attractive valuations based on normalized earnings and dividend yields of 3%-5%. On the health care side, medical equipment stocks have traded off during the year on growth concerns. However, we think the longer term demographics are favorable to support earnings growth, and in the meantime, the balance sheets appear very strong and free cash flow yields approach 10% in many instances. In the infrastructure area, engineering and construction companies are trading at below average multiples of earnings with strong balance sheets in our view and could benefit from any infrastructure stimulus plan originating from Washington. Given the continuing economic uncertainty, we are maintaining above average cash levels. These cash reserves not only enhance our risk profile, but also give us flexibility to be opportunistic in what is likely to be a volatile market.
Overall, due to the significant number of negative headwinds domestically and abroad, we believe it is important to be risk sensitive while maintaining a long-term focus. The ability to outperform on the downside is a critical component of compounding returns. Volatility is likely to remain high, and it is easy to make short-term mistakes at the expense of long-term results. Our fundamental approach to investing has created above average returns over each full market cycle of our Portfolios’ existence. This reinforces our confidence to pursue our disciplined, value oriented, investment process.
Thank you for your investment in Janus Aspen Perkins Mid Cap Value Portfolio.
Janus Aspen Series | 3
Janus Aspen Perkins Mid Cap Value Portfolio (unaudited)
Janus Aspen Perkins Mid Cap Value Portfolio At A Glance
5 Top Performers – Holdings
Contribution | ||||
Discover Financial Services | 0.46% | |||
Cabot Oil & Gas Corp. | 0.38% | |||
Kansas City Southern | 0.32% | |||
Petrohawk Energy Corp. | 0.28% | |||
EQT Corp. | 0.25% |
5 Bottom Performers – Holdings
Contribution | ||||
Forest Oil Corp. | –0.67% | |||
First Niagara Financial Group, Inc. | –0.48% | |||
SunTrust Banks, Inc. | –0.43% | |||
Life Technologies Corp. | –0.36% | |||
Alcoa, Inc. | –0.31% |
5 Top Performers – Sectors*
Portfolio Weighting | Russell Midcap® Value | |||||||||||
Portfolio Contribution | (Average % of Equity) | Index Weighting | ||||||||||
Industrials | 1.50% | 12.15% | 10.50% | |||||||||
Financials | 1.00% | 25.66% | 30.14% | |||||||||
Information Technology | 0.66% | 11.50% | 7.27% | |||||||||
Telecommunication Services | 0.50% | 2.62% | 1.41% | |||||||||
Energy | 0.32% | 13.20% | 9.10% |
5 Bottom Performers – Sectors*
Portfolio Weighting | Russell Midcap® Value | |||||||||||
Portfolio Contribution | (Average % of Equity) | Index Weighting | ||||||||||
Consumer Discretionary | –1.04% | 11.15% | 11.11% | |||||||||
Health Care | –0.77% | 13.14% | 5.95% | |||||||||
Materials | –0.09% | 4.98% | 4.95% | |||||||||
Other** | –0.08% | –4.51% | 0.00% | |||||||||
Consumer Staples | 0.15% | 7.48% | 6.64% |
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. | ||
* | Based on sector classification according to the Global Industry Classification Standard (“GICS”) codes, which are the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
** | Not a GICS classified sector. |
4 | DECEMBER 31, 2011
(unaudited)
5 Largest Equity Holdings – (% of Net Assets)
As of December 31, 2011
Ameriprise Financial, Inc. Investment Management and Advisory Services | 1.7% | |||
Molson Coors Brewing Co. – Class B Brewery | 1.4% | |||
CenturyLink, Inc. Telephone – Integrated | 1.4% | |||
Vodafone Group PLC (ADR) Cellular Telecommunications | 1.3% | |||
Western Union Co. Commercial Services – Finance | 1.3% | |||
7.1% |
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Top Country Allocations – Long Positions (% of Investment Securities)
As of December 31, 2011
Janus Aspen Series | 5
Janus Aspen Perkins Mid Cap Value Portfolio (unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||
One | Five | Since | Total Annual Fund | Net Annual Fund | |||||||
Year | Year | Inception | Operating Expenses | Operating Expenses | |||||||
Janus Aspen Perkins Mid Cap Value Portfolio – Institutional Shares | –2.64% | 3.18% | 10.55%# | 0.92% | 0.92%(a) | ||||||
Janus Aspen Perkins Mid Cap Value Portfolio – Service Shares | –2.98% | 2.83% | 9.87%* | 1.27% | 1.27%(b) | ||||||
Russell Midcap® Value Index | –1.38% | 0.04% | 9.79%** | ||||||||
Lipper Quartile – Service Shares | 3rd | 1st | 1st | ||||||||
Lipper Ranking – Service Shares based on total returns for Variable Annuity Multi-Cap Core Funds | 124/226 | 5/154 | 3/86 | ||||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
(a) Janus Capital has contractually agreed to waive the Portfolio’s total annual fund operating expenses (excluding any performance adjustments to management fees, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses) to a certain limit until at least May 1, 2013. The contractual waiver may be terminated or modified prior to this date only at the discretion of the Board of Trustees. The expense waiver shown reflects the application of such limit. Returns shown include fee waivers, if any, and without such waivers, returns would have been lower.
(b) Janus Capital has contractually agreed to waive the Portfolio’s total annual fund operating expenses (excluding any performance adjustments to management fees, the distribution and shareholder servicing fees, administrative services fee, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses) to a certain limit until at least May 1, 2013. The contractual waiver may be terminated or modified prior to this date only at the discretion of the Board of Trustees. The expense waiver shown reflects the application of such limit. Returns shown include fee waivers, if any, and without such waivers, returns would have been lower.
See important disclosures on the next page.
6 | DECEMBER 31, 2011
(unaudited)
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. Contractual waivers agreed to by Janus Capital, where applicable, are included under “Net Annual Fund Operating Expenses.” All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio has a performance-based management fee that adjusts up or down based on the Portfolio’s performance relative to an approved benchmark index over a performance measurement period. See the Portfolio’s Prospectus or Statement of Additional Information for more details.
The Portfolio’s performance may be affected by risks that include those associated with undervalued or overlooked companies, investments in specific industries or countries, and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), real estate investment trusts (“REITs”), and derivatives. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
The Portfolio invests in REITs, which may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographic region. REITs may be subject to risks including, but not limited to: legal, political, liquidity, and interest rate risks, a decline in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrowers. To the extent the Portfolio invests in foreign REITs, the Portfolio may be subject to fluctuations in currency rates or political or economic conditions in a particular country.
The Portfolio may invest in derivatives which can be highly volatile and involve additional risks than if the underlying securities were held directly by the Portfolio. Such risks include gains or losses which, as a result of leverage, can be substantially greater than the derivatives’ original cost. There is also a possibility that derivatives may not perform as intended which can reduce opportunity for gains or result in losses by offsetting positive returns in other securities the Portfolio owns.
The Portfolio will normally invest at least 80% of its net assets, measured at the time of purchase, in the type of securities described by its name.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Service Share class only; other classes may have different performance characteristics. When an expense waiver is in effect, it may have a material effect on the total return, and therefore the ranking for the period.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the index. The index is unmanaged and is not available for direct investment; therefore, its performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
* | Service Shares inception date – December 31, 2002 | |
# | Institutional Shares inception date – May 1, 2003 | |
** | The Russell Midcap® Value Index’s since inception returns are calculated from December 31, 2002. |
Janus Aspen Series | 7
Janus Aspen Perkins Mid Cap Value Portfolio (unaudited)
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 923.50 | $ | 4.07 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.97 | $ | 4.28 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 922.20 | $ | 5.77 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.21 | $ | 6.06 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.84% for Institutional Shares and 1.19% for Service Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses include effect of contractual waivers by Janus Capital. |
8 | DECEMBER 31, 2011
Janus Aspen Perkins Mid Cap Value Portfolio
Schedule of Investments
As of December 31, 2011
Shares/Principal/Contract Amounts | Value | |||||||||
Common Stock – 91.3% | ||||||||||
Aerospace and Defense – 1.4% | ||||||||||
7,600 | General Dynamics Corp. | $ | 504,716 | |||||||
13,500 | Raytheon Co. | 653,130 | ||||||||
8,800 | Rockwell Collins, Inc. | 487,256 | ||||||||
1,645,102 | ||||||||||
Agricultural Chemicals – 0.5% | ||||||||||
12,400 | Mosaic Co. | 625,332 | ||||||||
Applications Software – 0.6% | ||||||||||
13,000 | Microsoft Corp.** | 337,480 | ||||||||
18,200 | Progress Software Corp.* | 352,170 | ||||||||
689,650 | ||||||||||
Brewery – 1.4% | ||||||||||
38,900 | Molson Coors Brewing Co. – Class B | 1,693,706 | ||||||||
Building – Residential and Commercial – 0.4% | ||||||||||
24,400 | M.D.C. Holdings, Inc. | 430,172 | ||||||||
Cellular Telecommunications – 1.3% | ||||||||||
55,700 | Vodafone Group PLC (ADR) | 1,561,271 | ||||||||
Chemicals – Diversified – 0.5% | ||||||||||
7,177 | FMC Corp. | 617,509 | ||||||||
Commercial Banks – 0.8% | ||||||||||
2,784 | First Republic Bank* | 85,218 | ||||||||
89,500 | TCF Financial Corp. | 923,640 | ||||||||
1,008,858 | ||||||||||
Commercial Services – Finance – 1.8% | ||||||||||
13,300 | Global Payments, Inc. | 630,154 | ||||||||
82,900 | Western Union Co. | 1,513,754 | ||||||||
2,143,908 | ||||||||||
Computer Software – 0.4% | ||||||||||
16,500 | Akamai Technologies, Inc.* | 532,620 | ||||||||
Computers – 0.1% | ||||||||||
4,100 | Hewlett-Packard Co. | 105,616 | ||||||||
Computers – Integrated Systems – 0.3% | ||||||||||
11,900 | Diebold, Inc. | 357,833 | ||||||||
Computers – Memory Devices – 0.3% | ||||||||||
10,000 | NetApp, Inc.* | 362,700 | ||||||||
Containers – Paper and Plastic – 0.4% | ||||||||||
17,800 | Packaging Corp. of America | 449,272 | ||||||||
Dental Supplies and Equipment – 0.3% | ||||||||||
12,400 | Patterson Cos., Inc. | 366,048 | ||||||||
Diversified Operations – 1.4% | ||||||||||
10,300 | Illinois Tool Works, Inc. | 481,113 | ||||||||
26,200 | Tyco International, Ltd. (U.S. Shares) | 1,223,802 | ||||||||
1,704,915 | ||||||||||
Electric – Integrated – 2.7% | ||||||||||
12,900 | Entergy Corp. | 942,345 | ||||||||
24,700 | Exelon Corp. | 1,071,239 | ||||||||
6,200 | PG&E Corp. | 255,564 | ||||||||
35,300 | PPL Corp. | 1,038,526 | ||||||||
3,307,674 | ||||||||||
Electronic Components – Miscellaneous – 0.6% | ||||||||||
19,000 | Garmin, Ltd. | 756,390 | ||||||||
Electronic Components – Semiconductors – 1.2% | ||||||||||
8,600 | Altera Corp. | 319,060 | ||||||||
42,100 | QLogic Corp.* | 631,500 | ||||||||
19,100 | Semtech Corp.* | 474,062 | ||||||||
1,424,622 | ||||||||||
Electronic Connectors – 0.4% | ||||||||||
9,400 | Thomas & Betts Corp.* | 513,240 | ||||||||
Electronic Forms – 0.5% | ||||||||||
22,400 | Adobe Systems, Inc.* | 633,248 | ||||||||
Electronic Parts Distributors – 0.7% | ||||||||||
16,600 | Tech Data Corp.* | 820,206 | ||||||||
Engineering – Research and Development Services – 2.9% | ||||||||||
32,100 | Jacobs Engineering Group, Inc.* | 1,302,618 | ||||||||
30,200 | KBR, Inc. | 841,674 | ||||||||
37,000 | URS Corp.* | 1,299,440 | ||||||||
3,443,732 | ||||||||||
Fiduciary Banks – 1.1% | ||||||||||
33,100 | State Street Corp. | 1,334,261 | ||||||||
Filtration and Separations Products – 0.2% | ||||||||||
4,000 | Pall Corp. | 228,600 | ||||||||
Finance – Credit Card – 1.1% | ||||||||||
55,300 | Discover Financial Services | 1,327,200 | ||||||||
Finance – Investment Bankers/Brokers – 0.8% | ||||||||||
16,200 | Raymond James Financial, Inc. | 501,552 | ||||||||
30,300 | TD Ameritrade Holding Corp. | 474,195 | ||||||||
975,747 | ||||||||||
Food – Miscellaneous/Diversified – 1.2% | ||||||||||
9,000 | General Mills, Inc. | 363,690 | ||||||||
32,500 | Unilever PLC (ADR) | 1,089,400 | ||||||||
1,453,090 | ||||||||||
Food – Retail – 0.8% | ||||||||||
15,200 | Kroger Co. | 368,144 | ||||||||
27,700 | Safeway, Inc. | 582,808 | ||||||||
950,952 | ||||||||||
Food – Wholesale/Distribution – 0.9% | ||||||||||
35,100 | Sysco Corp. | 1,029,483 | ||||||||
Gas – Transportation – 0.5% | ||||||||||
13,700 | AGL Resources, Inc. | 578,962 | ||||||||
Gold Mining – 1.8% | ||||||||||
59,300 | Eldorado Gold Corp. | 813,003 | ||||||||
17,300 | Goldcorp, Inc. (U.S. Shares) | 765,525 | ||||||||
10,700 | Newmont Mining Corp. | 642,107 | ||||||||
2,220,635 | ||||||||||
Instruments – Scientific – 1.5% | ||||||||||
33,600 | PerkinElmer, Inc. | 672,000 | ||||||||
24,100 | Thermo Fisher Scientific, Inc.* | 1,083,777 | ||||||||
1,755,777 | ||||||||||
Internet Security – 0.7% | ||||||||||
56,800 | Symantec Corp.* | 888,920 | ||||||||
Intimate Apparel – 0.6% | ||||||||||
13,300 | Warnaco Group, Inc.* | 665,532 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 9
Janus Aspen Perkins Mid Cap Value Portfolio
Schedule of Investments
As of December 31, 2011
Shares/Principal/Contract Amounts | Value | |||||||||
Investment Management and Advisory Services – 3.2% | ||||||||||
42,300 | Ameriprise Financial, Inc. | $ | 2,099,772 | |||||||
8,800 | Franklin Resources, Inc. | 845,328 | ||||||||
46,300 | INVESCO, Ltd. | 930,167 | ||||||||
3,875,267 | ||||||||||
Leisure & Recreation Products – 0.5% | ||||||||||
28,600 | WMS Industries, Inc.* | 586,872 | ||||||||
Machinery – Farm – 0.8% | ||||||||||
11,700 | Deere & Co. | 904,995 | ||||||||
Machinery – General Industrial – 0.4% | ||||||||||
20,650 | Babcock & Wilcox Co.* | 498,491 | ||||||||
Medical – Biomedical and Genetic – 1.6% | ||||||||||
18,000 | Charles River Laboratories International, Inc.* | 491,940 | ||||||||
25,900 | Life Technologies Corp.* | 1,007,769 | ||||||||
17,500 | Myriad Genetics, Inc.* | 366,450 | ||||||||
1,866,159 | ||||||||||
Medical – Drugs – 1.6% | ||||||||||
29,800 | Forest Laboratories, Inc.* | 901,748 | ||||||||
17,100 | Novartis A.G. (ADR) | 977,607 | ||||||||
1,879,355 | ||||||||||
Medical – Generic Drugs – 0.6% | ||||||||||
19,100 | Teva Pharmaceutical S.P. (ADR) | 770,876 | ||||||||
Medical – HMO – 0.3% | ||||||||||
13,200 | Health Net, Inc.* | 401,544 | ||||||||
Medical – Wholesale Drug Distributors – 0.3% | ||||||||||
4,600 | McKesson Corp. | 358,386 | ||||||||
Medical Instruments – 0.7% | ||||||||||
22,900 | St. Jude Medical, Inc. | 785,470 | ||||||||
Medical Labs and Testing Services – 1.0% | ||||||||||
13,900 | Laboratory Corp. of America Holdings* | 1,194,983 | ||||||||
Medical Products – 2.5% | ||||||||||
16,600 | Becton, Dickinson and Co. | 1,240,352 | ||||||||
18,800 | Covidien PLC (U.S. Shares) | 846,188 | ||||||||
18,100 | Zimmer Holdings, Inc. | 966,902 | ||||||||
3,053,442 | ||||||||||
Medical Sterilization Products – 0.5% | ||||||||||
18,700 | STERIS Corp. | 557,634 | ||||||||
Metal – Aluminum – 0.3% | ||||||||||
40,900 | Alcoa, Inc. | 353,785 | ||||||||
Metal – Copper – 0.5% | ||||||||||
15,600 | Freeport-McMoRan Copper & Gold, Inc. – Class B | 573,924 | ||||||||
Metal Processors and Fabricators – 0.4% | ||||||||||
14,800 | Kaydon Corp. | 451,400 | ||||||||
Motion Pictures and Services – 0.3% | ||||||||||
11,600 | Dolby Laboratories, Inc.* | 353,916 | ||||||||
Multi-Line Insurance – 1.6% | ||||||||||
54,900 | Allstate Corp. | 1,504,809 | ||||||||
45,200 | Old Republic International Corp. | 419,004 | ||||||||
1,923,813 | ||||||||||
Multimedia – 0.5% | ||||||||||
14,600 | Viacom, Inc. – Class B | 662,986 | ||||||||
Networking Products – 1.0% | ||||||||||
57,900 | Cisco Systems, Inc. | 1,046,832 | ||||||||
11,700 | Polycom, Inc.* | 190,710 | ||||||||
1,237,542 | ||||||||||
Non-Hazardous Waste Disposal – 0.9% | ||||||||||
38,600 | Republic Services, Inc. | 1,063,430 | ||||||||
Oil and Gas Drilling – 0.9% | ||||||||||
24,093 | Ensco International PLC (ADR) | 1,130,444 | ||||||||
Oil Companies – Exploration and Production – 6.8% | ||||||||||
10,700 | Anadarko Petroleum Corp. | 816,731 | ||||||||
20,800 | Bill Barrett Corp.* | 708,656 | ||||||||
12,800 | Devon Energy Corp. | 793,600 | ||||||||
12,600 | EQT Corp. | 690,354 | ||||||||
76,100 | Exco Resources, Inc. | 795,245 | ||||||||
29,200 | Forest Oil Corp.* | 395,660 | ||||||||
27,255 | Lone Pine Resources, Inc.* | 191,058 | ||||||||
11,818 | Noble Energy, Inc. | 1,115,501 | ||||||||
16,500 | Plains Exploration & Production Co.* | 605,880 | ||||||||
28,600 | QEP Resources, Inc. | 837,980 | ||||||||
14,400 | Southwestern Energy Co.* | 459,936 | ||||||||
15,600 | Whitting Petroleum Corp.* | 728,364 | ||||||||
8,138,965 | ||||||||||
Oil Companies – Integrated – 0.9% | ||||||||||
20,000 | Hess Corp. | 1,136,000 | ||||||||
Oil Field Machinery and Equipment – 0.5% | ||||||||||
9,100 | National Oilwell Varco, Inc. | 618,709 | ||||||||
Pipelines – 1.0% | ||||||||||
17,100 | Plains All American Pipeline L.P. | 1,255,995 | ||||||||
Publishing – Books – 1.0% | ||||||||||
51,400 | Reed Elsevier N.V. (ADR) | 1,192,994 | ||||||||
Reinsurance – 3.2% | ||||||||||
13,350 | Berkshire Hathaway, Inc. – Class B* | 1,018,605 | ||||||||
14,800 | Everest Re Group, Ltd. | 1,244,532 | ||||||||
14,600 | PartnerRe, Ltd. | 937,466 | ||||||||
12,800 | Reinsurance Group of America, Inc. | 668,800 | ||||||||
3,869,403 | ||||||||||
REIT – Apartments – 1.3% | ||||||||||
3,724 | Avalonbay Communities, Inc. | 486,354 | ||||||||
14,400 | BRE Properties, Inc. – Class A | 726,912 | ||||||||
6,200 | Mid-America Apartment Communities, Inc. | 387,810 | ||||||||
1,601,076 | ||||||||||
REIT – Diversified – 2.2% | ||||||||||
10,500 | Liberty Property Trust | 324,240 | ||||||||
21,600 | Potlatch Corp. | 671,976 | ||||||||
13,200 | Rayonier, Inc. | 589,116 | ||||||||
54,230 | Weyerhaeuser Co. | 1,012,474 | ||||||||
2,597,806 | ||||||||||
REIT – Hotels – 0.3% | ||||||||||
28,500 | Host Hotels & Resorts, Inc. | 420,945 | ||||||||
REIT – Mortgage – 0.6% | ||||||||||
11,800 | Annaly Mortgage Management, Inc. | 188,328 | ||||||||
49,800 | Redwood Trust, Inc. | 506,964 | ||||||||
695,292 | ||||||||||
REIT – Office Property – 1.6% | ||||||||||
7,300 | Alexandria Real Estate Equities, Inc. | 503,481 | ||||||||
5,600 | Boston Properties, Inc. | 557,760 |
See Notes to Schedule of Investments and Financial Statements.
10 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Shares/Principal/Contract Amounts | Value | |||||||||
REIT – Office Property – (continued) | ||||||||||
7,100 | Corporate Office Properties | $ | 150,946 | |||||||
25,100 | Mack-Cali Realty Corp. | 669,919 | ||||||||
1,882,106 | ||||||||||
REIT – Regional Malls – 0.5% | ||||||||||
8,800 | Taubman Centers, Inc. | 546,480 | ||||||||
REIT – Storage – 0.6% | ||||||||||
4,985 | Public Storage | 670,283 | ||||||||
REIT – Warehouse and Industrial – 0.4% | ||||||||||
14,800 | Prologis, Inc. | 423,132 | ||||||||
Retail – Apparel and Shoe – 1.2% | ||||||||||
51,600 | American Eagle Outfitters, Inc. | 788,964 | ||||||||
20,100 | Guess?, Inc. | 599,382 | ||||||||
1,388,346 | ||||||||||
Retail – Consumer Electronics – 0.7% | ||||||||||
14,100 | Best Buy Co., Inc. | 329,517 | ||||||||
55,900 | RadioShack Corp. | 542,789 | ||||||||
872,306 | ||||||||||
Retail – Discount – 0.9% | ||||||||||
6,200 | Big Lots, Inc.* | 234,112 | ||||||||
14,200 | Wal-Mart Stores, Inc. | 848,592 | ||||||||
1,082,704 | ||||||||||
Retail – Drug Store – 1.4% | ||||||||||
21,927 | CVS Caremark Corp. | 894,183 | ||||||||
25,200 | Walgreen Co. | 833,112 | ||||||||
1,727,295 | ||||||||||
Retail – Office Supplies – 0.6% | ||||||||||
50,800 | Staples, Inc. | 705,612 | ||||||||
Retail – Regional Department Stores – 1.1% | ||||||||||
15,400 | Kohl’s Corp. | 759,990 | ||||||||
18,800 | Macy’s, Inc. | 604,984 | ||||||||
1,364,974 | ||||||||||
Savings/Loan/Thrifts – 2.0% | ||||||||||
114,800 | First Niagara Financial Group, Inc. | 990,724 | ||||||||
50,900 | People’s United Financial, Inc. | 654,065 | ||||||||
55,217 | Washington Federal, Inc. | 772,486 | ||||||||
2,417,275 | ||||||||||
Semiconductor Components/Integrated Circuits – 0.7% | ||||||||||
10,500 | Analog Devices, Inc. | 375,690 | ||||||||
9,400 | Qualcomm, Inc. | 514,180 | ||||||||
889,870 | ||||||||||
Semiconductor Equipment – 0.6% | ||||||||||
63,000 | Applied Materials, Inc. | 674,730 | ||||||||
Super-Regional Banks – 3.0% | ||||||||||
88,600 | Fifth Third Bancorp. | 1,126,992 | ||||||||
24,800 | PNC Financial Services Group, Inc. | 1,430,216 | ||||||||
57,600 | SunTrust Banks, Inc. | 1,019,520 | ||||||||
3,576,728 | ||||||||||
Telephone – Integrated – 1.4% | ||||||||||
44,800 | CenturyLink, Inc.** | 1,666,560 | ||||||||
Textile-Home Furnishings – 0.3% | ||||||||||
6,532 | Mohawk Industries, Inc.* | 390,940 | ||||||||
Tools – Hand Held – 0.6% | ||||||||||
6,400 | Snap-On, Inc. | 323,968 | ||||||||
5,500 | Stanley Works | 371,800 | ||||||||
695,768 | ||||||||||
Toys – 0.3% | ||||||||||
12,800 | Mattel, Inc. | 355,328 | ||||||||
Transportation – Marine – 0.8% | ||||||||||
6,200 | Kirby Corp.* | 408,208 | ||||||||
12,300 | Tidewater, Inc. | 606,390 | ||||||||
1,014,598 | ||||||||||
Transportation – Railroad – 1.2% | ||||||||||
17,200 | CSX Corp. | 362,232 | ||||||||
6,900 | Kansas City Southern* | 469,269 | ||||||||
6,300 | Union Pacific Corp. | 667,422 | ||||||||
1,498,923 | ||||||||||
Transportation – Truck – 0.4% | ||||||||||
10,900 | J.B. Hunt Transport Services, Inc. | 491,263 | ||||||||
X-Ray Equipment – 0.7% | ||||||||||
48,100 | Hologic, Inc.* | 842,231 | ||||||||
Total Common Stock (cost $102,487,516) | 109,792,134 | |||||||||
Purchased Option – Call – 0% | ||||||||||
100 | iShares Russell 2000® Index Fund (ETF) expires January 2012 exercise price $73.91** (premiums paid $29,600) | 18,416 | ||||||||
Purchased Options – Puts – 0.2% | ||||||||||
100 | iShares Russell 2000® Index Fund (ETF) expires January 2012 exercise price $63.83 | 1,695 | ||||||||
100 | iShares Russell 2000® Index Fund (ETF) expires January 2012 exercise price $66.00 | 3,178 | ||||||||
134 | iShares Russell 2000® Index Fund (ETF) expires January 2012 exercise price $67.00 | 5,422 | ||||||||
292 | iShares Russell 2000® Index Fund (ETF) expires January 2012 exercise price $70.00 | 24,257 | ||||||||
180 | iShares Russell 2000® Index Fund (ETF) expires January 2012 exercise price $71.00 | 18,877 | ||||||||
613 | iShares Russell 2000® Index Fund (ETF) expires February 2012 exercise price $70.00 | 119,881 | ||||||||
136 | iShares Russell 2000® Index Fund (ETF) expires March 2012 exercise price $67.00 | 28,626 | ||||||||
Total Purchased Options – Puts (premiums paid $526,542) | 201,936 | |||||||||
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 11
Janus Aspen Perkins Mid Cap Value Portfolio
Schedule of Investments
As of December 31, 2011
Shares/Principal/Contract Amounts | Value | |||||||||
Repurchase Agreement – 8.8% | ||||||||||
$10,528,000 | ING Financial Markets LLC, 0.0100%, dated 12/30/11, maturing 1/3/12 to be repurchased at $10,528,012 collateralized by $779,693 in U.S. Government Agencies 2.2250% – 5.0000%, 7/17/15 – 2/1/36 and by $9,727,799 in U.S. Treasuries 0.2500% – 4.5000%, 5/31/13 – 11/15/41 with respective values of $448,870 and $10,289,759 (cost $10,528,000) | $ | 10,528,000 | |||||||
Total Investments (total cost $113,571,658) – 100.3% | 120,540,486 | |||||||||
Liabilities, net of Cash, Receivables and Other Assets– (0.3)% | (350,169) | |||||||||
Net Assets – 100% | $ | 120,190,317 | ||||||||
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Bermuda | $ | 3,112,165 | 2.6% | |||||
Canada | 1,578,528 | 1.3% | ||||||
Ireland | 846,188 | 0.7% | ||||||
Israel | 770,876 | 0.6% | ||||||
Netherlands | 1,192,994 | 1.0% | ||||||
Switzerland | 2,957,799 | 2.5% | ||||||
United Kingdom | 3,781,115 | 3.1% | ||||||
United States†† | 106,300,821 | 88.2% | ||||||
Total | $ | 120,540,486 | 100.0% |
†† | Includes Cash Equivalents (79.5% excluding Cash Equivalents). |
Schedule of Written Options – Call | Value | |||
iShares Russell 2000® Index Fund (ETF) expires January 2012 100 contracts exercise price $70.55 (premiums received $41,900) | $ | (41,098) | ||
See Notes to Schedule of Investments and Financial Statements.
12 | DECEMBER 31, 2011
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
Perkins | ||||||||||
Mid Cap | ||||||||||
As of December 31, 2011 | Value | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 113,572 | ||||||||
Investments at value | $ | 120,540 | ||||||||
Receivables: | ||||||||||
Portfolio shares sold | 59 | |||||||||
Dividends | 226 | |||||||||
Foreign dividend tax reclaim | 6 | |||||||||
Interest | – | |||||||||
Non-interested Trustees’ deferred compensation | 4 | |||||||||
Other assets | 1 | |||||||||
Total Assets | 120,836 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Options written, at value(1) | 41 | |||||||||
Due to custodian | 7 | |||||||||
Portfolio shares repurchased | 371 | |||||||||
Dividends | 3 | |||||||||
Advisory fees | 62 | |||||||||
Fund administration fees | 1 | |||||||||
Administrative services fees | 6 | |||||||||
Distribution fees and shareholder servicing fees | 17 | |||||||||
Non-interested Trustees’ fees and expenses | 2 | |||||||||
Non-interested Trustees’ deferred compensation fees | 4 | |||||||||
Accrued expenses and other payables | 132 | |||||||||
Total Liabilities | 646 | |||||||||
Net Assets | $ | 120,190 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 106,502 | ||||||||
Undistributed net investment income* | 296 | |||||||||
Undistributed net realized gain from investment and foreign currency transactions* | 6,423 | |||||||||
Unrealized net appreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | 6,969 | |||||||||
Total Net Assets | $ | 120,190 | ||||||||
Net Assets - Institutional Shares | $ | 41,295 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 2,686 | |||||||||
Net Asset Value Per Shares | $ | 15.37 | ||||||||
Net Assets - Service Shares | $ | 78,895 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 5,198 | |||||||||
Net Asset Value Per Share | $ | 15.18 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Includes premiums of $41,900 on written options. |
See Notes to Financial Statements.
Janus Aspen Series | 13
Statement of Operations
Janus Aspen | ||||||
Perkins | ||||||
Mid Cap | ||||||
For the fiscal year ended December 31, 2011 | Value | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | 6 | ||||
Dividends | 2,289 | |||||
Foreign tax withheld | (15) | |||||
Total Investment Income | 2,280 | |||||
Expenses: | ||||||
Advisory fees | 849 | |||||
Shareholder reports expense | 25 | |||||
Transfer agent fees and expenses | 1 | |||||
Registration fees | 39 | |||||
Custodian fees | 17 | |||||
Professional fees | 56 | |||||
Non-interested Trustees’ fees and expenses | 5 | |||||
Fund administration fees | 6 | |||||
Administrative services fees - Service Shares | 84 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 210 | |||||
Other expenses | 53 | |||||
Non-recurring costs (Note 4) | – | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | – | |||||
Total Expenses | 1,345 | |||||
Expense and Fee Offset | – | |||||
Net Expenses | 1,345 | |||||
Net Investment Income | 935 | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 9,553 | |||||
Net realized gain from written options contracts | 449 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (14,676) | |||||
Change in unrealized net appreciation/(depreciation) of written option contracts | (106) | |||||
Net Loss on Investments | (4,780) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (3,845) |
See Notes to Financial Statements.
14 | DECEMBER 31, 2011
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Perkins Mid Cap Value | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment income | $ | 935 | $ | 822 | ||||||
Net realized gain from investment and foreign currency transactions(1) | 10,002 | 8,534 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (14,782) | 6,785 | ||||||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (3,845) | 16,141 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | (322) | (259) | ||||||||
Service Shares | (493) | (386) | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | – | – | ||||||||
Service Shares | – | – | ||||||||
Net Decrease from Dividends and Distributions | (815) | (645) | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 20,032 | 15,691 | ||||||||
Service Shares | 16,130 | 16,933 | ||||||||
Reinvested Dividends and Distributions | ||||||||||
Institutional Shares | 322 | 259 | ||||||||
Service Shares | 493 | 386 | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (16,379) | (13,359) | ||||||||
Service Shares | (17,394) | (22,954) | ||||||||
Net Increase/(Decrease) from Capital Share Transactions | 3,204 | (3,044) | ||||||||
Net Increase/(Decrease) in Net Assets | (1,456) | 12,452 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 121,646 | 109,194 | ||||||||
End of period | $ | 120,190 | $ | 121,646 | ||||||
Undistributed Net Investment Income* | $ | 296 | $ | 93 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Certain prior year amounts have been reclassified to conform with current year presentation. |
See Notes to Financial Statements.
Janus Aspen Series | 15
Financial Highlights
Institutional Shares
Janus Aspen Perkins Mid Cap Value Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $15.91 | $13.85 | $10.71 | $16.77 | $16.64 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .16 | .13 | .05 | .07 | .27 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.58) | 2.03 | 3.48 | (4.27) | .99 | |||||||||||||||||
Total from Investment Operations | (.42) | 2.16 | 3.53 | (4.20) | 1.26 | |||||||||||||||||
Less Distributions and Other: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.12) | (.10) | (.07) | (.08) | (.27) | |||||||||||||||||
Distributions (from capital gains)* | – | – | (.31) | (1.78) | (.86) | |||||||||||||||||
Return of capital | N/A | N/A | (.01) | N/A | N/A | |||||||||||||||||
Total Distributions and Other | (.12) | (.10) | (.39) | (1.86) | (1.13) | |||||||||||||||||
Net Asset Value, End of Period | $15.37 | $15.91 | $13.85 | $10.71 | $16.77 | |||||||||||||||||
Total Return | (2.64)% | 15.66% | 33.69% | (27.68)%(1) | 7.42% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $41,295 | $38,892 | $31,424 | $14,221 | $12,758 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $42,054 | $35,949 | $20,308 | $13,956 | $13,220 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets(2) | 0.83% | 0.92% | 0.95% | 1.24% | 0.92% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets(2) | 0.83% | 0.92% | 0.95% | 1.24% | 0.91% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.97% | 0.99% | 0.93% | 0.97% | 1.66% | |||||||||||||||||
Portfolio Turnover Rate | 52% | 65% | 77% | 100% | 83% |
Service Shares
Janus Aspen Perkins Mid Cap Value Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
�� | ||||||||||||||||||||||
Net Asset Value, Beginning of Period | $15.74 | $13.72 | $10.63 | $16.67 | $16.56 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .11 | .08 | .04 | .06 | .22 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (.58) | 2.01 | 3.41 | (4.26) | .97 | |||||||||||||||||
Total from Investment Operations | (.47) | 2.09 | 3.45 | (4.20) | 1.19 | |||||||||||||||||
Less Distributions and Other: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.09) | (.07) | (.04) | (.06) | (.22) | |||||||||||||||||
Distributions (from capital gains)* | – | – | (.31) | (1.78) | (.86) | |||||||||||||||||
Return of capital | N/A | N/A | (.01) | N/A | N/A | |||||||||||||||||
Total Distributions and Other | (.09) | (.07) | (.36) | (1.84) | (1.08) | |||||||||||||||||
Net Asset Value, End of Period | $15.18 | $15.74 | $13.72 | $10.63 | $16.67 | |||||||||||||||||
Total Return | (2.98)% | 15.28% | 33.14% | (27.88)%(1) | 7.04% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $78,895 | $82,754 | $77,766 | $56,505 | $63,681 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $83,879 | $76,667 | $64,356 | $58,398 | $68,765 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets(2) | 1.19% | 1.27% | 1.38% | 1.59% | 1.26% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets(2) | 1.19% | 1.27% | 1.38% | 1.59% | 1.26% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.63% | 0.61% | 0.53% | 0.59% | 1.31% | |||||||||||||||||
Portfolio Turnover Rate | 52% | 65% | 77% | 100% | 83% |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Impact on performance due to reimbursement from subadviser was 1.74% and 1.75% for Institutional Shares and Service Shares, respectively. | |
(2) | See Note 6 in Notes to Financial Statements. |
See Notes to Financial Statements.
16 | DECEMBER 31, 2011
Notes to Schedule of Investments
Lipper Variable Annuity Multi-Cap Core Funds | Funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-cap core funds typically have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P SuperComposite 1500 Index. | |
Russell Midcap® Value Index | Measures the performance of those Russell Midcap® Index companies with lower price-to-book ratios and lower forecasted growth values. | |
S&P 500® Index | A commonly recognized, market-capitalization weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance. | |
ADR | American Depositary Receipt | |
ETF | Exchange-Traded Fund | |
PLC | Public Limited Company | |
REIT | Real Estate Investment Trust | |
U.S. Shares | Securities of foreign companies trading on an American Stock Exchange. |
* | Non-income producing security. | |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. |
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | ||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | |||||||||
Investments in Securities: | |||||||||||
Janus Aspen Perkins Mid Cap Value Portfolio | |||||||||||
Common Stock | |||||||||||
Cellular Telecommunications | $ | – | $ | 1,561,271 | $ | – | |||||
Food – Miscellaneous/Diversified | 363,690 | 1,089,400 | – | ||||||||
Medical – Drugs | 901,748 | 977,607 | – | ||||||||
Medical – Generic Drugs | – | 770,876 | – | ||||||||
Oil and Gas Drilling | – | 1,130,444 | – | ||||||||
Publishing – Books | – | 1,192,994 | – | ||||||||
All Other | 101,804,104 | – | – | ||||||||
Repurchase Agreement | – | 10,528,000 | – | ||||||||
Total Investments in Securities | $ | 103,069,542 | $ | 17,250,592 | $ | – | |||||
Investments in Purchased Options: | $ | – | $ | 220,352 | $ | – | |||||
Other Financial Instruments(a): | $ | – | $ | (41,098) | $ | – | |||||
(a) | Other financial instruments include futures, forward currency, written option, and swap contracts. Forward currency contracts and swap contracts are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. Futures are reported at their variation margin at measurement date, which represents the amount due to/from the Portfolio at that date. Options are reported at their market value at measurement date. |
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Perkins Mid Cap Value Portfolio | $ | 84,647 | |||
Repurchase agreements held by the Portfolio are fully collateralized, and such collateral is in the possession of the Portfolio’s custodian or, for tri-party agreements, the custodian designated by the agreement. The collateral is evaluated daily to ensure its market value exceeds the current market value of the repurchase agreements, including accrued interest. In the event of default on the obligation to repurchase, the Portfolio has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings.
Janus Aspen Series | 17
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Janus Aspen Perkins Mid Cap Value Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests primarily in equity securities. The Portfolio is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers two classes of shares: Institutional Shares and Service Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets.
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which
18 | DECEMBER 31, 2011
may be allocated pro rata to the Portfolio. Each class of shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
The Portfolio may make certain investments in real estate investment trusts (“REITs”) which pay dividends to their shareholders based upon funds available from operations. It is quite common for these dividends to exceed the REITs’ taxable earnings and profits, resulting in the excess portion of such dividends being designated as a return of capital. If the Portfolio distributes such amounts, such distributions could constitute a return of capital to shareholders for federal income tax purposes.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax
Janus Aspen Series | 19
Notes to Financial Statements (continued)
provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used
20 | DECEMBER 31, 2011
as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3 Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
There were no Level 3 securities during the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | DERIVATIVE INSTRUMENTS |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. Each derivative instrument that was held by the Portfolio during the fiscal year ended December 31, 2011 is discussed in further detail below. A summary of derivative activity is reflected in the tables at the end of this section.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital Management LLC’s (“Janus Capital”) ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the |
Janus Aspen Series | 21
Notes to Financial Statements (continued)
index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. | |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
Options Contracts
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. The Portfolio may purchase or write covered and uncovered put and call options on swap contracts (“swaptions”), futures contracts, and on portfolio securities for hedging purposes or as a substitute for an investment. The Portfolio is subject to interest rate risk, liquidity risk, equity risk, and currency risk in the normal course of pursuing its investment objective through its investments in options contracts. The Portfolio may use options contracts to hedge against changes in interest rates, the values of equities, or foreign currencies. The Portfolio may utilize American-style and European-style options. An American-style option is an option contract that can be exercised at any time between the time of purchase and the option’s expiration date. A European-style option is an option contract that can only be exercised on the option’s expiration date. The Portfolio may also purchase or write put and call options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. The Portfolio may also invest in long-term equity anticipation securities, which are long-term option contracts that can be maintained for a period of up to three years. The Portfolio may also enter into a swaption contract which grants the purchaser the right, but not the obligation, to enter into a swap transaction at preset terms detailed in the underlying agreement within a specified period of time. Entering into a swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk, associated with both option contracts and swap contracts. The Portfolio generally invests in options to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Portfolio receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. In writing an option, the Portfolio bears the risk of an unfavorable change in the price of the security underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio buying or selling a security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option are adjusted by the amount of premium received or paid.
The Portfolio may also purchase and write exchange-listed and OTC put and call options on domestic securities indices, and on foreign securities indices listed on domestic and foreign securities exchanges. Options on securities indices are similar to options on securities except that (1) the expiration cycles of securities index options are monthly, while those of securities options are currently quarterly, and (2) the delivery requirements are different. Instead of giving the right to take or make delivery of securities at a specified price, an option on a securities index gives the holder the right to receive a cash “exercise settlement amount” equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed “index multiplier.” Receipt of this cash amount will depend upon the closing level of the securities index upon which the option is based being greater than, in the case of a call, or less than, in the case of a put, the exercise price of the index and the exercise price of the option times a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount.
22 | DECEMBER 31, 2011
Options traded on an exchange are regulated and the terms of the options are standardized. Options traded OTC expose the Portfolio to counterparty risk in the event that the counterparty does not perform. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by having the counterparty post collateral to cover the Portfolio’s exposure to the counterparty.
Holdings of the Portfolio designated to cover outstanding written options are noted on the Schedule of Investments (if applicable). Options written are reported as a liability on the Statement of Assets and Liabilities as “Options written at value” (if applicable). Realized gains and losses are reported as “Net realized gain/(loss) from written options contracts” on the Statement of Operations (if applicable).
The risk in writing call options is that the Portfolio gives up the opportunity for profit if the market price of the security increases and the options are exercised. The risk in writing put options is that the Portfolio may incur a loss if the market price of the security decreases and the options are exercised. The risk in buying options is that the Portfolio pays a premium whether or not the options are exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. A lack of correlation between the value of an instrument underlying an option and the asset being hedged, or unexpected adverse price movements, could render the Portfolio’s hedging strategy unsuccessful. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased or sold. There is no limit to the loss the Portfolio may recognize due to written call options.
Written option activity for the fiscal year ended December 31, 2011 is indicated in the tables below:
Number of | Premiums | |||||||
Call Options | Contracts | Received | ||||||
Janus Aspen Perkins Mid Cap Value Portfolio | ||||||||
Options outstanding at December 31, 2010 | – | $ | – | |||||
Options written | 700 | 259,700 | ||||||
Options closed | (200) | (72,600) | ||||||
Options expired | (400) | (145,200) | ||||||
Options exercised | – | – | ||||||
Options outstanding at December 31, 2011 | 100 | $ | 41,900 | |||||
Number of | Premiums | |||||||
Put Options | Contracts | Received | ||||||
Janus Aspen Perkins Mid Cap Value Portfolio | ||||||||
Options outstanding at December 31, 2010 | 923 | $ | 157,882 | |||||
Options written | 1,907 | 326,080 | ||||||
Options closed | (1,155) | (197,141) | ||||||
Options expired | (1,675) | (286,821) | ||||||
Options exercised | – | – | ||||||
Options outstanding at December 31, 2011 | – | $ | – | |||||
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
The following table, grouped by derivative type, provides information about the fair value and location of derivatives within the Statement of Assets and Liabilities as of December 31, 2011.
Fair Value of Derivative Instruments as of December 31, 2011
Derivatives not accounted for as | Asset Derivatives | Liability Derivatives | ||||||||||
hedging instruments | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Equity Contracts | Unaffiliated investments, at value | $ | 220,352 | Options written, at value | $ | 41,098 | ||||||
Total | $ | 220,352 | $ | 41,098 | ||||||||
The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the fiscal year ended December 31, 2011.
The effect of Derivative Instruments on the Statement of Operations for the fiscal year ended December 31, 2011
Amount of Realized Gain/(Loss) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | – | $ | (453,895 | ) | $ | – | $ | (453,895 | ) | ||||||||
Total | $ | – | $ | – | $ | (453,895 | ) | $ | – | $ | (453,895 | ) | ||||||||
Janus Aspen Series | 23
Notes to Financial Statements (continued)
Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Forward Currency Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | – | $ | 9,553 | $ | – | $ | 9,553 | ||||||||||
Total | $ | – | $ | – | $ | 9,553 | $ | – | $ | 9,553 | ||||||||||
Please see the Portfolio’s Statement of Operations for the Portfolio’s “Net Realized and Unrealized Gain/(Loss) on Investments.”
The value of derivative instruments at period end and the effect of derivatives on the Statement of Operations are indicative of the Portfolio’s volume throughout the fiscal year.
3. | OTHER INVESTMENTS AND STRATEGIES |
Additional Investment Risk
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as
24 | DECEMBER 31, 2011
recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital or the subadviser, as applicable, will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Real Estate Investing
The Portfolio may invest in equity and debt securities of U.S. real estate-related companies. Such companies may include those in the real estate industry or real estate-related industries. These securities may include common stocks, preferred stocks, and other securities, including, but not limited to, REITs and similar REIT-like entities such as entities that have REIT characteristics.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it
Janus Aspen Series | 25
Notes to Financial Statements (continued)
receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio managers anticipate that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s “base” fee rate prior to any performance adjustment (expressed as an annual rate).
Base Fee | |||||
Rate (%) | |||||
Portfolio | (annual rate) | ||||
Janus Aspen Perkins Mid Cap Value Portfolio | 0.64 | ||||
For the Portfolio, the investment advisory fee rate is determined by calculating a base fee and applying a performance adjustment. The base fee rate is the same as the contractual investment advisory fee rate shown in the
26 | DECEMBER 31, 2011
table above. The performance adjustment either increases or decreases the base fee depending on how well the Portfolio has performed relative to its benchmark index, as shown below:
Portfolio | Benchmark Index | ||||
Janus Aspen Perkins Mid Cap Value Portfolio | Russell Midcap® Value Index | ||||
Only the base fee rate applied until February 2007 for the Portfolio. The calculation of the performance adjustment applies as follows:
Investment Advisory Fee = Base Fee Rate +/- Performance Adjustment
The investment advisory fee rate paid to Janus Capital by the Portfolio consists of two components: (1) a base fee calculated by applying the contractual fixed rate of the advisory fee to the Portfolio’s average daily net assets during the previous month (“Base Fee Rate”), plus or minus (2) a performance-fee adjustment (“Performance Adjustment”) calculated by applying a variable rate of up to 0.15% (positive or negative) to the Portfolio’s average daily net assets during the applicable performance measurement period. The performance measurement period generally is the previous 36 months, although no Performance Adjustment is made until the Portfolio’s performance-based fee structure has been in effect for at least 12 months. When the Portfolio’s performance-based fee structure has been in effect for at least 12 months, but less than 36 months, the performance measurement period is equal to the time that has elapsed since the performance-based fee structure took effect. As noted above, any applicable Performance Adjustment began February 2007 for the Portfolio.
No Performance Adjustment is applied unless the difference between the Portfolio’s investment performance and the cumulative investment record of the Portfolio’s benchmark index is 0.50% or greater (positive or negative) during the applicable performance measurement period. The Base Fee Rate is subject to an upward or downward Performance Adjustment for every full 0.50% increment by which the Portfolio outperforms or underperforms its benchmark index. Because the Performance Adjustment is tied to the Portfolio’s relative performance compared to its benchmark index (and not its absolute performance), the Performance Adjustment could increase Janus Capital’s fee even if the Portfolio’s Shares lose value during the performance measurement period and could decrease Janus Capital’s fee even if the Portfolio’s Shares increase in value during the performance measurement period. For purposes of computing the Base Fee Rate and the Performance Adjustment, net assets are averaged over different periods (average daily net assets during the previous month for the Base Fee Rate, versus average daily net assets during the performance measurement period for the Performance Adjustment). Performance of the Portfolio is calculated net of expenses, whereas the Portfolio’s benchmark index does not have any fees or expenses. Reinvestment of dividends and distributions is included in calculating both the performance of the Portfolio and the Portfolio’s benchmark index. The Base Fee Rate is calculated and accrued daily. The Performance Adjustment is calculated monthly in arrears and is accrued throughout the month. The investment fee is paid monthly in arrears. Under extreme circumstances involving underperformance by a rapidly shrinking Portfolio, the dollar amount of the Performance Adjustment could be more than the dollar amount of the Base Fee Rate. In such circumstances, Janus Capital would reimburse the Portfolio.
The application of an expense limit, if any, will have a positive effect upon the Portfolio’s performance and may result in an increase in the Performance Adjustment. It is possible that the cumulative dollar amount of additional compensation ultimately payable to Janus Capital may, under some circumstances, exceed the cumulative dollar amount of management fees waived by Janus Capital.
The investment performance of the Portfolio’s Service Shares for the performance measurement period is used to calculate the Performance Adjustment. After Janus Capital determines whether the Portfolio’s performance was above or below its benchmark index by comparing the investment performance of the Portfolio’s Service Shares against the cumulative investment record of its benchmark index, Janus Capital applies the same Performance Adjustment (positive or negative) across each other class of shares of the Portfolio, as applicable.
It is not possible to predict the effect of the Performance Adjustment on future overall compensation to Janus Capital since it depends on the performance of the Portfolio relative to the record of the Portfolio’s benchmark index and future changes to the size of the Portfolio.
The Portfolio’s prospectuses and statements of additional information contain additional information about performance-based fees. The amount shown as advisory fees on the Statement of Operations reflects the Base Fee Rate plus/minus any Performance Adjustment. During the fiscal year ended December 31, 2011, the Portfolio recorded a Performance Adjustment of $42,758.
Janus Capital has agreed to reimburse the Portfolio until at least May 1, 2013 by the amount, if any, that the Portfolio’s normal operating expenses in any fiscal year, including the investment advisory fee, but excluding any performance adjustment of management fees, the distribution and shareholder servicing (12b-1) fees applicable to Service Shares, the administrative services
Janus Aspen Series | 27
Notes to Financial Statements (continued)
fees applicable to Service Shares, brokerage commissions, interest, dividends, taxes, acquired fund fees and expenses, and extraordinary expenses, exceed the annual rate noted below. If applicable, amounts reimbursed to the Portfolio by Janus Capital are disclosed as “Excess Expense Reimbursement” on the Statement of Operations, if applicable.
Expense | |||||
Portfolio | Limit (%) | ||||
Janus Aspen Perkins Mid Cap Value Portfolio | 0.86 | ||||
Perkins Investment Management LLC (“Perkins”) serves as subadviser to the Portfolio. Janus Capital pays Perkins a fee equal to 50% of the advisory fee paid by the Portfolio to Janus Capital (plus or minus half of any performance fee adjustment, and net of any reimbursement of expenses incurred or fees waived by Janus Capital). Janus Capital owns approximately 78% of Perkins.
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services. In addition, Janus Services receives from the Portfolio a fee at an annual rate of up to 0.10% of the average daily net assets of the Service Shares of the Portfolio to compensate Janus Services for providing, or arranging for the provision of, certain other administrative services including, but not limited to, recordkeeping, accounting, order processing, and other shareholder services for the Portfolio.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares at an annual rate of up to 0.25% of Service Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011.
28 | DECEMBER 31, 2011
The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Undistributed | Undistributed | Late-year | Other Book | Net Tax | ||||||||||||||||
Ordinary | Long-Term | Accumulated | Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Perkins Mid Cap Value Portfolio | $ | 299,985 | $ | 7,830,511 | $ | – | $ | (741,816) | $ | (2,972) | $ | 6,303,085 | ||||||||
During the fiscal year ended December 31, 2011, the following capital loss carryovers were utilized by the Portfolio:
Capital Loss | ||||||||||||||
Portfolio | Carryover Utilized | |||||||||||||
Janus Aspen Perkins Mid Cap Value Portfolio | $ | 2,700,110 | ||||||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary differences between book and tax appreciation or depreciation of investments are wash sale loss deferrals and partnerships.
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Perkins Mid Cap Value Portfolio | $ | 114,237,401 | $ | 13,414,263 | $ | (7,111,178) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Perkins Mid Cap Value Portfolio | $ | 815,132 | $ | – | $ | – | $ | – | |||||||||
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Perkins Mid Cap Value Portfolio | $ | 645,110 | $ | – | $ | – | $ | – | |||||||||
Janus Aspen Series | 29
Notes to Financial Statements (continued)
6. | Expense Ratios |
The expense ratios listed in the Financial Highlights reflect expenses prior to any expense offsets (gross expense ratio) and after expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursement). Listed below are the gross expense ratios for the Portfolio that would have been in effect, absent the waiver of certain fees and offsets.
For each fiscal year ended December 31
Janus Aspen Perkins | ||||
Mid Cap Value Portfolio | ||||
Institutional Shares | ||||
2011 | 0.83% | |||
2010 | 0.92% | |||
2009 | 0.95% | |||
2008 | 1.30% | |||
2007 | 0.92% | |||
Service Shares | ||||
2011 | 1.19% | |||
2010 | 1.27% | |||
2009 | 1.38% | |||
2008 | 1.64% | |||
2007 | 1.26% |
7. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Perkins Mid Cap Value Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 1,230 | 1,093 | ||||||||
Reinvested dividends and distributions | 20 | 17 | ||||||||
Shares repurchased | (1,008) | (935) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | 242 | 175 | ||||||||
Shares Outstanding, Beginning of Period | 2,444 | 2,269 | ||||||||
Shares Outstanding, End of Period | 2,686 | 2,444 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 1,018 | 1,191 | ||||||||
Reinvested dividends and distributions | 31 | 26 | ||||||||
Shares repurchased | (1,108) | (1,630) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (59) | (413) | ||||||||
Shares Outstanding, Beginning of Period | 5,257 | 5,670 | ||||||||
Shares Outstanding, End of Period | 5,198 | 5,257 |
8. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Perkins Mid Cap Value Portfolio | $ | 60,997,002 | $ | 62,184,171 | $ | – | $ | – | ||||||
30 | DECEMBER 31, 2011
9. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
10. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
Janus Aspen Series | 31
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Perkins Mid Cap Value Portfolio:
of Janus Aspen Perkins Mid Cap Value Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Perkins Mid Cap Value Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
32 | DECEMBER 31, 2011
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
Janus Aspen Series | 33
Additional Information (unaudited) (continued)
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
34 | DECEMBER 31, 2011
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
Janus Aspen Series | 35
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The net annual fund operating expenses ratio (if applicable) includes contractual waivers of Janus Capital and reflects the Portfolio’s subsidized expense ratio. Both the total annual fund operating expenses ratio and net annual fund operating expenses ratio are based on average net assets as of the fiscal year ended December 31, 2010. The ratios also include expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, these ratios may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
2a. Options
A table listing written options contracts follows the Portfolio’s Schedule of Investments (if applicable). Written options contracts are contracts that obligate the Portfolio to sell or purchase an underlying security at a fixed price, upon exercise of the option. Options are used to hedge against adverse movements in securities prices, currency risk or interest rates.
The table provides the name of the contract, number of contracts held, the expiration date, exercise price, value and premiums received.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid. Additionally, there may be other assets and liabilities.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s
36 | DECEMBER 31, 2011
net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
Janus Aspen Series | 37
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio managers. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
38 | DECEMBER 31, 2011
Designation Requirements (unaudited)
For federal income tax purposes, the Portfolio designated the following for the year ended December 31, 2011:
Dividends Received Deduction Percentage
Portfolio | ||||||||||
Janus Aspen Perkins Mid Cap Value Portfolio | 100% | |||||||||
Janus Aspen Series | 39
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
40 | DECEMBER 31, 2011
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments – HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
Janus Aspen Series | 41
Trustees and Officers (unaudited) (continued)
OFFICERS
Term of Office* and | Principal Occupations | |||||
Name, Address, and Age | Positions Held with the Trust | Length of Time Served | During the Past Five Years | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. |
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
42 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 43
Notes
44 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 45
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: | NOT FDIC-INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||||
C-0112-126 | 109-02-81122 02-12 |
ANNUAL REPORT
December 31, 2011
Janus Aspen Series
HIGHLIGHTS
• | Portfolio management perspective |
• | Investment strategy behind your portfolio |
• | Portfolio performance, characteristics and holdings |
Table of Contents
Janus Aspen Series
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2 | ||
12 | ||
13 | ||
14 | ||
15 | ||
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19 | ||
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35 | ||
38 | ||
41 | ||
42 |
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Useful Information About Your Portfolio Report (unaudited)
Management Commentary
The Management Commentary in this report includes valuable insight from the Portfolio’s manager as well as statistical information to help you understand how your Portfolio’s performance and characteristics stack up against those of comparable indices.
If the Portfolio invests in foreign securities, this report may include information about country exposure. Country exposure is based primarily on the country of domicile. However, the Portfolio’s manager may allocate a company to a country based on other factors such as location of the company’s principal office, the location of the principal trading market for the company’s securities, or the country where a majority of the company’s revenues are derived.
Please keep in mind that the opinions expressed by the Portfolio’s manager in the Management Commentary are just that: opinions. They are a reflection of the manager’s best judgment at the time this report was compiled, which was December 31, 2011. As the investing environment changes, so could the manager’s opinions. These views are unique to the manager and aren’t necessarily shared by fellow employees or by Janus in general.
Portfolio Expenses
We believe it’s important for our shareholders to have a clear understanding of Portfolio expenses and the impact they have on investment return.
The following is important information regarding the Portfolio’s Expense Example, which appears in the Portfolio’s Management Commentary within this Annual Report. Please refer to this information when reviewing the Expense Example for the Portfolio.
Example
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including redemption fees, where applicable (and any related exchange fees) and (2) ongoing costs, including management fees; distribution and shareholder servicing (12b-1) fees (applicable to Service Shares and Service II Shares only); and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The example is based upon an investment of $1,000 invested at the beginning of the period and held for the six-month period from July 1, 2011 to December 31, 2011.
Actual Expenses
The first line of the table in each example provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table in each example provides information about hypothetical account values and hypothetical expenses based upon the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as redemption fees (where applicable) and any charges at the separate account level or contract level. These fees are fully described in the prospectus. Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Janus Aspen Series | 1
Janus Aspen Worldwide Portfolio (unaudited)
Portfolio Snapshot Janus Aspen Worldwide Portfolio invests globally, seeking companies with competitive advantages that lead to improving returns on invested capital and sustainable long-term growth. We invest where we believe we possess differentiated research insights in an effort to deliver superior risk-adjusted results over time. | George Maris portfolio manager |
Performance Overview
Janus Aspen Worldwide Portfolio’s Institutional Shares, Service Shares and Service II Shares returned -13.74%,
-13.99% and -13.98%, respectively, over the 12-month period ended December 31, 2011, while its benchmark, the MSCI World Index, returned -5.54%.
-13.99% and -13.98%, respectively, over the 12-month period ended December 31, 2011, while its benchmark, the MSCI World Index, returned -5.54%.
Economic Update
It was a volatile and difficult year for global equity markets. The Japanese tsunami, the Arab Spring, a U.S. downgrade, and China’s slowing economy hurt stock markets. But most damaging was the European crisis as investors questioned the creditworthiness of European Union members. The focus was Greece, but the crisis enveloped Ireland, Portugal, Spain and Italy, and led to broader fears of another Lehman-like financial crisis.
Some equity markets held up during this volatility, including the U.S. and U.K. But most markets around the world faced steep declines, including Japan, Germany, France, Canada, Hong Kong, Taiwan, Brazil and India. The divergence of returns between sectors reflected the fear among investors. Typically defensive sectors such as utilities, health care and consumer staples performed well in 2011. Cyclical sectors like financials and basic materials suffered from fears of financial panic and global recession.
In the fourth quarter, equity markets rebounded from the deep sell-off in the third quarter after positive developments in the European debt crisis and improved U.S. economic data. The utilization of liquidity measures in the European financial system along with new, potentially more fiscally responsible governments in Greece, Italy and Spain eased investor concerns. Despite the modest rebound, performance for most equity markets was still not particularly strong, showing continued investor anxiety.
Performance Overview
The Portfolio underperformed largely due to our financial, energy and consumer discretionary holdings. Our financial sector performance was particularly hurt by the weakness in Societe Generale and Morgan Stanley. Societe Generale is one of two European-centric banks we own. Both were selling at substantial discounts to our assessment of intrinsic value as of period end. Not only do we think our European balance-sheet financials have much stronger capital positions than their market prices reflect, but they have growth opportunities once the crisis subsides. We also hold several U.S. financial institutions, such as Morgan Stanley, which we believe are more attractively positioned than the market prices suggest. Their balance sheets are strong and liquid, with substantially reduced exposures to Europe, and they are taking share from global competitors which do not have the capital strength to compete.
In general, it appears financials are priced for a Lehman-like disaster. We think this outcome is unlikely given the variety of measures in place as a consequence of the Lehman crisis. Furthermore, the scope of the problem does not appear as drastic as it did in 2008. Once the threats of financial panic and contagion go away, we expect a reversion to more normal equity risk premiums for equities in general and for financials in particular. All else equal, lower risk premiums raise stock prices.
We believe that financials, currently the most exposed to fears of crisis, will benefit the most from a revaluation following a constructive resolution.
We therefore maintained our overweight exposure to financials. In this environment, we continue to seek companies with extraordinarily attractive valuations, but the Portfolio could evolve to less economically sensitive financial holdings in the future. Currently, we are willing to accept the risk because of the attractive valuations that we believe reflect fear, not fact.
Indian education company Educomp Solutions and Hong Kong retail outsourcing and logistics firm Li & Fung were the Portfolio’s largest detractors in consumer discretionary. Educomp suffered from poor capital allocation decisions. The company, however, is undertaking a dramatic change in corporate spending which is expected to significantly
2 | DECEMBER 31, 2011
(unaudited)
increase earnings. With the Indian education market offering substantial opportunity, we believe the secular trends benefitting Educomp’s unique business model should sustain substantial growth.
Li & Fung suffered from investor concerns over cost pressure from higher prices for cotton and other commodities as well as weakness in consumer spending on apparel. We think inflationary pressures throughout the retail supply chain should help Li & Fung since its primary objective is to reduce costs for its customers. We believe this environment plays to Li & Fung’s strengths in managing vendor costs. We also believe that its relatively new Wal-Mart relationship will help accelerate earnings over the long-term.
Top contributors to the Portfolio’s performance included Japan Tobacco. We think the company can create significant value through better capital allocation, namely using its strong free-cash-flow generation to increase shareholder payouts through dividends and share buybacks. Japan Tobacco is expected to repurchase shares from the Japanese government, a significant shareholder that needs cash to pay for reconstruction efforts related to last March’s earthquake. Further, we believe earnings will rebound as Japan Tobacco recovers market share lost following supply disruptions after the earthquake, and as the Japanese government considers increasing taxes on cigarettes. Higher taxes historically have resulted in stronger earnings without significantly impacting volume.
Our information technology holdings, led by Autonomy, also significantly contributed to performance. Our investment in Autonomy was rewarded when Hewlett Packard in August announced its intent to acquire the U.K. software company. With the shares reflecting the value of the offer and the low likelihood of a competing offer, we exited our position at a substantial gain. (Please see the Derivative Instruments section in the “Notes to Financial Statements” for a discussion of derivatives used by the Portfolio).
Investment Strategy and Outlook
We are positive on equities for 2012. The outlook for Europe seems better now than a year ago. The financial crisis is leading to reforms that address the problem of a monetary union without fiscal coordination. Further, we expect to see reductions in public spending on non-productive endeavors. There will likely be unfortunate economic pain in the short-term, particularly in the peripheral countries, and it will likely spread in varying degrees throughout Europe. We believe these measures should lay the base for healthy economic growth in the future. They will likely drive investor confidence, starting with lower yields and ultimately leading to higher equity valuations, especially as global equities appear to be inexpensive relative to other assets.
We believe the U.S. economy is stabilizing, but we expect a contentious election in 2012 to keep the environment in flux. U.S. corporations, however, are in great shape with strong cash positions, healthy profit margins and good potential for growth. Unless the government does something drastic, we think the outlook for the corporate sector is attractive.
In Japan, we think the reduction in government ownership in companies and in cross-ownership among companies should support stock prices by freeing up capital for higher return uses. Japan remains a levered economy with demographic challenges, but its skill in manufacturing and proximity to China offers growth potential. We also believe the Yen is unlikely to continue its recent strength if the crisis in Europe calms. A weaker Yen would help Japanese manufacturers.
Among emerging markets, we favor China and Brazil, as they are phasing out their restrictive monetary policies. Greater liquidity will likely boost domestic investment and economic activity. We also think China and Brazil will benefit as the global economy stabilizes. Our view on India is more pessimistic. While the opportunities offered appear great, government gridlock is lasting longer than we anticipated and does not seem likely to abate soon. We are restricting our investments in India to only those companies we consider to possess unique and extraordinary fundamental characteristics.
While we expect a gradual resolution of the European crisis and the uncertainty impacting the global economy, we do not pretend to know the timing. But we know relative valuations are several standard deviations from the norm. We are willing to assume that companies with attractive fundamentals will not remain perpetually undervalued.
Thank you for your investment in Janus Aspen Worldwide Portfolio.
Janus Aspen Series | 3
Janus Aspen Worldwide Portfolio (unaudited)
Janus Aspen Worldwide Portfolio At A Glance
5 Top Performers – Holdings
Contribution | ||||
Japan Tobacco, Inc. | 0.64% | |||
Aggreko PLC | 0.39% | |||
Autonomy Corp. PLC | 0.37% | |||
Humana, Inc. | 0.31% | |||
Celgene Corp. | 0.30% |
5 Bottom Performers – Holdings
Contribution | ||||
Societe Generale – Class A | –1.34% | |||
Educomp Solutions, Ltd. | –1.12% | |||
Jain Irrigation Systems, Ltd. | –1.10% | |||
Li & Fung, Ltd. | –0.94% | |||
Morgan Stanley | –0.80% |
5 Top Performers – Sectors*
Portfolio Weighting | Morgan Stanley Capital International | |||||||||||
Portfolio Contribution | (Average % of Equity) | World IndexSM Weighting | ||||||||||
Health Care | 0.27% | 10.73% | 9.78% | |||||||||
Materials | 0.10% | 6.61% | 7.91% | |||||||||
Other** | 0.01% | 0.03% | 0.00% | |||||||||
Telecommunication Services | –0.21% | 1.91% | 4.28% | |||||||||
Utilities | –0.49% | 2.60% | 3.90% |
5 Bottom Performers – Sectors*
Portfolio Weighting | Morgan Stanley Capital International | |||||||||||
Portfolio Contribution | (Average % of Equity) | World IndexSM Weighting | ||||||||||
Financials | –3.17% | 21.78% | 19.20% | |||||||||
Energy | –1.62% | 12.32% | 11.47% | |||||||||
Consumer Discretionary | –1.23% | 12.33% | 10.35% | |||||||||
Consumer Staples | –0.86% | 8.10% | 10.16% | |||||||||
Industrials | –0.58% | 8.38% | 11.21% |
Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. | ||
* | Based on sector classification according to the Global Industry Classification Standard (“GICS”) codes, which are the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
** | Not a GICS classified sector. |
4 | DECEMBER 31, 2011
(unaudited)
5 Largest Equity Holdings – (% of Net Assets)
As of December 31, 2011
Banco Bilbao Vizcaya Argentaria S.A. Commercial Banks | 2.9% | |||
Japan Tobacco, Inc. Tobacco | 2.8% | |||
Celgene Corp. Medical – Biomedical and Genetic | 2.6% | |||
Standard Chartered PLC Commercial Banks | 2.1% | |||
Petroleo Brasileiro S.A. (ADR) Oil Companies – Integrated | 2.1% | |||
12.5% |
Asset Allocation – (% of Net Assets)
As of December 31, 2011
Emerging markets comprised 6.1% of total net assets.
Top Country Allocations – Long Positions (% of Investment Securities)
As of December 31, 2011
Janus Aspen Series | 5
Janus Aspen Worldwide Portfolio (unaudited)
Performance
Average Annual Total Return – for the periods ended December 31, 2011 | Expense Ratios – per the May 1, 2011 prospectuses | ||||||||||
One | Five | Ten | Since | Total Annual Fund | |||||||
Year | Year | Year | Inception* | Operating Expenses | |||||||
Janus Aspen Worldwide Portfolio – Institutional Shares | –13.74% | –3.55% | 0.11% | 6.92% | 0.65% | ||||||
Janus Aspen Worldwide Portfolio – Service Shares | –13.99% | –3.80% | –0.15% | 6.64% | 0.90% | ||||||
Janus Aspen Worldwide Portfolio – Service II Shares | –13.98% | –3.79% | –0.14% | 6.64% | 0.89% | ||||||
Morgan Stanley Capital International World IndexSM | –5.54% | –2.37% | 3.62% | 5.54% | |||||||
Morgan Stanley Capital International All Country World IndexSM | –7.35% | –1.93% | 4.24% | N/A** | |||||||
Lipper Quartile – Institutional Shares | 4th | 3rd | 4th | 2nd | |||||||
Lipper Ranking – Institutional Shares based on total returns for Variable Annuity Global Funds | 115/135 | 67/90 | 45/49 | 3/9 | |||||||
Visit janus.com/variable-insurance to view current performance and characteristic information | |||||||||||
Data presented represents past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. Call 877.33JANUS(52687) or visit janus.com/variable-insurance for performance current to the most recent month-end.
For Service II Shares, a 1% redemption fee may be imposed on shares held for 60 days or less. Performance shown does not reflect this redemption fee and, if reflected, performance would have been lower.
The Portfolio’s expense ratios shown were determined based on average net assets as of the fiscal year ended December 31, 2010. The expense information shown may include “acquired fund” fees and expenses. (“Acquired Fund” refers to any underlying fund (including, but not limited to, exchange-traded funds) in which the Portfolio invests or has invested during the period.) Further information is available in the prospectus. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
The Portfolio has a performance-based management fee that adjusts up or down based on the Portfolio’s performance relative to an approved benchmark index over a performance measurement period. See the Portfolio’s Prospectus or Statement of Additional Information for more details.
See important disclosures on the next page.
6 | DECEMBER 31, 2011
(unaudited)
The Portfolio’s performance may be affected by risks that include those associated with investments in specific industries or countries and potential conflicts of interest with a Janus “fund of funds.” Additional risks to the Portfolio may include those associated with investing in foreign securities, emerging markets, initial public offerings (“IPOs”), and derivatives. Please see a Janus prospectus or janus.com/variable-insurance for more information about risks, portfolio holdings and other details.
The Portfolio may invest in derivatives which can be highly volatile and involve additional risks than if the underlying securities were held directly by the Portfolio. Such risks include gains or losses which, as a result of leverage, can be substantially greater than the derivatives’ original cost. There is also a possibility that derivatives may not perform as intended which can reduce opportunity for gains or result in losses by offsetting positive returns in other securities the Portfolio owns.
Foreign securities have additional risks including exchange rate changes, political and economic upheaval, the relative lack of information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. These risks are magnified in emerging markets. The prices of foreign securities held by the Portfolio, and therefore the Portfolio’s performance, may decline in response to such risks.
The Portfolio may have significant exposure to emerging markets. In general, emerging market investments have historically been subject to significant gains and/or losses. As such, the Portfolio’s returns and NAV may be subject to volatility.
These returns do not reflect the charges and expenses of any particular insurance product or qualified plan. Returns shown would have been lower had they included insurance charges.
Returns include reinvestment of dividends from net investment income and distributions from capital gains. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. The returns do not include adjustments in accordance with generally accepted accounting principles required at the period end for financial reporting purposes.
Returns shown for Service Shares and Service II Shares for periods prior to December 31, 1999 and December 31, 2001, respectively, are derived from the historical performance of Institutional Shares, adjusted to reflect the higher operating expenses of Service Shares and Service II Shares.
Net dividends reinvested are the dividends that remain to be reinvested after foreign tax obligations have been met. Such obligations vary from country to country.
Lipper, a wholly-owned subsidiary of Thomson Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested.
Ranking is for the Institutional Share class only; other classes may have different performance characteristics. When an expense waiver is in effect, it may have a material effect on the total return, and therefore the ranking for the period.
September 30, 1993 is the date used to calculate the since-inception Lipper ranking, which is slightly different from when the Portfolio began operations since Lipper provides fund rankings as of the last day of the month.
There is no assurance that the investment process will consistently lead to successful investing.
See Notes to Schedule of Investments for index definitions.
The Portfolio’s holdings may differ significantly from the securities held in the indices. The indices are unmanaged and are not available for direct investment; therefore, their performance does not reflect the expenses associated with the active management of an actual portfolio.
See “Explanations of Charts, Tables and Financial Statements.”
Effective March 14, 2011, George Maris is portfolio manager of Janus Aspen Worldwide Portfolio.
* | The Portfolio’s inception date – September 13, 1993 | |
** | Since inception return is not shown for the index because the index’s inception date differs significantly from the Portfolio’s inception date. |
Janus Aspen Series | 7
Janus Aspen Worldwide Portfolio (unaudited)
Portfolio Expenses
The examples below show you the ongoing costs (in dollars) of investing in your Portfolio and allow you to compare these costs with those of other mutual funds. Please refer to the section Useful Information About Your Portfolio Report for a detailed explanation of the information presented in these charts.
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Institutional Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 844.00 | $ | 3.63 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.27 | $ | 3.97 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 843.00 | $ | 4.78 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.01 | $ | 5.24 | ||||||||
Beginning Account Value | Ending Account Value | Expenses Paid During Period | ||||||||||||
Expense Example – Service II Shares | (7/1/11) | (12/31/11) | (7/1/11 - 12/31/11)† | |||||||||||
Actual | $ | 1,000.00 | $ | 843.50 | $ | 4.65 | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | ||||||||
† | Expenses are equal to the annualized expense ratio of 0.78% for Institutional Shares, 1.03% for Service Shares and 1.00% for Service II Shares multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
8 | DECEMBER 31, 2011
Janus Aspen Worldwide Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Contract Amounts | Value | |||||||||
Common Stock – 97.9% | ||||||||||
Aerospace and Defense – 1.2% | ||||||||||
117,500 | General Dynamics Corp. | $ | 7,803,175 | |||||||
Agricultural Chemicals – 0.5% | ||||||||||
56,755 | Mosaic Co. | 2,862,155 | ||||||||
Agricultural Operations – 0.1% | ||||||||||
8,132,810 | Chaoda Modern Agriculture Holdings, Ltd.ß,°° | 575,956 | ||||||||
Apparel Manufacturers – 0.5% | ||||||||||
654,061 | Prada SpA*,** | 2,960,257 | ||||||||
Applications Software – 0.5% | ||||||||||
116,545 | Microsoft Corp. | 3,025,508 | ||||||||
Automotive – Cars and Light Trucks – 1.3% | ||||||||||
745,760 | Ford Motor Co. | 8,024,378 | ||||||||
Building �� Residential and Commercial – 1.8% | ||||||||||
4,775 | NVR, Inc.* | 3,275,650 | ||||||||
14,048,731 | Taylor Woodrow PLC* | 8,180,042 | ||||||||
11,455,692 | ||||||||||
Cable/Satellite Television – 1.8% | ||||||||||
492,450 | Comcast Corp. – Class A | 11,675,989 | ||||||||
Coal – 0.9% | ||||||||||
395,725 | Arch Coal, Inc. | 5,741,970 | ||||||||
Commercial Banks – 6.0% | ||||||||||
2,130,122 | Banco Bilbao Vizcaya Argentaria S.A.** | 18,413,975 | ||||||||
462,600 | Banco do Brasil S.A. | 5,880,193 | ||||||||
608,361 | Standard Chartered PLC | 13,309,432 | ||||||||
37,603,600 | ||||||||||
Commercial Services – 0.7% | ||||||||||
145,350 | Aggreko PLC | 4,552,061 | ||||||||
Computer Aided Design – 1.5% | ||||||||||
163,796 | ANSYS, Inc.* | 9,382,235 | ||||||||
Computers – Integrated Systems – 0.6% | ||||||||||
80,010 | Teradata Corp.* | 3,881,285 | ||||||||
Computers – Memory Devices – 0.8% | ||||||||||
231,245 | EMC Corp.* | 4,981,017 | ||||||||
Distribution/Wholesale – 1.4% | ||||||||||
4,789,815 | Li & Fung, Ltd. | 8,868,771 | ||||||||
Diversified Banking Institutions – 7.1% | ||||||||||
461,040 | Citigroup, Inc. | 12,129,962 | ||||||||
366,815 | JPMorgan Chase & Co. | 12,196,599 | ||||||||
777,245 | Morgan Stanley | 11,759,717 | ||||||||
398,464 | Societe Generale – Class A** | 8,871,772 | ||||||||
44,958,050 | ||||||||||
E-Commerce/Products – 1.0% | ||||||||||
200,510 | eBay, Inc.* | 6,081,468 | ||||||||
Educational Software – 0.7% | ||||||||||
1,257,216 | Educomp Solutions, Ltd. | 4,543,498 | ||||||||
Electric – Integrated – 1.2% | ||||||||||
351,304 | Fortum Oyj** | 7,496,704 | ||||||||
Electronic Components – Miscellaneous – 1.5% | ||||||||||
297,905 | TE Connectivity, Ltd. (U.S. Shares) | 9,178,453 | ||||||||
Energy – Alternate Sources – 0% | ||||||||||
2,340,214 | Indiabulls Infrastructure and Power, Ltd.°° | 0 | ||||||||
Enterprise Software/Services – 0.8% | ||||||||||
193,525 | Oracle Corp. | 4,963,916 | ||||||||
Food – Confectionary – 1.3% | ||||||||||
135,430 | Hershey Co. | 8,366,865 | ||||||||
Food – Miscellaneous/Diversified – 1.4% | ||||||||||
260,525 | Unilever N.V.** | 8,957,928 | ||||||||
Food – Wholesale/Distribution – 0.7% | ||||||||||
2,572,375 | Olam International, Ltd. | 4,225,464 | ||||||||
Heart Monitors – 0.8% | ||||||||||
75,140 | HeartWare International, Inc.* | 5,184,660 | ||||||||
Hotels and Motels – 0.7% | ||||||||||
170,035 | Accor S.A.** | 4,309,516 | ||||||||
Independent Power Producer – 1.8% | ||||||||||
633,480 | NRG Energy, Inc.* | 11,478,658 | ||||||||
Industrial Automation and Robotics – 1.8% | ||||||||||
73,200 | Fanuc Corp.** | 11,205,926 | ||||||||
Industrial Gases – 2.0% | ||||||||||
119,190 | Praxair, Inc. | 12,741,411 | ||||||||
Instruments – Controls – 0.5% | ||||||||||
114,090 | Sensata Technologies Holding N.V.*,** | 2,998,285 | ||||||||
Internet Content – Entertainment – 0.6% | ||||||||||
252,840 | Youku.com, Inc. (ADR)* | 3,962,003 | ||||||||
Internet Gambling – 0.7% | ||||||||||
1,622,267 | Bwin.Party Digital Entertainment PLC | 4,130,982 | ||||||||
Life and Health Insurance – 4.1% | ||||||||||
3,448,600 | AIA Group, Ltd. | 10,768,133 | ||||||||
904,235 | Conseco, Inc.* | 5,705,723 | ||||||||
966,102 | Prudential PLC | 9,577,916 | ||||||||
26,051,772 | ||||||||||
Machinery – Construction and Mining – 0.8% | ||||||||||
68,205 | Joy Global, Inc. | 5,113,329 | ||||||||
Medical – Biomedical and Genetic – 4.0% | ||||||||||
239,148 | Celgene Corp.*,** | 16,166,405 | ||||||||
62,965 | Regeneron Pharmaceuticals, Inc.* | 3,490,150 | ||||||||
159,630 | Vertex Pharmaceuticals, Inc.* | 5,301,312 | ||||||||
24,957,867 | ||||||||||
Medical – Drugs – 1.5% | ||||||||||
272,338 | GlaxoSmithKline PLC | 6,222,368 | ||||||||
199,700 | Mitsubishi Tanabe Pharma Corp.** | 3,160,943 | ||||||||
9,383,311 | ||||||||||
Medical – Generic Drugs – 2.0% | ||||||||||
281,003 | Mylan, Inc.* | 6,030,324 | ||||||||
157,565 | Teva Pharmaceutical S.P. (ADR) | 6,359,324 | ||||||||
12,389,648 | ||||||||||
Medical Instruments – 0.6% | ||||||||||
119,061 | St. Jude Medical, Inc. | 4,083,792 | ||||||||
Medical Products – 0.9% | ||||||||||
81,625 | Varian Medical Systems, Inc.* | 5,479,486 | ||||||||
Metal – Aluminum – 0.6% | ||||||||||
3,374,566 | Alumina, Ltd. | 3,847,675 | ||||||||
Metal – Iron – 0.7% | ||||||||||
201,035 | Cia Vale do Rio Doce (ADR) | 4,312,201 | ||||||||
Multimedia – 0.9% | ||||||||||
327,045 | News Corp. – Class A | 5,834,483 |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 9
Janus Aspen Worldwide Portfolio
Schedule of Investments
As of December 31, 2011
Shares or Contract Amounts | Value | |||||||||
Networking Products – 1.3% | ||||||||||
455,580 | Cisco Systems, Inc. | $ | 8,236,886 | |||||||
Non-Ferrous Metals – 0.8% | ||||||||||
339,385 | Titanium Metals Corp. | 5,083,987 | ||||||||
Office Automation and Equipment – 0.7% | ||||||||||
95,300 | Canon, Inc.** | 4,223,171 | ||||||||
Oil – Field Services – 2.2% | ||||||||||
210,865 | Baker Hughes, Inc. | 10,256,473 | ||||||||
198,833 | Trican Well Service, Ltd. | 3,426,136 | ||||||||
13,682,609 | ||||||||||
Oil Companies – Exploration and Production – 3.1% | ||||||||||
78,250 | Apache Corp. | 7,087,885 | ||||||||
132,890 | Occidental Petroleum Corp. | 12,451,793 | ||||||||
19,539,678 | ||||||||||
Oil Companies – Integrated – 4.8% | ||||||||||
519,531 | BG Group PLC | 11,103,882 | ||||||||
522,295 | Petroleo Brasileiro S.A. (ADR) | 12,979,031 | ||||||||
123,181 | Total S.A.** | 6,296,619 | ||||||||
30,379,532 | ||||||||||
Oil Field Machinery and Equipment – 0.4% | ||||||||||
52,905 | Dresser-Rand Group, Inc.* | 2,640,488 | ||||||||
Pharmacy Services – 1.0% | ||||||||||
115,565 | Medco Health Solutions, Inc.* | 6,460,083 | ||||||||
Pipelines – 1.1% | ||||||||||
171,270 | Energy Transfer Equity L.P. | 6,950,137 | ||||||||
Property and Casualty Insurance – 0.9% | ||||||||||
244,800 | Tokio Marine Holdings, Inc.** | 5,424,094 | ||||||||
Real Estate Operating/Development – 1.5% | ||||||||||
2,321,565 | Hang Lung Properties, Ltd. | 6,606,310 | ||||||||
7,824,000 | Shun Tak Holdings, Ltd. | 2,921,546 | ||||||||
9,527,856 | ||||||||||
Retail – Apparel and Shoe – 1.2% | ||||||||||
40,800 | Fast Retailing Co., Ltd.** | 7,423,002 | ||||||||
Retail – Drug Store – 1.6% | ||||||||||
308,360 | Walgreen Co. | 10,194,382 | ||||||||
Retail – Major Department Stores – 1.5% | ||||||||||
192,840 | Nordstrom, Inc. | 9,586,076 | ||||||||
Rubber/Plastic Products – 0.7% | ||||||||||
2,647,740 | Jain Irrigation Systems, Ltd. | 4,315,667 | ||||||||
53,269 | Jain Irrigation Systems, Ltd. (DVR)* | 35,362 | ||||||||
4,351,029 | ||||||||||
Semiconductor Components/Integrated Circuits – 1.9% | ||||||||||
732,725 | Atmel Corp.* | 5,935,073 | ||||||||
2,438,000 | Taiwan Semiconductor Manufacturing Co., Ltd. | 6,105,471 | ||||||||
12,040,544 | ||||||||||
Semiconductor Equipment – 0.5% | ||||||||||
80,908 | ASML Holding N.V.** | 3,400,222 | ||||||||
Soap and Cleaning Preparations – 0.5% | ||||||||||
68,654 | Reckitt Benckiser Group PLC | 3,389,847 | ||||||||
Telecommunication Services – 1.9% | ||||||||||
424,905 | Amdocs, Ltd. (U.S. Shares)* | 12,122,540 | ||||||||
Telephone – Integrated – 0.5% | ||||||||||
169,951 | Telefonica S.A.** | 2,943,803 | ||||||||
Tobacco – 2.8% | ||||||||||
3,802 | Japan Tobacco, Inc.** | 17,885,952 | ||||||||
Transportation – Marine – 1.2% | ||||||||||
1,147 | A.P. Moller – Maersk Group – Class B | 7,574,491 | ||||||||
Transportation – Railroad – 1.1% | ||||||||||
99,515 | Kansas City Southern* | 6,768,015 | ||||||||
Transportation – Services – 1.5% | ||||||||||
187,055 | Expeditors International of Washington, Inc. | 7,661,773 | ||||||||
15,877 | Kuehne + Nagel International A.G. | 1,783,837 | ||||||||
9,445,610 | ||||||||||
Vitamins and Nutrition Products – 0.8% | ||||||||||
71,180 | Mead Johnson Nutrition Co. – Class A | 4,892,201 | ||||||||
Wireless Equipment – 2.1% | ||||||||||
203,755 | SBA Communications Corp. – Class A* | 8,753,315 | ||||||||
463,680 | Telefonaktiebolaget L.M. Ericsson – Class B | 4,745,874 | ||||||||
13,499,189 | ||||||||||
Total Common Stock (cost $696,939,530) | 617,296,824 | |||||||||
Preferred Stock – 0.6% | ||||||||||
Automotive – Cars and Light Trucks – 0.6% | ||||||||||
27,731 | Volkswagen A.G. (cost $5,296,998) | 4,153,872 | ||||||||
Purchased Options – Calls – 0% | ||||||||||
15,000 | Chaoda Modern Agriculture Holdings, Ltd. expires January 2012 exercise price 4.0336 HKD | 1 | ||||||||
15,000 | Chaoda Modern Agriculture Holdings, Ltd. expires January 2013 exercise price 4.0336 HKD | 1,897 | ||||||||
Total Purchased Options – Calls (premiums paid $202,379) | 1,898 | |||||||||
Warrant – 0.9% | ||||||||||
Diversified Financial Services – 0.9% | ||||||||||
651,747 | JPMorgan Chase & Co., 10/28/18 (cost $7,006,280) | 5,539,850 | ||||||||
Money Market – 0.6% | ||||||||||
3,523,127 | Janus Cash Liquidity Fund LLC, 0% (cost $3,523,127) | 3,523,127 | ||||||||
Total Investments (total cost $712,968,314) – 100.0% | 630,515,571 | |||||||||
Cash, Receivables and Other Assets, net of Liabilities – 0.0% | 62,016 | |||||||||
Net Assets – 100% | $ | 630,577,587 | ||||||||
See Notes to Schedule of Investments and Financial Statements.
10 | DECEMBER 31, 2011
Schedule of Investments
As of December 31, 2011
Summary of Investments by Country – (Long Positions)
% of Investment | ||||||||
Country | Value | Securities | ||||||
Australia | $ | 3,847,675 | 0.6% | |||||
Bermuda | 8,868,771 | 1.4% | ||||||
Brazil | 23,171,425 | 3.7% | ||||||
Canada | 3,426,136 | 0.5% | ||||||
Cayman Islands | 4,537,959 | 0.7% | ||||||
Denmark | 7,574,491 | 1.2% | ||||||
Finland | 7,496,704 | 1.2% | ||||||
France | 19,477,907 | 3.1% | ||||||
Germany | 4,153,872 | 0.7% | ||||||
Gibraltar | 4,130,982 | 0.7% | ||||||
Guernsey | 12,122,540 | 1.9% | ||||||
Hong Kong | 20,295,989 | 3.2% | ||||||
India | 8,894,527 | 1.4% | ||||||
Israel | 6,359,324 | 1.0% | ||||||
Italy | 2,960,257 | 0.5% | ||||||
Japan | 49,323,088 | 7.8% | ||||||
Netherlands | 15,356,435 | 2.4% | ||||||
Singapore | 4,225,464 | 0.7% | ||||||
Spain | 21,357,778 | 3.4% | ||||||
Sweden | 4,745,874 | 0.8% | ||||||
Switzerland | 10,962,290 | 1.7% | ||||||
Taiwan | 6,105,471 | 1.0% | ||||||
United Kingdom | 56,335,548 | 8.9% | ||||||
United States†† | 324,785,064 | 51.5% | ||||||
Total | $ | 630,515,571 | 100.0% |
†† | Includes Cash Equivalents (51.0% excluding Cash Equivalents). |
Forward Currency Contracts, Open
Unrealized | ||||||||||||
Currency Units | Currency | Appreciation/ | ||||||||||
Counterparty/Currency Sold and Settlement Date | Sold | Value U.S. $ | (Depreciation) | |||||||||
Credit Suisse Securities (USA) LLC: Japanese Yen 1/19/12 | 1,052,000,000 | $ | 13,675,157 | $ | (118,805) | |||||||
HSBC Securities (USA), Inc.: | ||||||||||||
Euro 2/2/12 | 7,200,000 | 9,319,303 | 94,049 | |||||||||
Japanese Yen 2/2/12 | 939,000,000 | 12,209,720 | (128,044) | |||||||||
21,529,023 | (33,995) | |||||||||||
JPMorgan Chase & Co.: Japanese Yen 1/12/12 | 834,000,000 | 10,839,769 | (108,802) | |||||||||
RBC Capital Markets Corp.: Japanese Yen 1/5/12 | 639,000,000 | 8,304,094 | 1,619 | |||||||||
Total | $ | 54,348,043 | $ | (259,983) |
See Notes to Schedule of Investments and Financial Statements.
Janus Aspen Series | 11
Statement of Assets and Liabilities
Janus Aspen | ||||||||||
As of December 31, 2011 | Worldwide | |||||||||
(all numbers in thousands except net asset value per share) | Portfolio | |||||||||
Assets: | ||||||||||
Investments at cost | $ | 712,968 | ||||||||
Unaffiliated investments at value | $ | 626,992 | ||||||||
Affiliated investments at value | 3,523 | |||||||||
Cash denominated in foreign currency(1) | 6 | |||||||||
Receivables: | ||||||||||
Investments sold | 1,680 | |||||||||
Portfolio shares sold | 30 | |||||||||
Dividends | 379 | |||||||||
Foreign dividend tax reclaim | 42 | |||||||||
Non-interested Trustees’ deferred compensation | 19 | |||||||||
Other assets | 13 | |||||||||
Forward currency contracts | 96 | |||||||||
Total Assets | 632,780 | |||||||||
Liabilities: | ||||||||||
Payables: | ||||||||||
Due to custodian | 13 | |||||||||
Investments purchased | 818 | |||||||||
Portfolio shares repurchased | 427 | |||||||||
Dividends | – | |||||||||
Advisory fees | 412 | |||||||||
Fund administration fees | 5 | |||||||||
Distribution fees and shareholder servicing fees | 30 | |||||||||
Non-interested Trustees’ fees and expenses | 12 | |||||||||
Non-interested Trustees’ deferred compensation fees | 19 | |||||||||
Accrued expenses and other payables | 110 | |||||||||
Forward currency contracts | 356 | |||||||||
Total Liabilities | 2,202 | |||||||||
Net Assets | $ | 630,578 | ||||||||
Net Assets Consist of: | ||||||||||
Capital (par value and paid-in surplus)* | $ | 1,008,385 | ||||||||
Undistributed net investment income* | 3,172 | |||||||||
Undistributed net realized loss from investment and foreign currency transactions* | (298,260) | |||||||||
Unrealized net depreciation of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (82,719) | |||||||||
Total Net Assets | $ | 630,578 | ||||||||
Net Assets - Institutional Shares | $ | 490,539 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 18,994 | |||||||||
Net Asset Value Per Shares | $ | 25.83 | ||||||||
Net Assets - Service Shares | $ | 140,029 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) | 5,490 | |||||||||
Net Asset Value Per Share | $ | 25.51 | ||||||||
Net Assets - Service II Shares | $ | 10 | ||||||||
Shares Outstanding, $0.001 Par Value (unlimited shares authorized)** | 386 | |||||||||
Net Asset Value Per Share | $ | 25.57 |
* | See Note 5 in Notes to Financial Statements. | |
** | Shares outstanding are not in thousands. | |
(1) | Includes cost of $5,768. |
See Notes to Financial Statements.
12 | DECEMBER 31, 2011
Statement of Operations
Janus Aspen | ||||||
For the fiscal year ended December 31, 2011 | Worldwide | |||||
(all numbers in thousands) | Portfolio | |||||
Investment Income: | ||||||
Interest | $ | 132 | ||||
Dividends | 13,822 | |||||
Dividends from affiliates | 12 | |||||
Foreign tax withheld | (767) | |||||
Total Investment Income | 13,199 | |||||
Expenses: | ||||||
Advisory fees | 4,955 | |||||
Shareholder reports expense | 93 | |||||
Transfer agent fees and expenses | 1 | |||||
Registration fees | 17 | |||||
Custodian fees | 45 | |||||
Professional fees | 63 | |||||
Non-interested Trustees’ fees and expenses | 29 | |||||
Fund administration fees | 34 | |||||
Distribution fees and shareholder servicing fees - Service Shares | 414 | |||||
Distribution fees and shareholder servicing fees - Service II Shares | – | |||||
Other expenses | 42 | |||||
Non-recurring costs (Note 4) | 2 | |||||
Costs assumed by Janus Capital Management LLC (Note 4) | (2) | |||||
Total Expenses | 5,693 | |||||
Expense and Fee Offset | – | |||||
Net Expenses | 5,693 | |||||
Net Investment Income | 7,506 | |||||
Net Realized and Unrealized Gain/(Loss) on Investments: | ||||||
Net realized gain from investment and foreign currency transactions | 83,477 | |||||
Net realized gain from written options contracts | 68 | |||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (195,370) | |||||
Net Loss on Investments | (111,825) | |||||
Net Decrease in Net Assets Resulting from Operations | $ | (104,319) |
See Notes to Financial Statements.
Janus Aspen Series | 13
Statements of Changes in Net Assets
Janus Aspen | ||||||||||
Worldwide | ||||||||||
For the fiscal years ended December 31 | Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Operations: | ||||||||||
Net investment income | $ | 7,506 | $ | 5,522 | ||||||
Net realized gain from investment and foreign currency transactions(1) | 83,545 | 134,649 | ||||||||
Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation | (195,370) | (26,510) | ||||||||
Net Increase/(Decrease) in Net Assets Resulting from Operations | (104,319) | 113,661 | ||||||||
Dividends and Distributions to Shareholders: | ||||||||||
Net Investment Income* | ||||||||||
Institutional Shares | (3,349) | (3,797) | ||||||||
Service Shares | (795) | (744) | ||||||||
Service II Shares | – | – | ||||||||
Net Realized Gain/(Loss) from Investment Transactions* | ||||||||||
Institutional Shares | – | – | ||||||||
Service Shares | – | – | ||||||||
Service II Shares | – | – | ||||||||
Net Decrease from Dividends and Distributions | (4,144) | (4,541) | ||||||||
Capital Share Transactions: | ||||||||||
Shares Sold | ||||||||||
Institutional Shares | 12,834 | 16,639 | ||||||||
Service Shares | 28,432 | 32,974 | ||||||||
Reinvested Dividends and Distributions | ||||||||||
Institutional Shares | 3,349 | 3,797 | ||||||||
Service Shares | 795 | 744 | ||||||||
Service II Shares | – | – | ||||||||
Shares Repurchased | ||||||||||
Institutional Shares | (90,547) | (99,156) | ||||||||
Service Shares | (37,546) | (26,634) | ||||||||
Net Decrease from Capital Share Transactions | (82,683) | (71,636) | ||||||||
Net Increase/(Decrease) in Net Assets | (191,146) | 37,484 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 821,724 | 784,240 | ||||||||
End of period | $ | 630,578 | $ | 821,724 | ||||||
Undistributed Net Investment Income* | $ | 3,172 | $ | 412 |
* | See Note 5 in Notes to Financial Statements. | |
(1) | Certain prior year amounts have been reclassified to conform with current year presentation. |
See Notes to Financial Statements.
14 | DECEMBER 31, 2011
Financial Highlights
Institutional Shares
Janus Aspen Worldwide Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $30.13 | $26.18 | $19.27 | $35.35 | $32.48 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .31 | .20 | .29 | .37 | .27 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (4.44) | 3.92 | 6.94 | (16.11) | 2.87 | |||||||||||||||||
Total from Investment Operations | (4.13) | 4.12 | 7.23 | (15.74) | 3.14 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.17) | (.17) | (.32) | (.34) | (.27) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Total Distributions | (.17) | (.17) | (.32) | (.34) | (.27) | |||||||||||||||||
Net Asset Value, End of Period | $25.83 | $30.13 | $26.18 | $19.27 | $35.35 | |||||||||||||||||
Total Return | (13.74)% | 15.83% | 37.70% | (44.69)% | 9.66% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $490,539 | $648,827 | $639,936 | $522,295 | $1,119,569 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $587,144 | $623,284 | $558,029 | $826,712 | $1,207,006 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.70% | 0.65% | 0.63% | 0.53% | 0.67% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.70% | 0.65% | 0.63% | 0.53% | 0.67% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 1.05% | 0.76% | 1.35% | 1.26% | 0.70% | |||||||||||||||||
Portfolio Turnover Rate | 88% | 86% | 206% | 14% | 26% |
Service Shares
Janus Aspen Worldwide Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $29.80 | $25.93 | $19.10 | $35.05 | $32.22 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .19 | .12 | .24 | .21 | .16 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (4.34) | 3.88 | 6.87 | (15.87) | 2.87 | |||||||||||||||||
Total from Investment Operations | (4.15) | 4.00 | 7.11 | (15.66) | 3.03 | |||||||||||||||||
Less Distributions: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.14) | (.13) | (.28) | (.29) | (.20) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Total Distributions | (.14) | (.13) | (.28) | (.29) | (.20) | |||||||||||||||||
Net Asset Value, End of Period | $25.51 | $29.80 | $25.93 | $19.10 | $35.05 | |||||||||||||||||
Total Return | (13.95)% | 15.52% | 37.40% | (44.84)% | 9.39% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $140,029 | $172,885 | $144,294 | $96,699 | $227,723 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $165,580 | $151,800 | $114,103 | $159,561 | $230,284 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.95% | 0.90% | 0.88% | 0.78% | 0.92% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.95% | 0.90% | 0.88% | 0.78% | 0.92% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.81% | 0.50% | 1.08% | 1.01% | 0.46% | |||||||||||||||||
Portfolio Turnover Rate | 88% | 86% | 206% | 14% | 26% |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
Janus Aspen Series | 15
Financial Highlights (continued)
Service II Shares
Janus Aspen Worldwide Portfolio | ||||||||||||||||||||||
For a share outstanding during each fiscal year ended December 31 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||
Net Asset Value, Beginning of Period | $29.89 | $26.00 | $19.15 | $35.14 | $32.30 | |||||||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||
Net investment income | .22 | .11 | .22 | .28 | .16 | |||||||||||||||||
Net gain/(loss) on investments (both realized and unrealized) | (4.40) | 3.91 | 6.91 | (15.98) | 2.88 | |||||||||||||||||
Total from Investment Operations | (4.18) | 4.02 | 7.13 | (15.70) | 3.04 | |||||||||||||||||
Less Distributions and Other: | ||||||||||||||||||||||
Dividends (from net investment income)* | (.14) | (.13) | (.28) | (.29) | (.20) | |||||||||||||||||
Distributions (from capital gains)* | – | – | – | – | – | |||||||||||||||||
Redemption fees | – | – | – | – | – | |||||||||||||||||
Total Distributions and Other | (.14) | (.13) | (.28) | (.29) | (.20) | |||||||||||||||||
Net Asset Value, End of Period | $25.57 | $29.89 | $26.00 | $19.15 | $35.14 | |||||||||||||||||
Total Return | (14.01)% | 15.56% | 37.40% | (44.82)% | 9.40% | |||||||||||||||||
Net Assets, End of Period (in thousands) | $10 | $12 | $10 | $7 | $13 | |||||||||||||||||
Average Net Assets for the Period (in thousands) | $11 | $10 | $8 | $10 | $13 | |||||||||||||||||
Ratio of Gross Expenses to Average Net Assets | 0.93% | 0.89% | 0.87% | 0.75% | 0.92% | |||||||||||||||||
Ratio of Net Expenses to Average Net Assets | 0.93% | 0.89% | 0.87% | 0.75% | 0.92% | |||||||||||||||||
Ratio of Net Investment Income to Average Net Assets | 0.83% | 0.52% | 1.10% | 1.04% | 0.45% | |||||||||||||||||
Portfolio Turnover Rate | 88% | 86% | 206% | 14% | 26% |
* | See Note 5 in Notes to Financial Statements. |
See Notes to Financial Statements.
16 | DECEMBER 31, 2011
Notes to Schedule of Investments
Lipper Variable Annuity Global Funds | Funds that invest at least 25% of their portfolio in securities traded outside of the United States and that may own U.S. securities as well. | |
Morgan Stanley Capital International All Country World IndexSM | An unmanaged, free float-adjusted market capitalization weighted index composed of stocks of companies located in countries throughout the world. It is designed to measure equity market performance in global developed and emerging markets. The index includes reinvestment of dividends, net of foreign withholding taxes. | |
Morgan Stanley Capital International World IndexSM | A market capitalization weighted index composed of companies representative of the market structure of developed market countries in North America, Europe, and the Asia/Pacific Region. The index includes reinvestment of dividends, net of foreign withholding taxes. | |
ADR | American Depositary Receipt | |
DVR | Differential Voting Rights | |
PLC | Public Limited Company | |
U.S. Shares | Securities of foreign companies trading on an American Stock Exchange. |
* | Non-income producing security. | |
** | A portion of this security has been segregated by the custodian to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates. | |
ß | Security is illiquid. |
∞ Schedule of Fair Valued Securities (as of December 31, 2011)
Value as a | |||||||
Value | % of Net Assets | ||||||
Janus Aspen Worldwide Portfolio | |||||||
Chaoda Modern Agriculture Holdings, Ltd. | $ | 575,956 | 0.1% | ||||
Indiabulls Infrastructure and Power, Ltd. | – | 0.0% | |||||
Securities are valued at “fair value” pursuant to procedures adopted by the Portfolio’s Trustees. The Schedule of Fair Valued Securities does not include international equity securities fair valued pursuant to systematic fair valuation models. Securities are restricted as to resale and may not have a readily available market.
The following is a summary of the inputs that were used to value the Portfolio’s investments in securities and other financial instruments as of December 31, 2011. See Notes to Financial Statements for more information.
Valuation Inputs Summary (as of December 31, 2011)
Level 2 – Other Significant | Level 3 – Significant | |||||||||||||
Level 1 – Quoted Prices | Observable Inputs | Unobservable Inputs | ||||||||||||
Investments in Securities: | ||||||||||||||
Janus Aspen Worldwide Portfolio | ||||||||||||||
Common Stock | ||||||||||||||
Agricultural Operations | $ | – | $ | – | $ | 575,956 | ||||||||
Energy – Alternate Sources | – | – | – | |||||||||||
Internet Content – Entertainment | – | 3,962,003 | – | |||||||||||
Medical – Generic Drugs | 6,030,324 | 6,359,324 | – | |||||||||||
Metal – Iron | – | 4,312,201 | – | |||||||||||
Oil Companies – Integrated | 17,400,501 | 12,979,031 | – | |||||||||||
All Other | 565,677,484 | – | – | |||||||||||
Preferred Stock | – | 4,153,872 | – | |||||||||||
Warrant | – | 5,539,850 | – | |||||||||||
Money Market | – | 3,523,127 | – | |||||||||||
Total Investments in Securities | $ | 589,108,309 | $ | 40,829,408 | $ | 575,956 | ||||||||
Investments in Purchased Options: | $ | – | $ | 1,898 | $ | – | ||||||||
Other Financial Instruments(a): | $ | – | $ | (259,983) | $ | – | ||||||||
(a) | Other financial instruments include futures, forward currency, written options, and swap contracts. Forward currency contracts and swap contracts are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. Futures are reported at their variation margin at measurement date, which represents the amount due to/from the Portfolio at that date. Options are reported at their market value at measurement date. |
Janus Aspen Series | 17
Notes to Schedule of Investments (continued)
Level 3 Valuation Reconciliation of Assets (as of the fiscal year ended December 31, 2011)
Change in | Transfers | ||||||||||||||||||||||
Balance as of | Unrealized | In and/or | |||||||||||||||||||||
December | Realized | Appreciation/ | Out of | Balance as of | |||||||||||||||||||
31, 2010 | Gain/(Loss)(a) | (Depreciation)(b) | Gross Purchases | Gross Sales | Level 3 | December 31, 2011 | |||||||||||||||||
Investments in Securities: | |||||||||||||||||||||||
Janus Aspen Worldwide Portfolio | |||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||
Agricultural Operations | $ | – | $ | – | $ | (5,262,048) | $ | 843,425 | $ | – | $ | 4,994,579 | $ | 575,956 | |||||||||
Energy – Alternate Sources | – | – | – | – | – | – | – | ||||||||||||||||
(a) | Included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations. | |
(b) | Included in “Change in unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Operations. |
Aggregate collateral segregated to cover margin or segregation requirements on open futures contracts, forward currency contracts, options contracts, short sales, swap agreements, and/or securities with extended settlement dates as of December 31, 2011 is noted below.
Portfolio | Aggregate Value | ||||
Janus Aspen Worldwide Portfolio | $ | 130,266,041 | |||
18 | DECEMBER 31, 2011
Notes to Financial Statements
The following section describes the organization and significant accounting policies and provides more detailed information about the schedules and tables that appear throughout this report. In addition, the Notes to Financial Statements explain the methods used in preparing and presenting this report.
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
Janus Aspen Worldwide Portfolio (the “Portfolio”) is a series fund. The Portfolio is part of Janus Aspen Series (the “Trust”), which is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust offers ten Portfolios which include multiple series of shares, with differing investment objectives and policies. The Portfolio invests primarily in equity securities. The Portfolio is classified as diversified, as defined in the 1940 Act. The Portfolio is a no-load investment.
The Portfolio currently offers three classes of shares: Institutional Shares, Service Shares and Service II Shares. Institutional Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans. Service Shares and Service II Shares are offered only in connection with investment in and payments under variable insurance contracts and to qualified retirement plans that require a fee from Portfolio assets to procure distribution and administrative services to contract owners and plan participants. For Service II Shares, a redemption fee of 1% may be imposed on interests in separate accounts or plans held 60 days or less.
Janus Capital Management LLC (“Janus Capital”) invested initial seed capital in the amount of $10,000 for the Portfolio – Service II Shares.
The following accounting policies have been followed by the Portfolio and are in conformity with accounting principles generally accepted in the United States of America within the investment management industry.
Investment Valuation
Securities are valued at the last sales price or the official closing price for securities traded on a principal securities exchange (U.S. or foreign) and on the NASDAQ National Market. Securities traded on over-the-counter (“OTC”) markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees. Short-term securities with maturities of 60 days or less may be valued at amortized cost, which approximates market value. Debt securities with a remaining maturity of greater than 60 days are valued in accordance with the evaluated bid price supplied by the pricing service. The evaluated bid price supplied by the pricing service is an evaluation that reflects such factors as security prices, yields, maturities and ratings. Short positions shall be valued in accordance with the same methodologies, except that in the event that a last sale price is not available, the latest ask price shall be used instead of a bid price. Foreign securities and currencies are converted to U.S. dollars using the applicable exchange rate in effect as of the daily close of the New York Stock Exchange (“NYSE”). When market quotations are not readily available or deemed unreliable, or events or circumstances that may affect the value of portfolio securities held by the Portfolio are identified between the closing of their principal markets and the time the net asset value (“NAV”) is determined, securities may be valued at fair value as determined in good faith under procedures established by and under the supervision of the Portfolio’s Trustees. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) a significant event that may affect the securities of a single issuer, such as a merger, bankruptcy, or significant issuer specific development; (ii) an event that may affect an entire market, such as a natural disaster or significant governmental action; (iii) a nonsignificant event such as a market closing early or not opening, or a security trading halt; and (iv) pricing of a non-valued security and a restricted or non-public security. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. Restricted and illiquid securities are valued in accordance with procedures established by the Portfolio’s Trustees.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Trust is informed of the dividend, if such information is obtained subsequent to the ex-dividend date. Dividends from foreign securities may be subject to withholding taxes in foreign jurisdictions. Interest income is recorded on the accrual basis and includes amortization of premiums and accretion of discounts. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes. Income, as well as gains and losses, both realized and unrealized, are allocated daily to each class of shares based upon the ratio of net
Janus Aspen Series | 19
Notes to Financial Statements (continued)
assets represented by each class as a percentage of total net assets.
Expenses
The Portfolio bears expenses incurred specifically on its behalf, as well as a portion of general expenses, which may be allocated pro rata to the Portfolio. Each class of shares bears expenses incurred specifically on its behalf and, in addition, each class bears a portion of general expenses, which are allocated daily to each class of shares based upon the ratio of net assets represented by each class as a percentage of total net assets. Expenses directly attributable to a specific class of shares are charged against the operations of such class.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translations
The Portfolio does not isolate that portion of the results of operations resulting from the effect of changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held at the date of the financial statements. Net unrealized appreciation or depreciation of investments and foreign currency translations arise from changes in the value of assets and liabilities, including investments in securities held at the date of the financial statements, resulting from changes in the exchange rates and changes in market prices of securities held.
Currency gains and losses are also calculated on payables and receivables that are denominated in foreign currencies. The payables and receivables are generally related to foreign security transactions and income translations.
Foreign currency-denominated assets and forward currency contracts may involve more risks than domestic transactions, including currency risk, political and economic risk, regulatory risk and equity risk. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar.
Dividend Distributions
The Portfolio may make semiannual distributions of substantially all of its investment income and an annual distribution of its net realized capital gains (if any). Dividends and net realized capital gains distributions from the Portfolio may be automatically reinvested into additional shares of the Portfolio, based on the discretion of the shareholder.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements as the Portfolio intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the Portfolio adopted the provisions of “Income Taxes.” These provisions require an evaluation of tax positions taken (or expected to be taken) in the course of preparing the Portfolio’s tax return to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Portfolio recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense on the Statement of Operations.
These provisions require management of the Portfolio to analyze all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended December 31, 2011, the Portfolio did not have a liability for any unrecognized tax benefits. The Portfolio has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some of the enacted provisions include:
New capital losses may now be carried forward indefinitely, and retain the character of the original loss.
20 | DECEMBER 31, 2011
Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
Valuation Inputs Summary
In accordance with FASB guidance, the Portfolio utilizes the “Fair Value Measurements” to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. The Fair Value Measurement Standard does not require new fair value measurements, but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of the Portfolio’s investments defined pursuant to this standard. These inputs are summarized into three broad levels:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that reflect the assumptions market participants would use in pricing a security and are developed based on market data obtained from sources independent of the reporting entity. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others.
Debt securities are valued in accordance with the evaluated bid price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Securities traded on OTC markets and listed securities for which no sales are reported are valued at the latest bid price (or yield equivalent thereof) obtained from one or more dealers transacting in a market for such securities or by a pricing service approved by the Portfolio’s Trustees and are categorized as Level 2 in the hierarchy. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value and are categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, preferred stocks, bank loans, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), warrants, swaps, investments in mutual funds, OTC options, and forward contracts. The Portfolio may use systematic fair valuation models provided by independent third parties to value international equity securities in order to adjust for stale pricing, which may occur between the close of certain foreign exchanges and the close of the NYSE. These are generally categorized as Level 2 in the hierarchy.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the factors market participants would use in pricing the security and would be based on the best information available under the circumstances.
For restricted equity securities and private placements where observable inputs are limited, assumptions about market activity and risk are used in employing valuation techniques such as the market approach, the income approach, or the cost approach, as defined under the FASB Guidance. These are categorized as Level 3 in the hierarchy.
There have been no significant changes in valuation techniques used in valuing any such positions held by the Portfolio since the beginning of the fiscal year.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of inputs used as of December 31, 2011 to value the Portfolio’s investments in securities and other financial instruments is included in the “Valuation Inputs Summary” and “Level 3
Janus Aspen Series | 21
Notes to Financial Statements (continued)
Valuation Reconciliation of Assets” (if applicable) in the Notes to Schedule of Investments.
The Portfolio adopted FASB Accounting Standards Update “Fair Value Measurements and Disclosures” (the “Update”). This Update applies to the Portfolio’s disclosures about transfers in and out of Level 1 and Level 2 of the fair value hierarchy and the reasons for the transfers. Disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy are summarized under the Level 2 and Level 3 categories listed above. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal year.
The Portfolio recognizes transfers between the levels as of the beginning of the fiscal year.
2. | DERIVATIVE INSTRUMENTS |
The Portfolio may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. The Portfolio may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on swap contracts, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. Each derivative instrument that was held by the Portfolio during the fiscal year ended December 31, 2011 is discussed in further detail below. A summary of derivative activity is reflected in the tables at the end of this section.
The Portfolio may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or for speculative (to seek to enhance returns) purposes. When the Portfolio invests in a derivative for speculative purposes, the Portfolio will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the cost of the derivative. The Portfolio may not use any derivative to gain exposure to an asset or class of assets prohibited by its investment restrictions from purchasing directly. The Portfolio’s ability to use derivative instruments may also be limited by tax considerations.
Investments in derivatives are generally subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. Derivatives can be volatile and may involve significant risks, including, but not limited to, counterparty risk, credit risk, currency risk, equity risk, index risk, interest rate risk, leverage risk, and liquidity risk.
Derivatives may generally be traded OTC or on an exchange. Derivatives traded OTC, such as options and structured notes, are agreements that are individually negotiated between parties and can be tailored to meet a purchaser’s needs.
OTC derivatives are not guaranteed by a clearing agency and may be subject to increased credit risk. In an effort to mitigate credit risk associated with derivatives traded OTC, the Portfolio may enter into collateral agreements with certain counterparties whereby, subject to certain minimum exposure requirements, the Portfolio may require the counterparty to post collateral if the Portfolio has a net aggregate unrealized gain on all OTC derivative contracts with a particular counterparty. There is no guarantee that counterparty exposure is reduced and these arrangements are dependent on Janus Capital’s ability to establish and maintain appropriate systems and trading.
In pursuit of its investment objective, the Portfolio may seek to use derivatives to increase or decrease exposure to the following market risk factors:
• | Counterparty Risk – Counterparty risk is the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Portfolio. | |
• | Credit Risk – Credit risk is the risk an issuer will be unable to make principal and interest payments when due, or will default on its obligations. | |
• | Currency Risk – Currency risk is the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment. | |
• | Equity Risk – Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. | |
• | Index Risk – If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Portfolio could receive lower interest payments or experience a reduction in the value of the derivative to below what the Portfolio paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that |
22 | DECEMBER 31, 2011
they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. |
• | Interest Rate Risk – Interest rate risk is the risk that the value of fixed-income securities will generally decline as prevailing interest rates rise, which may cause the Portfolio’s NAV to likewise decrease, and vice versa. | |
• | Leverage Risk – Leverage risk is the risk associated with certain types of leveraged investments or trading strategies pursuant to which relatively small market movements may result in large changes in the value of an investment. The Portfolio creates leverage by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | |
• | Liquidity Risk – Liquidity risk is the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The Portfolio may enter into forward currency contracts for hedging purposes, including, but not limited to, reducing exposure to changes in foreign currency exchange rates on foreign portfolio holdings and locking in the U.S. dollar cost of firm purchase and sale commitments for securities denominated in or exposed to foreign currencies. The Portfolio may also invest in forward currency contracts for nonhedging purposes such as seeking to enhance returns. The Portfolio is subject to currency risk in the normal course of pursuing its investment objective through its investments in forward currency contracts.
The gain or loss arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing a contract is included in “Net realized gain/(loss) from investment and foreign currency transactions” on the Statement of Operations (if applicable).
Forward currency contracts held by the Portfolio are fully collateralized by other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The collateral is evaluated daily to ensure its market value equals or exceeds the current market value of the corresponding forward currency contracts. Such collateral is in the possession of the Portfolio’s custodian.
Options Contracts
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. The Portfolio may purchase or write covered and uncovered put and call options on swap contracts (“swaptions”), futures contracts, and on portfolio securities for hedging purposes or as a substitute for an investment. The Portfolio is subject to interest rate risk, liquidity risk, equity risk, and currency risk in the normal course of pursuing its investment objective through its investments in options contracts. The Portfolio may use options contracts to hedge against changes in interest rates, the values of equities, or foreign currencies. The Portfolio may utilize American-style and European-style options. An American-style option is an option contract that can be exercised at any time between the time of purchase and the option’s expiration date. A European-style option is an option contract that can only be exercised on the option’s expiration date. The Portfolio may also purchase or write put and call options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. The Portfolio may also invest in long-term equity anticipation securities, which are long-term option contracts that can be maintained for a period of up to three years. The Portfolio may also enter into a swaption contract which grants the purchaser the right, but not the obligation, to enter into a swap transaction at preset terms detailed in the underlying agreement within a specified period of time. Entering into a swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk, associated with both option contracts and swap contracts. The Portfolio generally invests in options to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Portfolio receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. In writing an option, the Portfolio bears the risk of an unfavorable change in the price of the security underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio buying or selling a security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option are adjusted by the amount of premium received or paid.
Janus Aspen Series | 23
Notes to Financial Statements (continued)
The Portfolio may also purchase and write exchange-listed and OTC put and call options on domestic securities indices, and on foreign securities indices listed on domestic and foreign securities exchanges. Options on securities indices are similar to options on securities except that (1) the expiration cycles of securities index options are monthly, while those of securities options are currently quarterly, and (2) the delivery requirements are different. Instead of giving the right to take or make delivery of securities at a specified price, an option on a securities index gives the holder the right to receive a cash “exercise settlement amount” equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed “index multiplier.” Receipt of this cash amount will depend upon the closing level of the securities index upon which the option is based being greater than, in the case of a call, or less than, in the case of a put, the exercise price of the index and the exercise price of the option times a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount.
Options traded on an exchange are regulated and the terms of the options are standardized. Options traded OTC expose the Portfolio to counterparty risk in the event that the counterparty does not perform. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by having the counterparty post collateral to cover the Portfolio’s exposure to the counterparty.
Holdings of the Portfolio designated to cover outstanding written options are noted on the Schedule of Investments (if applicable). Options written are reported as a liability on the Statement of Assets and Liabilities as “Options written at value” (if applicable). Realized gains and losses are reported as “Net realized gain/(loss) from written options contracts” on the Statement of Operations (if applicable).
The risk in writing call options is that the Portfolio gives up the opportunity for profit if the market price of the security increases and the options are exercised. The risk in writing put options is that the Portfolio may incur a loss if the market price of the security decreases and the options are exercised. The risk in buying options is that the Portfolio pays a premium whether or not the options are exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. A lack of correlation between the value of an instrument underlying an option and the asset being hedged, or unexpected adverse price movements, could render the Portfolio’s hedging strategy unsuccessful. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased or sold. There is no limit to the loss the Portfolio may recognize due to written call options.
Written option activity for the fiscal year ended December 31, 2011 is indicated in the table below:
Number of | Premiums | |||||||
Calls Options | Contracts | Received | ||||||
Janus Aspen Worldwide Portfolio | ||||||||
Options outstanding at December 31, 2010 | – | $ | – | |||||
Options written | 810 | 68,065 | ||||||
Options closed | – | – | ||||||
Options expired | (810) | (68,065) | ||||||
Options exercised | – | – | ||||||
Options outstanding at December 31, 2011 | – | $ | – | |||||
In accordance with FASB guidance, the Portfolio adopted the provisions for “Derivatives and Hedging,” which require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
24 | DECEMBER 31, 2011
The following table, grouped by derivative type, provides information about the fair value and location of derivatives within the Statement of Assets and Liabilities as of December 31, 2011.
Fair Value of Derivative Instruments as of December 31, 2011
Derivatives not accounted for as | Asset Derivatives | Liability Derivatives | ||||||||||
hedging instruments | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Equity Contracts | Unaffiliated investments at value | $ | 1,898 | |||||||||
Foreign Exchange Contracts | Forward currency contracts | 95,668 | Forward currency contracts | $ | 355,651 | |||||||
Total | $ | 97,566 | $ | 355,651 | ||||||||
The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the fiscal year ended December 31, 2011.
The effect of Derivative Instruments on the Statement of Operations for the fiscal year ended December 31, 2011
Amount of Realized Gain/(Loss) on Derivatives Recognized in Income | ||||||||||||||||||||
Forward | ||||||||||||||||||||
Currency | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | – | 68,065 | $ | – | $ | 68,065 | |||||||||||
Foreign Exchange Contracts | – | – | – | (3,796,233 | ) | (3,796,233 | ) | |||||||||||||
Total | $ | – | $ | – | $ | 68,065 | $ | (3,796,233 | ) | $ | (3,728,168 | ) | ||||||||
Change in Unrealized Appreciation/(Depreciation) on Derivatives Recognized in Income | ||||||||||||||||||||
Forward | ||||||||||||||||||||
Currency | ||||||||||||||||||||
Derivatives not accounted for as hedging instruments | Futures | Swaps | Options | Contracts | Total | |||||||||||||||
Equity Contracts | $ | – | $ | – | $ | (200,481 | ) | $ | – | $ | (200,481 | ) | ||||||||
Foreign Exchange Contracts | – | – | – | 903,532 | 903,532 | |||||||||||||||
Total | $ | – | $ | – | $ | (200,481 | ) | $ | 903,532 | $ | 703,051 | |||||||||
Please see the Portfolio’s Statement of Operations for the Portfolio’s “Net Realized and Unrealized Gain/(Loss) on Investments.”
The value of derivative instruments at period end and the effect of derivatives on the Statement of Operations are indicative of the Portfolio’s volume throughout the fiscal year.
3. | OTHER INVESTMENTS AND STRATEGIES |
Additional Investment Risk
It is important to note that events in both domestic and international equity and fixed-income markets have resulted, and may continue to result, in an unusually high degree of volatility in the markets, with issuers that have exposure to the real estate, mortgage, and credit markets particularly affected. These events and the resulting market upheavals may have an adverse effect on the Portfolio, such as a decline in the value and liquidity of many securities held by the Portfolio, unusually high and unanticipated levels of redemptions, an increase in portfolio turnover, a decrease in NAV, and an increase in Portfolio expenses. Because the situation is unprecedented and widespread, it may also be unusually difficult to identify both investment risks and opportunities, which could limit or preclude the Portfolio’s ability to achieve its investment objective. It is impossible to predict whether or for how long these conditions will continue. Therefore, it is important to understand that the value of your investment may fall, sometimes sharply, and you could lose money.
Further, the instability experienced in the financial markets has resulted in the U.S. Government and various other governmental and regulatory entities taking actions to address the financial crisis. These actions include, but are not limited to, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 which is expected to dramatically change the way in which the U.S. financial system is supervised and regulated. More specifically, the Dodd-Frank Act provides for widespread regulation of financial institutions, consumer financial products and services, broker-dealers, over-the-counter derivatives, investment advisers, credit rating agencies, and mortgage lending, which expands federal oversight in the financial sector and may affect the investment management industry as a
Janus Aspen Series | 25
Notes to Financial Statements (continued)
whole. Given the broad scope, sweeping nature, and the fact that many provisions of the Dodd-Frank Act must be implemented through future rulemaking, the ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain. As a result, there can be no assurance that these government and regulatory measures will not have an adverse effect on the value or marketability of securities held by the Portfolio, including potentially limiting or completely restricting the ability of the Portfolio to use a particular investment instrument as part of its investment strategy, increasing the costs of using these instruments, or possibly making them less effective in general. Furthermore, no assurance can be made that the U.S. Government or any U.S. regulatory entity (or other authority or regulatory entity) will not continue to take further legislative or regulatory action in response to the economic crisis or otherwise, and the effect of such actions, if taken, cannot be known.
Certain areas of the world have historically been prone to and economically sensitive to environmental events such as, but not limited to, hurricanes, earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, tornadoes, mudslides, or other weather-related phenomena. Such disasters, and the resulting physical or economic damage, could have a severe and negative impact on the Portfolio’s investment portfolio and, in the longer term, could impair the ability of issuers in which the Portfolio invests to conduct their businesses as they would under normal conditions. Adverse weather conditions may also have a particularly significant negative effect on issuers in the agricultural sector and on insurance companies that insure against the impact of natural disasters.
Counterparties
Portfolio transactions involving a counterparty are subject to the risk that the counterparty or a third party will not fulfill its obligation to the Portfolio (“counterparty risk”). Counterparty risk may arise because of the counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or insolvency), market activities and developments, or other reasons, whether foreseen or not. A counterparty’s inability to fulfill its obligation may result in significant financial loss to the Portfolio. The Portfolio may be unable to recover its investment from the counterparty or may obtain a limited recovery, and/or recovery may be delayed. The extent of the Portfolio’s exposure to counterparty risk in respect to financial assets approximates their carrying value as recorded on the Portfolio’s Statement of Assets and Liabilities.
The Portfolio may be exposed to counterparty risk through participation in various programs including, but not limited to, lending its securities to third parties, cash sweep arrangements whereby the Portfolio’s cash balance is invested in one or more types of cash management vehicles, as well as investments in, but not limited to, repurchase agreements, debt securities, and derivatives, including various types of swaps, futures and options. The Portfolio intends to enter into financial transactions with counterparties that Janus Capital believes to be creditworthy at the time of the transaction. There is always the risk that Janus Capital’s analysis of a counterparty’s creditworthiness is incorrect or may change due to market conditions. To the extent that the Portfolio focuses its transactions with a limited number of counterparties, it will have greater exposure to the risks associated with one or more counterparties.
Emerging Market Investing
Investing in emerging markets may involve certain risks and considerations not typically associated with investing in the United States and imposes risks greater than, or in addition to, the risks associated with investing in securities of more developed foreign countries. Emerging markets securities are exposed to a number of additional risks, which may result from less government supervision and regulation of business and industry practices (including the potential lack of strict finance and accounting controls and standards), stock exchanges, brokers, and listed companies, making these investments potentially more volatile in price and less liquid than investments in developed securities markets, resulting in greater risk to investors. In addition, the Portfolio’s investments may be denominated in foreign currencies and therefore, changes in the value of a country’s currency compared to the U.S. dollar may affect the value of the Portfolio’s investments. To the extent that the Portfolio invests a significant portion of its assets in the securities of issuers in or companies of a single country or region, it is more likely to be impacted by events or conditions affecting that country or region, which could have a negative impact on the Portfolio’s performance.
Exchange-Traded Funds
The Portfolio may invest in exchange-traded funds, which generally are index-based investment companies that hold substantially all of their assets in securities representing their specific index. As a shareholder of another investment company, the Portfolio would bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Portfolio bears directly in connection with its own operations.
Exchange-Traded Notes
The Portfolio may invest directly in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked to a particular
26 | DECEMBER 31, 2011
index and provide exposure to the total returns of various market indices, including indices linked to stocks, bonds, commodities and currencies. This type of debt security differs from other types of bonds and notes. ETN returns are based upon the performance of a market index minus applicable fees; no periodic coupon payments are distributed and no principal protections exist. ETNs do not pay cash distributions. Instead, the value of dividends, interest, and investment gains are captured in the Portfolio’s total return. The Portfolio may invest in these securities when desiring exposure to debt securities or commodities. When evaluating ETNs for investment, Janus Capital will consider the potential risks involved, expected tax efficiency, rate of return, and credit risk. When the Portfolio invests in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. There may be restrictions on the Portfolio’s right to redeem its investment in an ETN, which is meant to be held until maturity. The Portfolio’s decision to sell its ETN holdings may be limited by the availability of a secondary market.
Initial Public Offerings
The Portfolio may invest in initial public offerings (“IPOs”). IPOs and other investment techniques may have a magnified performance impact on a Portfolio with a small asset base. The Portfolio may not experience similar performance as its assets grow.
Interfund Lending
As permitted by the Securities and Exchange Commission (“SEC”), or the 1940 Act and rules promulgated thereunder, the Portfolio may be party to interfund lending agreements between the Portfolio and other Janus Capital sponsored mutual funds and certain pooled investment vehicles, which permit them to borrow or lend cash at a rate beneficial to both the borrowing and lending funds. Outstanding borrowings from all sources totaling 10% or more of the borrowing Portfolio’s total assets must be collateralized at 102% of the outstanding principal value of the loan; loans of less than 10% may be unsecured.
Restricted Security Transactions
Restricted securities held by the Portfolio may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933, as amended. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of the Portfolio to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist.
Securities Lending
Under procedures adopted by the Trustees, the Portfolio may seek to earn additional income through lending its securities to certain qualified broker-dealers and institutions on a short-term or long-term basis. The Portfolio may lend portfolio securities on a short-term or long-term basis, in an amount equal to up to 1/3 of its total assets as determined at the time of the loan origination. When the Portfolio lends its securities, it receives collateral (including cash collateral), at least equal to the value of securities loaned. The Portfolio may earn income by investing this collateral in one or more affiliated or nonaffiliated cash management vehicles. It is also possible that, due to a decline in the value of a cash management vehicle, the Portfolio may lose money. There is also the risk that when portfolio securities are lent, the securities may not be returned on a timely basis, and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral provided to the Portfolio to collateralize the loan. If the Portfolio is unable to recover a security on loan, the Portfolio may use the collateral to purchase replacement securities in the market. There is a risk that the value of the collateral could decrease below the cost of the replacement security by the time the replacement investment is made, resulting in a loss to the Portfolio. Janus Capital intends to manage the cash collateral in an affiliated cash management vehicle and will receive an investment advisory fee for managing such assets.
The borrower pays fees at the Portfolio’s direction to Deutsche Bank AG (the “Lending Agent”). The Lending Agent may retain a portion of the interest earned on the cash collateral invested. The cash collateral invested by the Lending Agent is disclosed on the Schedule of Investments (if applicable). The lending fees and the Portfolio’s portion of the interest income earned on cash collateral are included on the Statement of Operations (if applicable).
The Portfolio did not have any securities on loan during the fiscal year ended December 31, 2011.
Short Sales
The Portfolio may engage in “short sales against the box.” Short sales against the box involve either selling short a security that the Portfolio owns or selling short a security that the Portfolio has the right to obtain, for delivery at a specified date in the future. The Portfolio may enter into short sales against the box to hedge against anticipated declines in the market price of portfolio securities. The Portfolio does not deliver from its portfolio the securities sold short and does not immediately receive the proceeds of the short sale. The Portfolio borrows the securities sold short and receives proceeds from the short sale only
Janus Aspen Series | 27
Notes to Financial Statements (continued)
when it delivers the securities to the lender. If the value of the securities sold short increases prior to the scheduled delivery date, the Portfolio loses the opportunity to participate in the gain.
The Portfolio may also engage in other short sales. The Portfolio may engage in short sales when the portfolio manager anticipates that a security’s market purchase price will be less than its borrowing price. To complete the transaction, the Portfolio must borrow the security to deliver it to the purchaser and buy that same security in the market to return it to the lender. No more than 10% of the Portfolio’s net assets may be invested in short positions (through short sales of stocks, structured products, futures, swaps, and uncovered written calls). The Portfolio may engage in short sales “against the box” and options for hedging purposes that are not subject to this 10% limit. Although the potential for gain as a result of a short sale is limited to the price at which the Portfolio sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. There is no assurance the Portfolio will be able to close out a short position at a particular time or at an acceptable price. A gain or a loss will be recognized upon termination of a short sale. Short sales held by the Portfolio are fully collateralized by restricted cash or other securities, which are denoted on the accompanying Schedule of Investments (if applicable). The Portfolio is also required to pay the lender of the security any dividends or interest that accrue on a borrowed security during the period of the loan. Depending on the arrangements made with the broker or custodian, the Portfolio may or may not receive any payments (including interest) on collateral it has deposited with the broker. The Portfolio pays stock loan fees, disclosed on the Statement of Operations (if applicable), on assets borrowed from the security broker.
The Portfolio may also enter into short positions through derivative instruments, such as options contracts, futures contracts, and swap agreements, which may expose the Portfolio to similar risks. To the extent that the Portfolio enters into short derivative positions, the Portfolio may be exposed to risks similar to those associated with short sales, including the risk that the Portfolio’s losses are theoretically unlimited.
Sovereign Debt
Investments in foreign government debt securities (“sovereign debt”) can involve a high degree of risk including the risk that the governmental entity that controls the repayment of sovereign debt may not be willing or able to repay the principal and/or to pay the interest on its sovereign debt in a timely manner. A sovereign debtor’s willingness or ability to satisfy its debt obligation may be affected by various factors including its cash flow situation, the extent of its foreign currency reserves, the availability of foreign exchange when a payment is due, the relative size of its debt position in relation to its economy as a whole, the sovereign debtor’s policy toward international lenders, and local political constraints to which the governmental entity may be subject. Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies, and other entities. The failure of a sovereign debtor to implement economic reforms, achieve specified levels of economic performance, or repay principal or interest when due may result in the cancellation of third party commitments to lend funds to the sovereign debtor, which may further impair such debtor’s ability or willingness to timely service its debts. The Portfolio may be requested to participate in the rescheduling of such sovereign debt and to extend further loans to governmental entities which may adversely affect the Portfolio’s holdings. In the event of default, there may be limited or no legal remedies for collecting sovereign debt and there may be no bankruptcy proceedings through which the Portfolio may collect all or part of the sovereign debt that a governmental entity has not repaid.
4. | Investment Advisory Agreements and Other Transactions with Affiliates |
The Portfolio pays Janus Capital an investment advisory fee which is calculated daily and paid monthly. The following table reflects the Portfolio’s “base” fee rate prior to any performance adjustment (expressed as an annual rate).
Base Fee | |||||
Rate (%) | |||||
Portfolio | (annual rate) | ||||
Janus Aspen Worldwide Portfolio | 0.60 | ||||
For the Portfolio, the investment advisory fee rate is determined by calculating a base fee and applying a performance adjustment. The base fee rate is the same as the contractual investment advisory fee rate shown in the table above. The performance adjustment either increases or decreases the base fee depending on how well the Portfolio has performed relative to its benchmark index, as shown below:
Portfolio | Benchmark Index | ||||
Janus Aspen Worldwide Portfolio | MSCI World IndexSM | ||||
Only the base fee rate applied until February 2007 for the Portfolio. The calculation of the performance adjustment applies as follows:
Investment Advisory Fee = Base Fee Rate +/- Performance Adjustment
28 | DECEMBER 31, 2011
The investment advisory fee rate paid to Janus Capital by the Portfolio consists of two components: (1) a base fee calculated by applying the contractual fixed rate of the advisory fee to the Portfolio’s average daily net assets during the previous month (“Base Fee Rate”), plus or minus (2) a performance-fee adjustment (“Performance Adjustment”) calculated by applying a variable rate of up to 0.15% (positive or negative) to the Portfolio’s average daily net assets during the applicable performance measurement period. The performance measurement period generally is the previous 36 months, although no Performance Adjustment is made until the Portfolio’s performance-based fee structure has been in effect for at least 12 months. When the Portfolio’s performance-based fee structure has been in effect for at least 12 months, but less than 36 months, the performance measurement period will be equal to the time that has elapsed since the performance-based fee structure took effect. As noted above, any applicable Performance Adjustment began February 2007 for the Portfolio.
No Performance Adjustment is applied unless the difference between the Portfolio’s investment performance and the cumulative investment record of the Portfolio’s benchmark index is 0.50% or greater (positive or negative) during the applicable performance measurement period. The Base Fee Rate is subject to an upward or downward Performance Adjustment for every full 0.50% increment by which the Portfolio outperforms or underperforms its benchmark index. Because the Performance Adjustment is tied to the Portfolio’s relative performance compared to its benchmark index (and not its absolute performance), the Performance Adjustment could increase Janus Capital’s fee even if the Portfolio’s Shares lose value during the performance measurement period and could decrease Janus Capital’s fee even if the Portfolio’s Shares increase in value during the performance measurement period. For purposes of computing the Base Fee Rate and the Performance Adjustment, net assets are averaged over different periods (average daily net assets during the previous month for the Base Fee Rate, versus average daily net assets during the performance measurement period for the Performance Adjustment). Performance of the Portfolio is calculated net of expenses, whereas the Portfolio’s benchmark index does not have any fees or expenses. Reinvestment of dividends and distributions is included in calculating both the performance of the Portfolio and the Portfolio’s benchmark index. The Base Fee Rate is calculated and accrued daily. The Performance Adjustment is calculated monthly in arrears and is accrued throughout the month. The investment fee is paid monthly in arrears. Under extreme circumstances involving underperformance by a rapidly shrinking Portfolio, the dollar amount of the Performance Adjustment could be more than the dollar amount of the Base Fee Rate. In such circumstances, Janus Capital would reimburse the Portfolio.
The investment performance of the Portfolio’s Service Shares for the performance measurement period is used to calculate the Performance Adjustment. After Janus Capital determines whether the Portfolio’s performance was above or below its benchmark index by comparing the investment performance of the Portfolio’s Service Shares against the cumulative investment record of its benchmark index, Janus Capital applies the same Performance Adjustment (positive or negative) across each other class of shares of the Portfolio, as applicable.
It is not possible to predict the effect of the Performance Adjustment on future overall compensation to Janus Capital since it depends on the performance of the Portfolio relative to the record of the Portfolio’s benchmark index and future changes to the size of the Portfolio.
The Portfolio’s prospectuses and statements of additional information contain additional information about performance-based fees. The amount shown as advisory fees on the Statement of Operations reflects the Base Fee Rate plus/minus any Performance Adjustment. During the fiscal year ended December 31, 2011, the Portfolio recorded a Performance Adjustment of $438,804.
Janus Services LLC (“Janus Services”), a wholly-owned subsidiary of Janus Capital, is the Portfolio’s transfer agent and receives certain out-of-pocket expenses for transfer agent services.
Janus Distributors LLC, a wholly-owned subsidiary of Janus Capital, is a distributor of the Portfolio. Service Shares and Service II Shares have adopted a Distribution and Shareholder Servicing Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Portfolio in connection with the distribution of Service Shares and Service II Shares at an annual rate of up to 0.25% of Service Shares and Service II Shares average daily net assets. Payments under the Plan are not tied exclusively to actual distribution and shareholder service expenses, and the payments may exceed distribution and shareholder service expenses actually incurred by the Portfolio. If any of a Portfolio’s actual distribution and shareholder service expenses incurred during a calendar year are less than the payments made during a calendar year, the Portfolio will be refunded the difference. Refunds, if any, are included in “Distribution fees and shareholder servicing fees” in the Statement of Operations.
The Board of Trustees has adopted a deferred compensation plan (the “Deferred Plan”) for independent Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the
Janus Aspen Series | 29
Notes to Financial Statements (continued)
Portfolio. All deferred fees are credited to an account established in the name of the Trustees. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Janus funds that are selected by the Trustees. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts are credited to the account. The fluctuation of the account balance is recorded by the Portfolio as unrealized appreciation/(depreciation) and is shown as of December 31, 2011 on the Statement of Assets and Liabilities as an asset, “Non-interested Trustees’ deferred compensation,” and a liability, “Non-interested Trustees’ deferred compensation fees.” Additionally, the recorded unrealized appreciation/(depreciation) is included in “Unrealized net appreciation/(depreciation) of investments, foreign currency translations and non-interested Trustees’ deferred compensation” on the Statement of Assets and Liabilities. Deferred compensation expenses for the fiscal year ended December 31, 2011 are included in “Non-interested Trustees’ fees and expenses” on the Statement of Operations. Trustees are allowed to change their designation of mutual funds from time to time. Amounts will be deferred until distributed in accordance with the Deferred Plan. Deferred fees of $407,122 were paid to a Trustee under the Deferred Plan during the fiscal year ended December 31, 2011.
For the fiscal year ended December 31, 2011, Janus Capital assumed $52,639 of legal, consulting and Trustee costs and fees incurred by the portfolios in the Trust and Janus Investment Fund together with the Trust (the “Funds”), in connection with regulatory and civil litigation matters. These non-recurring costs were allocated to all Funds based on the Funds’ respective net assets as of July 31, 2004. Unless noted otherwise in the financial highlights, the effect of these non-recurring costs assumed by Janus Capital are included in the ratio of gross expenses to average net assets and were less than 0.01%. No fees were allocated to the Funds that commenced operations after July 31, 2004. Additionally, all future non-recurring costs will be allocated to the Funds based on the Funds’ respective net assets on July 31, 2004. These “Non-recurring costs” and “Costs assumed by Janus Capital” are shown on the Statement of Operations.
Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Such officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer. The Portfolio reimburses Janus Capital for a portion of the compensation paid to the Chief Compliance Officer and certain compliance staff of the Trust. Total compensation of $46,425 was paid by the Trust during the fiscal year ended December 31, 2011. The Portfolio’s portion is reported as part of “Other Expenses” on the Statement of Operations.
A 1.00% redemption fee may be imposed on Service II Shares of the Portfolio held for 60 days or less. This fee is paid to the Portfolio rather than Janus Capital, and is designed to deter excessive short-term trading and to offset the brokerage commissions, market impact, and other costs associated with changes in the Portfolio’s asset level and cash flow due to short-term money movements in and out of the Portfolio. The redemption fee is accounted for as an addition to Paid-in Capital. No redemption fees were received by the Portfolio for the fiscal year ended December 31, 2011.
The Portfolio’s expenses may be reduced by expense offsets from an unaffiliated custodian and/or transfer agent. Such credits or offsets are included in “Expense and Fee Offset” on the Statement of Operations (if applicable). The transfer agent fee offsets received during the fiscal year reduce “Transfer agent fees and expenses” on the Statement of Operations (if applicable). Custodian offsets received reduce “Custodian fees” on the Statement of Operations (if applicable). The Portfolio could have employed the assets used by the custodian and/or transfer agent to produce income if it had not entered into an expense offset arrangement.
Pursuant to the terms and conditions of an SEC exemptive order and the provisions of the 1940 Act, the Portfolio may participate in an affiliated or nonaffiliated cash sweep program. In the cash sweep program, uninvested cash balances of the Portfolio may be used to purchase shares of affiliated or nonaffiliated money market funds or cash management pooled investment vehicles. The Portfolio is eligible to participate in the cash sweep program (the “Investing Fund”). Janus Cash Liquidity Fund LLC is an affiliated unregistered cash management pooled investment vehicle that invests primarily in highly-rated short-term fixed-income securities. Janus Cash Liquidity Fund LLC currently maintains a NAV of $1.00 per share and distributes income daily in a manner consistent with a registered 2a-7 product. There are no restrictions on the Portfolio’s ability to withdraw investments from Janus Cash Liquidity Fund LLC at will, and there are no unfunded capital commitments due from the Portfolio to Janus Cash Liquidity Fund LLC. As adviser, Janus Capital has an inherent conflict of interest because of its fiduciary duties to the affiliated cash management pooled investment vehicles and the Investing Fund.
30 | DECEMBER 31, 2011
During the fiscal year ended December 31, 2011, the Portfolio recorded distributions from affiliated investment companies as affiliated dividend income, and had the following affiliated purchases and sales:
Purchases | Sales | Dividend | Value | |||||||||||
Shares/Cost | Shares/Cost | Income | at 12/31/11 | |||||||||||
Janus Aspen Worldwide Portfolio | ||||||||||||||
Janus Cash Liquidity Fund LLC | $ | 194,275,972 | $ | (212,519,561) | $ | 11,553 | $ | 3,523,127 | ||||||
5. | Federal Income Tax |
The tax components of capital shown in the table below represent: (1) distribution requirements the Portfolio must satisfy under the income tax regulations; (2) losses or deductions the Portfolio may be able to offset against income and gains realized in future years; and (3) unrealized appreciation or depreciation of investments for federal income tax purposes.
Other book to tax differences may consist of deferred compensation, derivatives and foreign currency contract adjustments. The Portfolio has elected to treat gains and losses on forward foreign currency contracts as capital gains and losses, if applicable. Other foreign currency gains and losses on debt instruments are treated as ordinary income for federal income tax purposes pursuant to Section 988 of the Internal Revenue Code.
The Portfolio has elected to defer qualified late-year losses as noted in the table below. These losses will be deferred for tax purposes and recognized during the next fiscal year.
Undistributed | Undistributed | Late-Year | Other Book | Net Tax | ||||||||||||||||
Ordinary | Long-Term | Accumulated | Loss | to Tax | Appreciation/ | |||||||||||||||
Portfolio | Income | Gains | Capital Losses | Deferrals | Differences | (Depreciation) | ||||||||||||||
Janus Aspen Worldwide Portfolio | $ | 3,205,931 | $ | – | $ | (294,496,609) | $ | (5,459,861) | $ | (24,022) | $ | (81,032,554) | ||||||||
Accumulated capital losses noted below represent net capital loss carryovers, as of December 31, 2011, that may be available to offset future realized capital gains and thereby reduce future taxable gains distributions. Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Portfolio will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may more likely expire unused. Also, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. The following table shows the expiration dates of the carryovers.
Capital Loss Carryover Expiration Schedule
For the year ended December 31, 2011
December 31, | December 31, | Accumulated | |||||||||||||||
Portfolio | 2016 | 2017 | Capital Losses | ||||||||||||||
Janus Aspen Worldwide Portfolio | $ | (4,371,577) | $ | (290,125,032) | $ | (294,496,609) | |||||||||||
During the fiscal year ended December 31, 2011, the following capital loss carryovers were utilized by the Portfolio:
Capital Loss | ||||||||||||||
Portfolio | Carryover Utilized | |||||||||||||
Janus Aspen Worldwide Portfolio | $ | 86,570,500 | ||||||||||||
The aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of December 31, 2011 are noted below.
Unrealized appreciation and unrealized depreciation in the table below exclude appreciation/(depreciation) on foreign currency translations. The primary differences between book and tax appreciation or depreciation of investments are wash sale loss deferrals and partnerships.
Janus Aspen Series | 31
Notes to Financial Statements (continued)
Federal Tax | Unrealized | Unrealized | |||||||||
Portfolio | Cost | Appreciation | (Depreciation) | ||||||||
Janus Aspen Worldwide Portfolio | $ | 711,548,125 | $ | 36,141,091 | $ | (117,173,645) | |||||
Income and capital gains distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as net short-term gains, deferral of wash sale losses, foreign currency transactions, net investment losses and capital loss carryovers. Certain permanent differences such as tax returns of capital and net investment losses noted below have been reclassified to paid-in capital.
For the fiscal year ended December 31, 2011
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Worldwide Portfolio | $ | 4,143,673 | $ | – | $ | – | $ | – | |||||||||
For the fiscal year ended December 31, 2010
Distributions | |||||||||||||||||
From Ordinary | From Long-Term | Tax Return of | Net Investment | ||||||||||||||
Portfolio | Income | Capital Gains | Capital | Loss | |||||||||||||
Janus Aspen Worldwide Portfolio | $ | 4,541,225 | $ | – | $ | – | $ | – | |||||||||
6. | Capital Share Transactions |
For each fiscal year ended December 31 | Janus Aspen Worldwide Portfolio | |||||||||
(all numbers in thousands) | 2011 | 2010 | ||||||||
Transactions in Portfolio Shares – Institutional Shares | ||||||||||
Shares sold | 444 | 611 | ||||||||
Reinvested dividends and distributions | 120 | 147 | ||||||||
Shares repurchased | (3,103) | (3,664) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (2,539) | (2,906) | ||||||||
Shares Outstanding, Beginning of Period | 21,533 | 24,439 | ||||||||
Shares Outstanding, End of Period | 18,994 | 21,533 | ||||||||
Transactions in Portfolio Shares – Service Shares | ||||||||||
Shares sold | 973 | 1,209 | ||||||||
Reinvested dividends and distributions | 29 | 29 | ||||||||
Shares repurchased | (1,313) | (1,002) | ||||||||
Net Increase/(Decrease) in Portfolio Shares | (311) | 236 | ||||||||
Shares Outstanding, Beginning of Period | 5,801 | 5,565 | ||||||||
Shares Outstanding, End of Period | 5,490 | 5,801 | ||||||||
Transactions in Portfolio Shares – Service II Shares(1) | ||||||||||
Shares sold | – | – | ||||||||
Reinvested dividends and distributions | 2 | 2 | ||||||||
Shares repurchased | – | – | ||||||||
Net Increase/(Decrease) in Portfolio Shares | 2 | 2 | ||||||||
Shares Outstanding, Beginning of Period | 384 | 382 | ||||||||
Shares Outstanding, End of Period | 386 | 384 | ||||||||
(1) Transactions in Portfolio Shares – Service II Shares are not in thousands. |
32 | DECEMBER 31, 2011
7. | Purchases and Sales of Investment Securities |
For the fiscal year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investment securities (excluding any short-term securities, short-term options contracts, and in-kind transactions) was as follows:
Purchases of Long- | Proceeds from Sales | |||||||||||||
Purchases of | Proceeds from Sales | Term U.S. Government | of Long-Term U.S. | |||||||||||
Portfolio | Securities | of Securities | Obligations | Government Obligations | ||||||||||
Janus Aspen Worldwide Portfolio | $ | 662,779,310 | $ | 728,497,224 | $ | – | $ | – | ||||||
8. | New Accounting Pronouncements |
In May 2011, the FASB issued Accounting Standards Update, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” The Accounting Standards Update requires disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. In addition, the Accounting Standards Update will require reporting entities to disclose the following information for fair value measurements categorized with Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. This disclosure is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years. Management is currently evaluating the impact these amendments may have on the Portfolio’s financial statements.
9. | Subsequent Event |
Management has evaluated whether any other events or transactions occurred subsequent to December 31, 2011 and through the date of issuance of the Portfolio’s financial statements and determined that there were no material events or transactions that would require recognition or disclosure in the Portfolio’s financial statements.
Janus Aspen Series | 33
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders
of Janus Aspen Worldwide Portfolio:
of Janus Aspen Worldwide Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Janus Aspen Worldwide Portfolio (one of the portfolios constituting Janus Aspen Series, hereafter referred to as the “Portfolio”) at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
Denver, Colorado
February 16, 2012
34 | DECEMBER 31, 2011
Additional Information (unaudited)
Proxy Voting Policies and Voting Record
A description of the policies and procedures that the Portfolio uses to determine how to vote proxies relating to its portfolio securities is available without charge: (i) upon request, by calling 1-800-525-0020 (toll free); (ii) on the Portfolio’s website at janus.com/proxyvoting; and (iii) on the SEC’s website at http://www.sec.gov. Additionally, information regarding the Portfolio’s proxy voting record for the most recent twelve-month period ended June 30 is also available, free of charge, through janus.com/proxyvoting and from the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Holdings
The Portfolio files its complete portfolio holdings (schedule of investments) with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days of the end of such fiscal quarter. The Portfolio’s Form N-Q: (i) is available on the SEC’s website at http://www.sec.gov; (ii) may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (information on the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iii) is available without charge, upon request, by calling Janus at 1-800-525-0020 (toll free).
APPROVAL OF ADVISORY AGREEMENTS DURING THE PERIOD
The Trustees of Janus Aspen Series, none of whom has ever been affiliated with Janus Capital and each of whom serves as an “independent” Trustee (the “Trustees”), oversee the management of each Portfolio and, as required by law, determine annually whether to continue the investment advisory agreement for each Portfolio and the subadvisory agreement for the Portfolio that utilizes a subadviser.
In connection with their most recent consideration of those agreements for each Portfolio, the Trustees received and reviewed a substantial amount of information provided by Janus Capital and the subadviser in response to requests of the Trustees and their independent legal counsel. They also received and reviewed a considerable amount of information and analysis provided by, and at the request of, their independent fee consultant. Throughout their consideration of the agreements, the Trustees were advised by their independent legal counsel. The Trustees met with management to consider the agreements, and also met separately in executive session with their independent legal counsel and their independent fee consultant.
At a meeting held on December 8, 2011, based on the Trustees’ evaluation of the information provided by Janus Capital, the subadviser and the independent fee consultant, as well as other information, the Trustees determined that the overall arrangements between each Portfolio and Janus Capital and the subadviser, as applicable, were fair and reasonable in light of the nature, extent and quality of the services provided by Janus Capital, its affiliates and the subadviser, the fees charged for those services, and other matters that the Trustees considered relevant in the exercise of their business judgment. At that meeting, the Trustees unanimously approved the continuation of the investment advisory agreement for each Portfolio, and the subadvisory agreement for the subadvised Portfolio, for the period from February 1, 2012 through February 1, 2013, subject to earlier termination as provided for in each agreement.
In considering the continuation of those agreements, the Trustees reviewed and analyzed various factors that they determined were relevant, including the factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the agreements are discussed separately below.
Nature, Extent and Quality of Services
The Trustees reviewed the nature, extent and quality of the services provided by Janus Capital and the subadviser to the Portfolios, taking into account the investment objective and strategy of each Portfolio and the knowledge the Trustees gained from their regular meetings with management on at least a quarterly basis and their ongoing review of information related to the Portfolios. In addition, the Trustees reviewed the resources and key personnel of Janus Capital and the subadviser, particularly noting those employees who provide investment and risk management services to the Portfolios. The Trustees also considered other services provided to the Portfolios by Janus Capital or the subadviser, such as managing the execution of portfolio transactions and the selection of broker-dealers for those transactions. The Trustees considered Janus Capital’s role as administrator to the Portfolios, noting that Janus Capital does not receive a fee for its services but is reimbursed for its out-of-pocket costs. The Trustees considered the role of Janus Capital in monitoring adherence to the Portfolios’ investment restrictions, providing support services for the Trustees and Trustee committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various policies and procedures of the Portfolios and with applicable securities laws and regulations.
Janus Aspen Series | 35
Additional Information (unaudited) (continued)
The Trustees concluded that the nature, extent and quality of the services provided by Janus Capital or the subadviser to each Portfolio were appropriate and consistent with the terms of the respective advisory and subadvisory agreements, and that, taking into account steps taken to address those Portfolios whose performance lagged that of their peers for certain periods, the quality of those services had been consistent with or superior to quality norms in the industry and the Portfolios were likely to benefit from the continued provision of those services. They also concluded that Janus Capital and the subadviser had sufficient personnel, with the appropriate education and experience, to serve the Portfolios effectively and had demonstrated its continuing ability to attract well-qualified personnel.
Performance of the Portfolios
The Trustees considered the performance results of each Portfolio over various time periods. They reviewed information comparing each Portfolio’s performance with the performance of comparable funds and peer groups identified by Lipper, and with the Portfolio’s benchmark index. They concluded that the performance of various Portfolios was good to very good under current market conditions. Although the performance of other Portfolios lagged that of their peers for certain periods, the Trustees also concluded that Janus Capital had taken or was taking appropriate steps to address those instances of under-performance.
Costs of Services Provided
The Trustees examined information regarding the fees and expenses of each Portfolio in comparison to similar information for other comparable funds as provided by Lipper. They also reviewed an analysis of that information provided by their independent fee consultant and noted that the rate of management (investment advisory and any administration) fees for almost all of the Portfolios, after applicable contractual expense limitations, was below the mean management fee rate of the respective peer group of funds selected by Lipper.
The Trustees considered the methodology used by Janus Capital and the subadviser in determining compensation payable to portfolio managers, the competitive environment for investment management talent and the competitive market for mutual funds in different distribution channels. They concluded that the compensation methodology provided a good alignment of the interests of the portfolio managers with the interests of Portfolio shareholders.
The Trustees also reviewed management fees charged by Janus Capital and the subadviser to their separate account clients and to non-affiliated funds subadvised by Janus Capital or by the subadviser (for which Janus Capital provides only portfolio management services). Although in most instances subadvisory and separate account fee rates for various investment strategies were lower than management fee rates for Portfolios having a similar strategy, the Trustees noted that, under the terms of the management agreements with the Portfolios, Janus Capital performs significant additional services for the Portfolios that it does not provide to those other clients, including administration services, oversight of the Portfolios’ other service providers, trustee support, regulatory compliance and numerous other services, and that, in serving the Portfolios, Janus Capital assumes many legal risks that it does not assume in servicing its other clients. Moreover, they noted that the spread between the average fee rates charged to the Portfolios and the fee rates that Janus Capital charged to its separate account clients was smaller than the average spread for such fee rates of other advisers, based on publicly available data and research conducted by the Trustees’ independent fee consultant.
The Trustees reviewed information on the profitability to Janus Capital and its affiliates of their relationships with each Portfolio, as well as an explanation of the methodology utilized in allocating various expenses of Janus Capital and its affiliates among the Portfolios and other clients. The Trustees also reviewed the financial statements and corporate structure of Janus Capital’s parent company. In their review, the Trustees considered whether Janus Capital and the subadviser receive adequate incentives to manage the Portfolios effectively. The Trustees recognized that profitability comparisons among fund managers are difficult because very little comparative information is publicly available and the profitability of any fund manager is affected by numerous factors, including the organizational structure of the particular fund manager, the types of funds and other accounts it manages, possible other lines of business, the methodology for allocating expenses and the fund manager’s capital structure and cost of capital. However, taking into account those factors and the analysis provided by the Trustees’ independent fee consultant, and based on the information available, the Trustees concluded that Janus Capital’s profitability with respect to each Portfolio in relation to the services rendered was not unreasonable.
The Trustees concluded that the management fees and other compensation payable by each Portfolio to Janus Capital and its affiliates, as well as the fees paid by Janus Capital to the subadviser of the subadvised Portfolio, were reasonable in relation to the nature, extent and quality of the services provided, taking into account the fees charged by other advisers for managing comparable
36 | DECEMBER 31, 2011
mutual funds with similar strategies, the fees Janus Capital and the subadviser charge to other clients, and, as applicable, the impact of fund performance on fees payable by the Portfolios. The Trustees also concluded that the overall expense ratio of each Portfolio was reasonable, taking into account the size of the Portfolio, the quality of services provided by Janus Capital and the subadviser, the investment performance of the Portfolio and any expense limitations agreed to by Janus Capital.
Economies of Scale
The Trustees considered information about the potential for Janus Capital to realize economies of scale as the assets of the Portfolios increase. They noted that, although many Portfolios pay advisory fees at a fixed rate as a percentage of net assets, without any breakpoints, the actual management fee rate paid by almost all of the Portfolios, after any contractual expense limitations, was below the mean management fee rate of the Portfolio’s peer group identified by Lipper; and, for those Portfolios whose expenses are being reduced by the contractual expense limitations of Janus Capital, Janus Capital is subsidizing the Portfolios because they have not reached adequate scale. Moreover, as the assets of many of the Portfolios have declined in the past few years, certain Portfolios have benefited from having advisory fee rates that have remained constant rather than increasing as assets declined. In addition, performance fee structures have been implemented for various Portfolios that have caused or will cause the effective rate of advisory fees payable by such a Portfolio to vary depending on the investment performance of the Portfolio relative to its benchmark index over the measurement period; and a few Portfolios have fee schedules with breakpoints and reduced fee rates above certain asset levels. The Trustees also noted that the Portfolios share directly in economies of scale through the lower charges of third-party service providers that are based in part on the combined scale of all of the Portfolios. Based on all of the information they reviewed, including research and analysis conducted by the Trustees’ independent fee consultant, the Trustees concluded that the current fee structure of each Portfolio was reasonable and that the current rates of fees do reflect a sharing between Janus Capital and the Portfolio of economies of scale at the current asset level of the Portfolio.
Other Benefits to Janus Capital
The Trustees also considered benefits that accrue to Janus Capital and its affiliates from their relationships with the Portfolios. They recognized that two affiliates of Janus Capital separately serve the Portfolios as transfer agent and distributor, respectively, and the transfer agent receives compensation directly from the non-money market funds for services provided. The Trustees also considered Janus Capital’s past and proposed use of commissions paid by the Portfolios on their portfolio brokerage transactions to obtain proprietary and third-party research products and services benefiting the Portfolio and/or other clients of Janus Capital. The Trustees concluded that Janus Capital’s use of these types of client commission arrangements to obtain proprietary and third-party research products and services was consistent with regulatory requirements and guidelines and was likely to benefit each Portfolio. The Trustees also concluded that, other than the services provided by Janus Capital and its affiliates pursuant to the agreements and the fees to be paid by each Portfolio therefor, the Portfolios and Janus Capital may potentially benefit from their relationship with each other in other ways. They concluded that Janus Capital benefits from the receipt of research products and services acquired through commissions paid on portfolio transactions of the Portfolios and that the Portfolios benefit from Janus Capital’s receipt of those products and services as well as research products and services acquired through commissions paid by other clients of Janus Capital. They further concluded that success of any Portfolio could attract other business to Janus Capital or other Janus funds, and that the success of Janus Capital could enhance Janus Capital’s ability to serve the Portfolios.
After full consideration of the above factors, as well as other factors, the Trustees, each of whom is an independent Trustee, concluded at their December 8, 2011 meeting that the proposed continuation of the investment advisory agreement and, if applicable, the subadvisory agreement for each Portfolio for another year was in the best interest of the respective Portfolios and their shareholders.
Janus Aspen Series | 37
Explanations of Charts, Tables and
Financial Statements (unaudited)
Financial Statements (unaudited)
1. | Performance Overviews |
Performance overview graphs compare the performance of a hypothetical $10,000 investment in the Portfolio (from inception) with one or more widely used market indices. The hypothetical example does not represent the returns of any particular investment.
When comparing the performance of the Portfolio with an index, keep in mind that market indices do not include brokerage commissions that would be incurred if you purchased the individual securities in the index. They also do not include taxes payable on dividends and interest or operating expenses incurred if you maintained the Portfolio invested in the index.
Average annual total returns are also quoted for the Portfolio. Average annual total return is calculated by taking the growth or decline in value of an investment over a period of time, including reinvestment of dividends and distributions, then calculating the annual compounded percentage rate that would have produced the same result had the rate of growth been constant throughout the period. Average annual total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemptions of Portfolio shares.
Pursuant to federal securities rules, expense ratios shown in the performance chart reflect subsidized and unsubsidized ratios for the prior fiscal year. The total annual fund operating expenses ratio is gross of any fee waivers, reflecting the Portfolio’s unsubsidized expense ratio. The total annual fund operating expenses ratio is based on average net assets as of the fiscal period ended December 31, 2010. The ratio also includes expenses indirectly incurred by the Portfolio as a result of investing in other investment companies or pooled investments, which are not reflected in the “Financial Highlights” of this report. As a result, this ratio may be higher or lower than those shown in the “Financial Highlights” in this report. All expenses are shown without the effect of expense offset arrangements. Pursuant to such arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses.
2. | Schedule of Investments |
Following the performance overview section is the Portfolio’s Schedule of Investments. This schedule reports the industry concentrations and types of securities held in the Portfolio on the last day of the reporting period. Securities are usually listed by type (common stock, corporate bonds, U.S. Government obligations, etc.) and by industry classification (banking, communications, insurance, etc.). Holdings are subject to change without notice.
The value of each security is quoted as of the last day of the reporting period. The value of securities denominated in foreign currencies is converted into U.S. dollars.
If the Portfolio invests in foreign securities, it will also provide a summary of investments by country. This summary reports the Portfolio’s exposure to different countries by providing the percentage of securities invested in each country. The country of each security represents the country in which the company is incorporated. The Portfolio’s Schedule of Investments relies upon the industry group and country classifications published by Bloomberg L.P.
2a. Forward Currency Contracts
A table listing forward currency contracts follows the Portfolio’s Schedule of Investments (if applicable). Forward currency contracts are agreements to deliver or receive a preset amount of currency at a future date. Forward currency contracts are used to hedge against foreign currency risk in the Portfolio’s long-term holdings.
The table provides the name of the foreign currency, the settlement date of the contract, the amount of the contract, the value of the currency in U.S. dollars and the amount of unrealized gain or loss. The amount of unrealized gain or loss reflects the change in currency exchange rates from the time the contract was opened to the last day of the reporting period.
2b. Options
A table listing written options contracts follows the Portfolio’s Schedule of Investments (if applicable). Written options contracts are contracts that obligate the Portfolio to sell or purchase an underlying security at a fixed price, upon exercise of the option. Options are used to hedge against adverse movements in securities prices, currency risk or interest rates.
The table provides the name of the contract, number of contracts held, the expiration date, exercise price, value and premiums received.
3. | Statement of Assets and Liabilities |
This statement is often referred to as the “balance sheet.” It lists the assets and liabilities of the Portfolio on the last day of the reporting period.
The Portfolio’s assets are calculated by adding the value of the securities owned, the receivable for securities sold but not yet settled, the receivable for dividends declared but not yet received on stocks owned and the receivable for Portfolio shares sold to investors but not yet settled. The Portfolio’s liabilities include payables for securities purchased but not yet settled, Portfolio shares redeemed but not yet paid and expenses owed but not yet paid.
38 | DECEMBER 31, 2011
Additionally, there may be other assets and liabilities such as unrealized gain or loss on forward currency contracts.
The section entitled “Net Assets Consist of” breaks down the components of the Portfolio’s net assets. Because the Portfolio must distribute substantially all earnings, you will notice that a significant portion of net assets is shareholder capital.
The last section of this statement reports the net asset value (“NAV”) per share on the last day of the reporting period. The NAV is calculated by dividing the Portfolio’s net assets (assets minus liabilities) by the number of shares outstanding.
4. | Statement of Operations |
This statement details the Portfolio’s income, expenses, gains and losses on securities and currency transactions, and appreciation or depreciation of current Portfolio holdings.
The first section in this statement, entitled “Investment Income,” reports the dividends earned from stocks and interest earned from interest-bearing securities in the Portfolio.
The next section reports the expenses incurred by the Portfolio, including the advisory fee paid to the investment adviser, transfer agent fees and expenses, and printing and postage for mailing statements, financial reports and prospectuses. Expense offsets and expense reimbursements, if any, are also shown.
The last section lists the increase or decrease in the value of securities held in the Portfolio. The Portfolio will realize a gain (or loss) when it sells its position in a particular security. An unrealized gain (or loss) refers to the change in net appreciation or depreciation of the Portfolio during the reporting period. “Net Realized and Unrealized Gain/(Loss) on Investments” is affected both by changes in the market value of Portfolio holdings and by gains (or losses) realized during the reporting period.
5. | Statements of Changes in Net Assets |
These statements report the increase or decrease in the Portfolio’s net assets during the reporting period. Changes in the Portfolio’s net assets are attributable to investment operations, dividends, distributions and capital share transactions. This is important to investors because it shows exactly what caused the Portfolio’s net asset size to change during the period.
The first section summarizes the information from the Statement of Operations regarding changes in net assets due to the Portfolio’s investment performance. The Portfolio’s net assets may also change as a result of dividend and capital gains distributions to investors. If investors receive their dividends in cash, money is taken out of the Portfolio to pay the distribution. If investors reinvest their dividends, the Portfolio’s net assets will not be affected. If you compare the Portfolio’s “Net Decrease from Dividends and Distributions” to the “Reinvested dividends and distributions,” you will notice that dividend distributions had little effect on the Portfolio’s net assets. This is because the majority of Janus investors reinvest their distributions.
The reinvestment of dividends is included under “Capital Share Transactions.” “Capital Shares” refers to the money investors contribute to the Portfolio through purchases or withdrawals via redemptions. “Redemption Fees” (if applicable) refers to the fee paid to the Portfolio for shares held for 60 days or less by a shareholder. The Portfolio’s net assets will increase and decrease in value as investors purchase and redeem shares from the Portfolio.
6. | Financial Highlights |
This schedule provides a per-share breakdown of the components that affect the Portfolio’s NAV for current and past reporting periods. Not only does this table provide you with total return, it also reports total distributions, asset size, expense ratios and portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of the reporting period. The next line reports the net investment income per share, which comprises dividends and interest income earned on securities held by the Portfolio. Following is the total of gains/(losses), realized and unrealized. Dividends and distributions are then subtracted to arrive at the NAV per share at the end of the period. The next line reflects the average annual total return reported the last day of the period. The total return may include adjustments in accordance with generally accepted accounting principles. As a result, the total return may differ from the total return reflected for shareholder transactions.
Also included are the expense ratios, or the percentage of average net assets that were used to cover operating expenses during the period. Expense ratios vary across Portfolios within the Trust for a number of reasons, including the differences in management fees, the frequency of dividend payments and the extent of foreign investments, which entail greater transaction costs.
The Portfolio’s expenses may be reduced through expense-reduction arrangements. These arrangements may include the use of balance credits or transfer agent fee offsets. The Statement of Operations reflects total expenses before any such offset, the amount of the offset and the net expenses. The expense ratios listed in the
Janus Aspen Series | 39
Explanations of Charts, Tables and
Financial Statements (unaudited) (continued)
Financial Statements (unaudited) (continued)
Financial Highlights reflect total expenses prior to any expense offset (gross expense ratio) and after the expense offsets (net expense ratio). Both expense ratios reflect expenses after waivers (reimbursements), if applicable.
The ratio of net investment income/(loss) summarizes the income earned less expenses, divided by the average net assets of the Portfolio during the reporting period. Don’t confuse this ratio with the Portfolio’s yield. The net investment income ratio is not a true measure of the Portfolio’s yield because it doesn’t take into account the dividends distributed to the Portfolio’s investors.
The next figure is the portfolio turnover rate, which measures the buying and selling activity in the Portfolio. Portfolio turnover is affected by market conditions, changes in the asset size of the Portfolio, fluctuating volume of shareholder purchase and redemption orders, the nature of the Portfolio’s investments and the investment style and/or outlook of the portfolio manager. A 100% rate implies that an amount equal to the value of the entire portfolio was replaced once during the fiscal year; a 50% rate means that an amount equal to the value of half the portfolio is traded in a year; and a 200% rate means that an amount equal to the value of the entire portfolio is traded every six months.
40 | DECEMBER 31, 2011
Designation Requirements (unaudited)
For federal income tax purposes, the Portfolio designated the following for the year ended December 31, 2011:
Dividends Received Deduction Percentage
Portfolio | ||||||||||
Janus Aspen Worldwide Portfolio | 35% | |||||||||
Janus Aspen Series | 41
Trustees and Officers (unaudited)
The Portfolio’s Statement of Additional Information includes additional information about the Trustees and officers and is available, without charge, by calling 1-877-335-2687.
The following are the Trustees and officers of the Trust, together with a brief description of their principal occupations during the last five years (principal occupations for certain Trustees may include periods over five years).
Each Trustee has served in that capacity since he or she was originally elected or appointed. The Trustees do not serve a specified term of office. Each Trustee will hold office until the termination of the Trust or his or her earlier death, resignation, retirement, incapacity, or removal. Pursuant to the Portfolio’s Governance Procedures and Guidelines, Trustees are required to retire no later than the end of the calendar year in which the Trustee turns 72. The Trustees review the Portfolio’s Governance Procedures and Guidelines from time to time and may make changes they deem appropriate. The Trust’s Nominating and Governance Committee will consider nominees for the position of Trustee recommended by shareholders. Shareholders may submit the name of a candidate for consideration by the Committee by submitting their recommendations to the Trust’s Secretary. Each Trustee is currently a Trustee of one other registered investment company advised by Janus Capital: Janus Investment Fund. Collectively, these two registered investment companies consist of 55 series or funds.
The Trust’s officers are elected annually by the Trustees for a one-year term. Certain officers also serve as officers of Janus Investment Fund. Certain officers of the Portfolio may also be officers and/or directors of Janus Capital. Portfolio officers receive no compensation from the Portfolio, except for the Portfolio’s Chief Compliance Officer, as authorized by the Trustees.
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
Independent Trustees | ||||||||||
William F. McCalpin 151 Detroit Street Denver, CO 80206 DOB: 1957 | Chairman Trustee | 1/08-Present 6/02-Present | Managing Director, Holos Consulting LLC (provides consulting services to foundations and other nonprofit organizations). Formerly, Executive Vice President and Chief Operating Officer of The Rockefeller Brothers Fund (a private family foundation) (1998-2006). | 55 | Chairman of the Board and Director of The Investment Fund for Foundations Investment Program (TIP) (consisting of 4 funds); and Director of the F.B. Heron Foundation (a private grantmaking foundation). | |||||
William D. Cvengros 151 Detroit Street Denver, CO 80206 DOB: 1948 | Trustee | 1/11-Present | Managing Member and Chief Executive Officer of SJC Capital, LLC (a personal investment company and consulting firm) (since 2002). Formerly, Venture Partner for The Edgewater Funds (a middle market private equity firm) (2002-2004); Chief Executive Officer and President of PIMCO Advisors Holdings L.P. (a publicly traded investment management firm) (1994-2000); and Chief Investment Officer of Pacific Life Insurance Company (a mutual life insurance and annuity company) (1987-1994). | 55 | Chairman, National Retirement Partners, Inc. (network of advisors to 401(k) plans) (2005-Present). Formerly, Director of Prospect Acquisition Corp. (a special purpose acquisition corporation) (2007-2009); Director of RemedyTemp, Inc. (temporary help services company) (1996-2006); and Trustee of PIMCO Funds Multi-Manager Series (1990-2000) and Pacific Life Variable Life & Annuity Trusts (1987-1994). |
42 | DECEMBER 31, 2011
Number of | ||||||||||
Portfolios/Funds in | Other Directorships | |||||||||
Fund Complex | Held by Trustee | |||||||||
Positions Held | Length of | Principal Occupations | Overseen | During the Past | ||||||
Name, Address, and Age | with the Trust | Time Served | During the Past Five Years | by Trustee | Five Years | |||||
John P. McGonigle 151 Detroit Street Denver, CO 80206 DOB: 1955 | Trustee | 6/10-Present | Formerly, Vice President, Senior Vice President, and Executive Vice President of Charles Schwab & Co., Inc. (1989-2006). | 55 | Formerly, Independent Trustee of PayPal Funds (a money market fund) (2008-2011) and Director of Charles Schwab International Holdings (a brokerage service division for joint ventures outside the U.S.) (1999-2006). | |||||
James T. Rothe 151 Detroit Street Denver, CO 80206 DOB: 1943 | Trustee | 1/97-Present | Co-founder and Managing Director of Roaring Fork Capital SBIC, LP (SBA SBIC fund focusing on private investment in public equity firms); and Professor Emeritus of Business of the University of Colorado, Colorado Springs, CO (since 2004). Formerly, Professor of Business of the University of Colorado (2002-2004); and Distinguished Visiting Professor of Business (2001-2002) of Thunderbird (American Graduate School of International Management), Glendale, AZ. | 55 | Director of Red Robin Gourmet Burgers, Inc. (RRGB) (since 2004). | |||||
William D. Stewart 151 Detroit Street Denver, CO 80206 DOB: 1944 | Trustee | 9/93-Present | Corporate Vice President and General Manager of MKS Instruments – HPS Products, Boulder, CO (a manufacturer of vacuum fittings and valves) and PMFC Division, Andover, MA (manufacturing pressure measurement and flow products). | 55 | None | |||||
Linda S. Wolf 151 Detroit Street Denver, CO 80206 DOB: 1947 | Trustee | 12/05-Present | Retired. Formerly, Chairman and Chief Executive Officer of Leo Burnett (Worldwide) (advertising agency) (2001-2005). | 55 | Director of Chicago Convention & Tourism Bureau, Chicago Council on Global Affairs, Children’s Memorial Hospital (Chicago, IL),The Field Museum of Natural History (Chicago, IL), InnerWorkings (U.S. provider of print procurement solutions to corporate clients), Rehabilitation Institute of Chicago, and Wal-Mart. | |||||
Janus Aspen Series | 43
Trustees and Officers (unaudited) (continued)
OFFICERS
Term of Office* and | Principal Occupations | |||||
Name, Address, and Age | Positions Held with the Trust | Length of Time Served | During the Past Five Years | |||
George P. Maris 151 Detroit Street Denver, CO 80206 DOB: 1968 | Executive Vice President and Portfolio Manager Janus Aspen Worldwide Portfolio | 3/11-Present | Vice President of Janus Capital. Formerly, Portfolio Manager for Northern Trust (2008-2011) and Columbia Management Group (2004-2008). | |||
Robin C. Beery 151 Detroit Street Denver, CO 80206 DOB: 1967 | President and Chief Executive Officer | 4/08-Present | Executive Vice President and Head of U.S. Distribution of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC; Director of The Janus Foundation; Director of Perkins Investment Management LLC; and Working Director of INTECH Investment Management LLC. Formerly, Head of Intermediary Distribution, Global Marketing and Product of Janus Capital Group Inc., Janus Capital, Janus Distributors LLC, and Janus Services LLC (2009-2010); Chief Marketing Officer of Janus Capital Group Inc. and Janus Capital (2002-2009); President of The Janus Foundation (2002-2007); and President of Janus Services LLC (2004-2006). | |||
Stephanie Grauerholz-Lofton 151 Detroit Street Denver, CO 80206 DOB: 1970 | Chief Legal Counsel and Secretary Vice President | 1/06-Present 3/06-Present | Vice President and Assistant General Counsel of Janus Capital, and Vice President and Assistant Secretary of Janus Distributors LLC. Formerly, Assistant Vice President of Janus Capital and Janus Distributors LLC (2006). | |||
David R. Kowalski 151 Detroit Street Denver, CO 80206 DOB: 1957 | Vice President, Chief Compliance Officer, and Anti-Money Laundering Officer | 6/02-Present | Senior Vice President and Chief Compliance Officer of Janus Capital, Janus Distributors LLC, and Janus Services LLC; and Vice President of INTECH Investment Management LLC and Perkins Investment Management LLC. Formerly, Chief Compliance Officer of Bay Isle Financial LLC (2003-2008). | |||
Jesper Nergaard 151 Detroit Street Denver, CO 80206 DOB: 1962 | Chief Financial Officer Vice President, Treasurer, and Principal Accounting Officer | 3/05-Present 2/05-Present | Vice President of Janus Capital and Janus Services LLC. |
* Officers are elected at least annually by the Trustees for a one-year term and may also be elected from time to time by the Trustees for an interim period.
44 | DECEMBER 31, 2011
Notes
Janus Aspen Series | 45
Janus provides access to a wide range of investment disciplines.
Alternative
Janus alternative funds seek to deliver strong risk-adjusted returns over a full market cycle with lower correlation to equity markets than traditional investments.
Asset Allocation
Janus’ asset allocation funds utilize our fundamental, bottom-up research to balance risk over the long term. From fund options that meet investors’ risk tolerance and objectives to a method that incorporates non-traditional investment choices to seek non-correlated sources of risk and return, Janus’ asset allocation funds aim to allocate risk more effectively.
Fixed Income
Janus fixed income funds attempt to provide less risk relative to equities while seeking to deliver a competitive total return through high current income and appreciation. Janus money market funds seek capital preservation and liquidity with current income as a secondary objective.
Global & International
Janus global and international funds seek to leverage Janus’ research capabilities by taking advantage of inefficiencies in foreign markets, where accurate information and analytical insight are often at a premium.
Growth & Core
Janus growth funds focus on companies believed to be the leaders in their respective industries, with solid management teams, expanding market share, margins and efficiencies. Janus core funds seek investments in more stable and predictable companies. Our core funds look for a strategic combination of steady growth and, for certain funds, some degree of income.
Mathematical
Our mathematical funds seek to outperform their respective indices while maintaining a risk profile equal to or lower than the index itself. Managed by INTECH (a Janus subsidiary), these funds use a mathematical process in an attempt to build a more “efficient” portfolio than the index.
Value
Our value funds, managed by Perkins (a Janus subsidiary), seek to identify companies with favorable reward to risk characteristics by conducting rigorous downside analysis before determining upside potential.
For more information about our funds, contact your investment professional or go to janus.com/variable-insurance.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com/variable-insurance. Read it carefully before you invest or send money.
Funds distributed by Janus Distributors LLC (02/12)
Investment products offered are: | NOT FDIC-INSURED | MAY LOSE VALUE | NO BANK GUARANTEE | ||||||
C-0112-126 | 109-02-81112 02-12 |
Item 2 — Code of Ethics
As of the end of the period covered by this Form N-CSR, the Registrant has adopted a Code of Ethics (as defined in Item 2(b) of Form N-CSR), which is posted on the Registrant’s website: janus.com. Registrant intends to post any amendments to, or waivers from (as defined in Item 2 of Form N-CSR), such code on janus.com within five business days following the date of such amendment or waiver.
Item 3 — Audit Committee Financial Expert
Janus Aspen Series’ Board of Trustees has determined that the following members of Janus Aspen Series’ Audit Committee are “audit committee financial experts,” as defined in Item 3 to Form N-CSR: Jerome S. Contro (Chairman), William D. Cvengros and William D. Stewart who are all “independent” under the standards set forth in Item 3 to Form N-CSR.
Item 4 — Principal Accountant Fees and Services
The following table shows the amount of fees that PricewaterhouseCoopers LLP (“Auditor”), Janus Aspen Series’ (the “Fund”) auditor, billed to the Fund during the Fund’s last two fiscal years. For the reporting periods, the Audit Committee approved in advance all audit services and non-audit services that Auditor provided to the Fund, except for those non-audit services that were subject to the pre-approval exception under Rule 2-01 of Regulation S-X (the “pre-approval exception”). The pre-approval exception for services provided directly to the Fund waives the pre-approval requirement for services other than audit, review or attest services if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid by the Fund to Auditor during the fiscal year in which the services are provided; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee’s attention, and the Committee (or its delegate) approves the services before the audit is completed.
Services that the Fund’s Auditor Billed to the Fund | ||||||||||||||||
Fiscal Year Ended | Audit Fees | Audit-Related | Tax Fees | All Other Fees | ||||||||||||
December 31 | Billed to Fund | Fees Billed to Fund | Billed to Fund | Billed to Fund | ||||||||||||
2011 | $ | 394,690 | $ | 0 | $ | 88,992 | $ | 0 | ||||||||
Percentage approved pursuant to pre-approval exception | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
2010 | $ | 307,355 | $ | 0 | $ | 58,596 | $ | 0 | ||||||||
Percentage approved pursuant to pre-approval exception | 0 | % | 0 | % | 0 | % | 0 | % |
The above “Audit Fees” were billed for amounts related to the audit of the Fund’s financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. The above “Tax Fees” were billed for amounts related to tax compliance, tax planning, tax advice, and corporate actions review.
Services that the Fund’s Auditor Billed to the Adviser
and Affiliated Fund Service Providers
and Affiliated Fund Service Providers
The following table shows the amount of fees billed by Auditor to Janus Capital Management LLC (the “Adviser”), and any entity controlling, controlled by or under common control with the Adviser (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
The table also shows the percentage of fees, if any, subject to the pre-approval exception. The pre-approval exception for services provided to Adviser and any Affiliated Fund Service Provider (other than audit, review or attest services) waives the pre-approval requirement if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid to Auditor by the Fund, the Adviser and Affiliated Fund Service Providers during the fiscal years in which the services are provided that would have to be pre-approved by the Audit Committee; (B) the Fund did not recognize the services as non-audit at the time of the engagement; and (C) the services are promptly brought to the Audit Committee’s attention, and the Committee (or its delegate) approves the services before the Fund’s audit is completed.
Audit-Related | All Other Fees | |||||||||||
Fees Billed to | Tax Fees Billed to | Billed to Adviser | ||||||||||
Adviser and | Adviser and | and Affiliated | ||||||||||
Fiscal Year Ended | Affiliated Fund | Affiliated Fund | Fund Service | |||||||||
December 31 | Service Providers | Service Providers | Providers | |||||||||
2011 | $ | 9,135 | $ | 0 | $ | 0 | ||||||
Percentage approved pursuant to pre-approval exception | 0 | % | 0 | % | 0 | % | ||||||
2010 | $ | 26,700 | $ | 0 | $ | 0 | ||||||
Percentage approved pursuant to pre-approval exception | 0 | % | 0 | % | 0 | % |
The above “Audit-Related Fees” were billed for amounts related to semi-annual financial statement disclosure review and internal control examination.
Non-Audit Services
The following table shows the amount of fees that Auditor billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee is required to pre-approve non-audit services that Auditor provides to the Adviser and any Affiliated Fund Service Provider, if the engagement relates directly to the Fund’s operations and financial reporting (except for those subject to the pre-approval exception described above). The Audit Committee requested and received information from Auditor about any non-audit services that Auditor rendered during the Fund’s last fiscal years to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating Auditor’s independence.
Total Non-Audit Fees | ||||||||||||||||
billed to Adviser and | ||||||||||||||||
Affiliated Fund Service | Total Non-Audit | |||||||||||||||
Providers(engagements | Fees billed to | |||||||||||||||
related directly to the | Adviser and | |||||||||||||||
Total | operations and | Affiliated Fund | ||||||||||||||
Non-Audit Fees | financial reporting of | Service Providers | ||||||||||||||
Fiscal Year Ended | Billed to the Fund | the Fund) | (all other engagements) | Total of (A), (B) | ||||||||||||
December 31 | (A) | (B) | (C) | and (C)1 | ||||||||||||
2011 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
2010 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
1. | The Audit Committee also considered amounts billed by Auditor to all other Control Affiliates in evaluating Auditor’s independence. |
Pre-Approval Policies
The Fund’s Audit Committee Charter requires the Fund’s Audit Committee to pre-approve any engagement of Auditor (i) to provide Audit or Non-Audit Services to the Fund or (ii) to provide non-audit services to Adviser or any Affiliated Fund Service Provider, if the engagement relates directly to the operations and financial reporting of the Fund, except for those non-audit services that were subject to the pre-approval exception under Rule 2-01 of Regulation S-X. The Chairman of the Audit Committee or, if the Chairman is unavailable, another member of the Audit Committee who is an independent Trustee, may grant the pre-approval. All such delegated pre- approvals must be presented to the Audit Committee no later than the next Audit Committee meeting.
Item 5 — Audit Committee of Listed Registrants
Not applicable.
Item 6 — Investments
(a) | Please see Schedule of Investments contained in the Reports to Shareholders included under Item 1 of this Form N-CSR. | ||
(b) | Using credible information that is available to the public, the Funds have not divested from any securities of any issuers that conduct or have direct investments in certain business operations in Sudan or Iran in accordance with Section 13(c) of the Investment Company Act of 1940. |
Item 7 — Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8 — Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9 — Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable.
Item 10 — Submission of Matters to a Vote of Security Holders
The Registrant has made the following non-material change to its Nominating and Governance Committee charter concerning methods by which shareholders may recommend nominees to the Registrant’s Board of Trustees by increasing the number of days for a shareholder to submit further information as requested by the Nominating and Governance Committee from seven to fourteen days.
Item 11 — Controls and Procedures
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have evaluated the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) within 90 days of this filing and have concluded that the Registrant’s disclosure controls and procedures were effective, as of that date. |
(b) | There have been no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 12 — Exhibits
(a)(1) | Not applicable because the Registrant has posted its Code of Ethics (as defined in Item 2(b) of Form N-CSR) on its website pursuant to paragraph (f)(2) of Item 2 of Form N-CSR. | |
(a)(2) | Separate certifications for the Registrant’s Principal Executive Officer and Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached as Ex99.CERT. | |
(a)(3) | Not applicable to open-end companies. | |
(b) | A certification for the Registrant’s Principal Executive Officer and Principal Financial Officer, as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, is attached as Ex99.906CERT. The certification furnished pursuant to this paragraph is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such certification is not deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Janus Aspen Series
By: | /s/ Robin C. Beery | |||
Robin C. Beery, | ||||
President and Chief Executive Officer of Janus Aspen Series | ||||
(Principal Executive Officer) | ||||
Date: | February 29, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Robin C. Beery | |||
President and Chief Executive Officer of Janus Aspen Series | ||||
(Principal Executive Officer) | ||||
Date: | February 29, 2012 |
By: | /s/ Jesper Nergaard | |||
Vice President, Chief Financial Officer, Treasurer and Principal | ||||
Accounting Officer of Janus Aspen Series (Principal Accounting | ||||
Officer and Principal Financial Officer) | ||||
Date: | February 29, 2012 |