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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 001-15253

Janus Capital Group Inc.

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12 (b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes þ         No o

      The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Company was $4,010,793,259 (based on the closing price of the common stock on New York Stock Exchange on June 28, 2002).

      The Company’s common stock is listed on the New York Stock Exchange under the symbol “JNS”. As of March 11, 2003, 223,497,233 shares of common stock were outstanding. On such date, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the Company was $2,215,294,200 (based on the closing price of the common stock on New York Stock Exchange on March 11, 2003).

DOCUMENTS INCORPORATED BY REFERENCE:

      Portions of the following documents are incorporated herein by reference into Part of the Form 10-K as indicated:

Table of Contents

JANUS CAPITAL GROUP INC.

2002 FORM 10-K ANNUAL REPORT

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PART I

Forward-Looking Statements

      This Annual Report on Form 10-K contains “forward-looking statements‘ within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, Janus Capital Group Inc. (“Janus” or the “Company”) may make other written and oral communications from time to time (including, without limit, in the Company’s 2002 Annual Report to Stockholders) that contain such statements. Forward-looking statements, include statements as to industry trends, future expectations of the Company and other matters that do not relate strictly to historical facts, are based on certain assumptions by management. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue‘ and similar expressions or variations, and are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in Part I, Item 1, Business, under “Risk Factors” and elsewhere in this report. Janus cautions readers to carefully consider such factors. Further, such forward-looking statements speak only as of the date on which such statements are made; Janus undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

General

      Janus Capital Group Inc. and its consolidated subsidiaries (collectively, “Janus” or the “Company”) sponsors, markets and provides investment advisory, distribution and administrative services primarily to mutual funds in both domestic and international markets. As of December 31, 2002, the Company managed $138.4 billion in assets across multiple investment disciplines. Janus’ revenues are largely dependent on the total value and composition of assets under management, primarily consisting of domestic and international equity and debt securities. Accordingly, fluctuations in the financial markets, relative investment performance, net flows and changes in the composition of assets under management are factors that have a direct effect on the Company’s revenues and operating results.

Company History

      On June 14, 2000, the Board of Directors of Kansas City Southern (“KCS”) (f.k.a. Kansas City Southern Industries, Inc.) approved the tax-free spin-off of its financial services segment (the “Spin-off”). The primary operating entities comprising the financial services segment of KCS at the time of the Spin-off were Janus Capital Corporation (“JCC”), an 82% owned subsidiary; Berger LLC (“Berger”), an 86% owned subsidiary; and DST Systems, Inc. (“DST”), a 32% equity investment. At the time of the Spin-off, JCC was the principal business of the financial services segment of KCS, representing greater than 90% of assets under management, revenues and net income.

      On July 12, 2000, the Spin-off was completed through a special dividend of common stock of the Company (which at the time was named Stilwell Financial Inc. (“Stilwell”)) to KCS common stockholders of record on June 28, 2000. Those stockholders received two shares of Stilwell common stock for every one share of KCS common stock owned on the record date.

      Stilwell operated as a holding company to perform various functions, including supporting and enhancing business efforts; strategic planning and development of subsidiaries; financing through the capital markets; evaluating and pursuing potential acquisitions, partnerships, joint ventures and other opportunities; and establishing and supporting employee stock ownership programs for the management of each subsidiary.

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      To begin expanding the fund product offerings to investment disciplines other than growth equities, two acquisitions were made in late 2001 and early 2002. In December 2001, the Company acquired 100% of Bay Isle Financial Inc. (“Bay Isle”) an asset management company based in Oakland, California. Bay Isle is an investment advisor that manages primarily institutional accounts and employs an investment process that attempts to identify domestic equities that are undervalued and are likely to appreciate. Bay Isle had approximately $1.1 billion in assets under management at the date of acquisition. In February 2002, the Company acquired a majority ownership interest of Enhanced Investment Technologies Inc. (“INTECH”), based in Princeton, New Jersey and Palm Beach Gardens, Florida. INTECH, which had approximately $6 billion in assets under management at acquisition, uses a proprietary mathematical investment process to manage equity securities for institutional and private clients.

      In 2001, largely pursuant to contractual put obligations, the Company acquired approximately 16% of JCC from its former President and Chief Executive Officer and other employees of JCC for approximately $1,558.6 million. After the series of transactions was completed, the Company owned approximately 98% of JCC.

      In 2002, in conjunction with the conversion of JCC to a limited liability company, the Company created Janus Capital Management LLC (“JCM”) and transferred the business and operations of JCC to JCM. Concurrent with the conversion to JCM, approximately 6.2% of the shares of JCM were granted to key JCM employees. The shares vest on a pro-rata basis over a five-year period. On March 12, 2003, JCM became a wholly-owned subsidiary through the conversion of all outstanding employee-held shares of JCM into shares of Janus common stock.

      On January 1, 2003, in response to the changing market environment, the Company reorganized its operations with the goal of eliminating redundant management teams, investment capabilities and infrastructure, and adopted a new business model that better capitalizes on the well-known Janus brand and leverages JCM’s existing and extensive global distribution relationships and network (the “Reorganization”). The Reorganization was accomplished by merging JCC into the Company, and changing the name of the Company to Janus Capital Group Inc. Janus’ headquarters were moved from Kansas City, Missouri to the existing JCM offices in Denver, Colorado.

      In conjunction with the Reorganization, the Berger Funds’ Trustees unanimously voted to approve the merger of Berger’s growth funds into similar Janus growth funds, subject to the receipt of Berger shareholder approval, which is expected to occur in March or April 2003. As a result of moving the corporate headquarters and the merger of the Berger funds, Janus expects to close the Stilwell facilities located in Kansas City, Missouri and the Berger facilities located in Denver, Colorado and eliminate a majority of the work force at Stilwell and Berger.

      In December 2002, Janus agreed to purchase 30% of Perkins, Wolf, McDonnell and Company (“PWM”). The acquisition is contingent upon receiving approval from Berger shareholders to merge Berger funds into similar Janus funds. PWM is currently the named subadvisor for certain of the Company’s value products.

      With respect to the Company’s 33% investment in DST, Janus is currently evaluating a number of divestiture alternatives, including, among other structures, a secondary offering, a sale directly to DST, a spin-off or split-off transaction and/or convertible financing structures. A divestiture could be accomplished through a single transaction, a series of transactions and/or a combination of different alternatives over a short or longer period of time. Janus has not made any decisions as to the timing, method, tax approach or amount with respect to a DST transaction, and any such transaction will consider the economic, market and business conditions at the time.

Business and Distribution Strategy

      Janus’ business strategy comprises the complementary asset management firms that collectively make up Janus, and the fact that these firms and the products they manage are branded and distributed through one global distribution network. The diverse lineup of investment disciplines offered by Janus’ underlying

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      Each discipline offered through Janus is managed according to the style and strength of the respective money management firm, which allows each subsidiary to stay focused on its respective core competency or area of expertise, as follows:

	•	JCM is one of the largest equity managers in the United States, specializing primarily in growth, core and international equity investing. For more than three decades, JCM has employed a bottom-up, company-by- company investment approach based on the conviction that stock prices ultimately follow earnings growth.
	•	INTECH has been managing institutional assets since 1987 using mathematically driven equity investing strategies. INTECH’s unique investment process is based on a mathematical theory that attempts to capitalize on the random nature of stock price movements, with the goal of outperforming a passive index while minimizing risk.
	•	PWM, with over 22 years of industry experience, has established its reputation in the small- and mid-cap value space through intensive research and careful consideration of risks.
	•	Bay Isle specializes in large- and small-cap value and REIT equity investing. For more than 16 years, Bay Isle has employed a bottom-up analysis with an intense focus on quality companies that trade at discounts to their fair market value.

      With respect to distribution, Janus has employed a broad and open strategy both domestically and abroad. Janus’ domestic distribution network includes its direct no-load business and its well-established third-party partnerships across the mutual fund supermarket, retirement plan, variable annuity and mutual fund wrap channels. Additionally, Janus packages products for distribution in the institutional separate account and subadvised channels both domestically and abroad.

      This broad and open strategy is reflected in Janus’ well-diversified distribution of its assets across several key channels. As of December 31, 2002, 26.7% of Janus assets came from the direct no-load channel; 52.0% from retirement plan, retail supermarket and advisor-assisted channels; 17.8% from traditional institutional separate account and subadvised business; and the remaining 3.5% from Janus’ fairly new, but rapidly growing, offshore distribution channel.

      Janus offers three distinct domestic mutual fund families — Janus Investment Fund (“JIF”), Janus Adviser Series (“JAD”) and Janus Aspen Series (“JAS”), and each is priced appropriately for its respective distribution channel. These fund families and the distribution channels they serve offer the complementary investment disciplines of JCM, INTECH, PWM and Bay Isle.

      Janus’ original fund family, JIF, primarily serves the investment needs of the direct and retail supermarket investors. Janus continues to be a dominant player in the traditional no-load channel and services more than 2 million direct investors.

      The JAS fund family was introduced in August 2000 to meet the growing needs of Janus’ retirement plan and advisor-assisted businesses. The Adviser Series offers multiple share classes (currently I and C shares) and is sold exclusively through financial intermediaries and retirement plans.

      The JAS fund family was launched in September 1993 exclusively for third-party distribution of variable annuities and certain qualified retirement plans. Janus Aspen Series is sold primarily through insurance companies and broker dealers.

      Janus International, the Company’s offshore distribution channel, was launched in October 1998 to bring the Janus approach of investment management to institutional and retail investors outside the

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Industry Segment Financial Information

      For purposes of segment reporting, Janus reports JCM, Bay Isle, INTECH and Berger as one segment (“Investment Management”), representing those businesses that derive the majority of their revenues and income from providing investment management services under investment advisory agreements. Janus’ investment in DST, the Company’s investment in other less significant subsidiaries and amounts historically recorded as “holding company” expenses are reported as a separate segment (“DST and Other”).

      Janus reports geographic area information with respect to revenues and long-lived assets based on where services are performed. Primary locations are the United States and the United Kingdom. See additional information in Part II Item 8, Financial Statements and Supplementary Data, footnote Note 19 — Segment and Geographic Information, of this Form 10-K.

Competition

      The investment management industry is relatively mature and saturated with competitors that provide similar services and often have undifferentiated capabilities. As such, Janus generally encounters significant competition in most areas of its business. Janus competes with mutual fund advisors, brokerage and investment banking firms, insurance companies, banks and other financial institutions, many of which are larger, have proprietary access to distribution, have a broader range of product choices and investment capabilities, and have greater capital resources. Janus’ ability to successfully compete in this market is based on its ability to achieve superior short- and long-term investment performance; to maintain its current distribution relationships and to continue to build new ones; to develop products with pricing that aligns well with its distribution channels and are attractive to underlying clients and investors; to offer multiple investment choices; to provide effective shareowner servicing; and to develop and leverage its brand.

      Competition in the mutual fund industry continues to increase as a result of greater flexibility afforded to banks and other financial institutions to sponsor mutual funds and distribute mutual fund shares, and as a result of consolidation and acquisition activity within the industry. Furthermore, the marketplace for investment products is rapidly changing: investors are becoming more sophisticated; the demand for and access to investment advice and information are becoming more widespread; and more investors are demanding investment vehicles that are customized to their personal situations. The impact on mutual fund demand due to the increasing availability of alternative product types, such as hedge funds, exchange traded funds and separate accounts, is uncertain.

Regulation

      Janus operates primarily in the investment management industry, which is subject to extensive federal and state laws and regulations intended to benefit or protect the shareholders of funds managed by Janus and advisory clients of Janus. These laws and regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of Janus’ business for failure to comply with the laws and regulations. Possible consequences or sanctions for such failure to comply include, but are not limited to, voiding of investment advisory and subadvisory agreements, the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of registrations, censures and fines.

      The Securities and Exchange Commission (“SEC”) is the federal agency generally responsible for administering the federal securities laws. Certain subsidiaries of Janus are registered investment advisors under the Investment Advisors Act of 1940 (the “Investment Advisors Act”) and, as such, are supervised by the SEC and applicable state securities agencies. The Investment Advisors Act requires registered

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      Through its subsidiaries, Janus acts as advisor or subadvisor to both proprietary and non-proprietary mutual funds, which are registered with the SEC pursuant to the Investment Company 1940 Act, as amended (the “1940 Act”). Janus subsidiaries also serve as advisor or subadvisor to separately managed accounts and commingled accounts that are not required to register under the 1940 Act. Janus subsidiaries are governed by the Investment Advisors Act with respect to their advisory and subadvisory services. In addition, as an advisor or subadvisor to a registered investment company, Janus must comply with the requirements of the 1940 Act and related regulations. In addition, the advisor or subadvisor to a registered investment company generally has obligations with respect to the qualification of the registered investment company under the Internal Revenue Code of 1986, as amended (the “Code”).

      In general, broker-dealers are required to register with the SEC under the Securities Exchange Act of 1934. Certain Janus subsidiaries are registered broker-dealers with the SEC and member firms of the National Association of Securities Dealers (the “NASD”), the securities industry’s self-regulatory organization. The NASD has established conduct rules for all securities transactions among broker-dealers and private investors, trading rules for the over-the-counter markets and operational rules for its member firms. The NASD conducts examinations of member firms, investigates possible violations of the federal securities laws and its own rules, and conducts disciplinary proceedings involving member firms and associated individuals. The NASD administers qualification testing for all securities principals and registered representatives for its own account and on behalf of the state securities authorities.

      Registered broker-dealers, members of the New York Stock Exchange (“NYSE”) and members of the NASD are subject to net capital requirements, including those of various federal and state regulatory agencies. Janus broker-dealers’ net capital has consistently met or exceeded all minimum requirements. Many of the non-U.S. securities exchanges and regulatory authorities also have imposed rules (and others may impose rules) relating to capital requirements applicable to Janus’ foreign subsidiaries. These rules, which specify minimum capital requirements, are designed to measure general financial integrity and liquidity and require that a minimum amount of assets be kept in relatively liquid form.

      Janus broker-dealer subsidiaries are also subject to regulation under state law in some states. The federal securities laws prohibit states from imposing substantive requirements on broker-dealers that exceed those under federal law. This does not preclude the states from imposing registration requirements on broker-dealers that operate within their jurisdiction or from sanctioning these broker-dealers and their employees for engaging in misconduct.

      Janus subsidiaries are also subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) and related regulations to the extent they are considered “fiduciaries” under ERISA with respect to some of their clients. ERISA and related provisions of the Code and regulations issued by the Department of Labor impose duties on persons who are fiduciaries under ERISA, and prohibit some transactions involving the assets of each ERISA plan which is a client of a Janus subsidiary, as well as some transactions by the fiduciaries (and several other related parties) to such plans.

      Certain Janus subsidiaries are authorized to conduct investment business in the United Kingdom pursuant to the Financial Services and Markets Act 2000 (the “FSMA”). Their investment management advisory activities are regulated by the Financial Services Authority (“FSA”), which in addition to broad supervisory powers, may discipline the businesses it regulates. Disciplinary powers include the power to temporarily or permanently revoke the authorization to carry on regulated business following a breach of FSMA and/or regulatory rules, the suspension of registered employees, censures and fines for both regulated businesses and their registered employees.

      The Janus compliance program has policies and procedures in place, including a Corporate Code of Conduct and Ethics Policy consistent with the NYSE listing standards and certain applicable provisions of Sarbanes-Oxley Act of 2002, to attempt to prevent and detect infractions of the applicable federal and state laws and regulations.

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Employees

      As of December 31, 2002, Janus had approximately 1,450 full-time employees, none of whom is represented by a labor union.

Available Information

      Janus files reports with the United States Securities and Exchange Commission (“SEC”). Copies of our filings can be obtained from the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information can be obtained on the operation of the Public Reference Room Can be obtained by calling the SEC at 1-800-SEC-0330.

      We file reports with the SEC electronically via the Internet. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Janus makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments thereto as soon as reasonably practical after such filing has been made with the SEC. Reports may be obtained through the Janus Capital Group website (Janus.com) or by contacting Janus at 303-691-3905.

Risk Factors

      Since the majority of Janus’ revenues are related directly to the value of the assets under management, any decline in the value or amount of those assets would have an adverse effect on revenues. Assets under management may decline for various reasons, many of which are not under Janus’ control. For any period in which revenues decline, Janus’ profits and profit margins may decline by a greater proportion because certain expenses remain relatively fixed. Factors that could decrease assets under management (and therefore revenues) include the following:

      Declines in the market value of the assets in the funds and accounts managed. These could be caused by price declines in the securities markets generally, by price declines in the market segments in which those assets are concentrated, or by firm-specific events that may significantly affect the valuation of individual security holdings held by Janus across portfolios and client accounts. Janus’ assets under management are concentrated in the U.S. equity markets and to a lesser extent in the international equity markets. The effect of market price declines will be compounded if the funds and accounts managed underperform the applicable market or segment.

      In the case of money market funds, which invest exclusively in high-quality, short-term money market instruments, as well as other funds that invest in fixed income securities, the value of assets in such funds may decline as a result of changes in interest rates, an issuer’s actual or perceived creditworthiness or an issuer’s ability to meet its obligations.

      Redemptions and other withdrawals from the funds and accounts managed. These could be caused by investors (in response to adverse market conditions or pursuit of other investment opportunities) reducing their investments in mutual funds in general or in the market segments on which Janus focuses; investors taking profits from their investments; poor investment performance of the funds and accounts managed by Janus; and portfolio risk characteristics, which could cause investors to move funds to other investment managers.

      Favorable performance by the U.S. securities markets in the late 1990s attracted a substantial inflow of investments to the U.S. mutual fund industry and resulted in significant appreciation in the market value of the assets held by the Janus funds during the period. However, markets during the years 2000 through 2002 retreated from the level of performance experienced during the late 1990s, with each of the major indices — the Standard & Poor 500 Index, NASDAQ and Dow Jones Industrial Average — declining in 2000, 2001 and 2002. Janus’ assets under management have varied from year to year, and management does not currently expect the high average growth rates experienced in the late 1990s to be

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      The results of DST are also subject to the performance of the U.S. mutual fund industry because DST derives a substantial portion of its revenues from the delivery of services and products to U.S. mutual fund industry clients. Any event affecting the mutual fund industry that results in a significant decline in the number of shareowner accounts could have a material adverse effect on DST’s business.

      Most of Janus’ revenues are derived pursuant to investment advisory agreements with mutual funds and other separate and private accounts. Any termination of or failure to renew a significant number of these agreements could have a material adverse impact on the revenues and profits of Janus. With respect to agreements with mutual funds, these investment advisory agreements may be terminated by either party with notice, or terminated in the event of an “assignment” (as defined in the 1940 Act ), and must be approved and renewed annually by the disinterested members of each fund’s board of directors or trustees, or its shareowners, as required by law. In addition, the board of trustees or directors of certain funds and separate and private accounts of Janus generally may terminate these investment advisory agreements upon written notice for any reason.

      Janus’ ability to market its mutual funds, subadvisory services and investment services is partly dependent on access to the client base of insurance companies, defined contribution plan administrators, securities firms, brokers, banks and other intermediaries. These intermediaries generally offer their clients various investment products in addition to, and in competition with, Janus. Further, the private account business uses referrals from financial planners, professional investment advisors and other professionals. Janus cannot be certain that it will continue to have access to these third-party distribution channels. Losing such access could have a material adverse effect on Janus’ financial condition, results of operations and business prospects.

      Two nationally recognized credit rating agencies lowered the Company’s long-term debt rating during 2002, reflecting Janus’ relatively high leverage (compared to industry peers) and concentrated asset mix that led to substantial declines in earnings and cash flows. Additional reductions of such ratings could negatively impact our ability to obtain future financing or increasing the cost of any new borrowing arrangements and could potentially impact our ability to retain and attract clients.

      Janus’ business is similar to other investment management businesses in that it is dependent on the ability to attract, retain and motivate highly skilled, and often highly specialized, technical and management personnel.

      The market for investment managers is extremely competitive and is increasingly characterized by the frequent movement of investment managers among different firms. In addition, since individual investment managers often maintain a strong, personal relationship with their clients that is based on their clients’ trust in the manager, the departure of a manager could cause the loss of client accounts, which could have a material adverse effect on the results of operations and financial condition of Janus.

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      Janus is evaluating how it compensates its key personnel, including investment managers. Although no decision has been made as to what actions, if any, will ultimately be taken, it is possible that Janus may lose one or more investment managers as a result of any future restructuring of compensation arrangements.

      Janus is subject to substantial and growing competition in all aspects of its business. The investment management industry is relatively mature and saturated with competitors that provide similar services and often have undifferentiated capabilities. Such competition could reduce the demand for our products and services and could have a material adverse effect on Janus’ business, financial condition, results of operations and business prospects. Janus competes with hundreds of other mutual fund management and distribution companies that distribute their fund shares through a variety of methods. Janus also competes with brokerage and investment banking firms, insurance companies, banks and other financial institutions, many of which are larger, have proprietary access to distribution, have a broader range of product choices and investment capabilities, and have greater capital resources.

      Competition in the mutual fund industry continues to increase as a result of greater flexibility afforded to banks and other financial institutions to sponsor mutual funds and distribute mutual fund shares, and as a result of consolidation and acquisition activity within the industry. Furthermore, the marketplace for investment products is rapidly changing: investors are becoming more sophisticated; the demand for and access to investment advice and information are becoming more widespread; and more investors are demanding investment vehicles that are customized to their personal situations. The impact on mutual fund demand due to the increasing availability of alternative product types, such as hedge funds, exchange traded funds and separate accounts, is uncertain.

      Janus’ credit facility contains covenants that, among other things, restrict Janus’ ability to transfer assets, merge, incur debt, create liens and enter into transactions with affiliates. The credit facility requires Janus to maintain specified financial ratios, including maximum leverage, minimum net worth, fixed charge coverage and minimum unencumbered liquidity. In addition, Janus must maintain a minimum level of average assets under management to ensure full availability of the credit facility. The breach of any of these covenants would result in a default under the credit facility. In the event of any such default, lenders that are party to the credit facility could elect to declare all amounts borrowed under the credit facility, together with accrued interest and other fees, to be due and payable. If any indebtedness under the credit facility were to be accelerated, Janus might not have sufficient assets to repay such indebtedness in full.

      The timing of future capital requirements will depend on a number of factors, including Janus’ ability to successfully implement its business strategy. Janus may require additional capital sooner than anticipated to the extent that operations do not progress as anticipated. To the extent the credit facility and operating cash flows are not sufficient to fund Janus’ cash requirements, Janus would have to seek additional capital that may not be available on acceptable terms, or at all. If additional capital were not available, Janus would have to sell some of its assets.

      Virtually all aspects of Janus’ business are subject to various laws and regulations. Violations of such laws or regulations could subject Janus and/or its employees to disciplinary proceedings or civil or criminal liability, including revocation of licenses, censures, fines or temporary suspension or permanent bar from the conduct of business. Any such proceeding or liability could have a material adverse effect on Janus’ business, financial condition, results of operations and business prospects. These laws and regulations

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      In addition, the regulatory environment in which Janus operates is subject to change. Janus may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations.

      The ability to consistently and reliably obtain securities pricing information, process shareowner transactions and provide reports and other customer service to the shareowners of funds managed by Janus and to the customers of DST is essential to Janus’ continuing success. Any delays or inaccuracies in obtaining pricing information, processing shareowner transactions or providing reports, and any inadequacies in other customer service, could alienate customers and potentially give rise to claims against Janus or DST. The customer service capability of Janus and DST, as well as their ability to obtain prompt and accurate securities pricing information and to process shareowner transactions and reports, is highly dependent on communications and information systems and on third-party vendors.

      These systems could suffer failures or interruptions due to various natural or man-made causes, and the back-up procedures and capabilities may not be adequate to avoid extended interruptions in operations. Additionally, Janus in the past few years has placed greater reliance on its automated customer service systems, thereby increasing the related risks if such systems were to fail.

      Janus has significant goodwill and intangible assets on its balance sheet related to past acquisitions that are subject to an annual impairment test. Janus cannot be certain that the Company will ever realize the value of such intangible assets and goodwill. An impairment of these assets could have a material adverse impact on Janus’ operating results and financial condition.

      Provisions of Janus’ certificate of incorporation, bylaws and shareholders’ rights plan might have the effect of discouraging or delaying certain transactions involving an actual or threatened change in control of Janus. For example, Janus’ certificate of incorporation and bylaws authorize blank series preferred stock, require a supermajority stockholder vote for approval of certain types of business combinations, establish a staggered board of directors and impose certain procedural and other requirements for some corporate actions. The shareholders’ rights plan could significantly dilute the interest in Janus of persons seeking to acquire control without prior approval of Janus’ Board of Directors.

      Janus’ headquarters are located in Denver, Colorado. Janus leases office space from non-affiliated companies for administrative, investment and shareowner servicing operations in Denver, Colorado; Westport, Connecticut; Oakland, California; Princeton, New Jersey; Palm Beach Gardens, Florida; the United Kingdom and Hong Kong. In the opinion of management, the office space and other properties owned or leased by the Company are adequate for existing operating needs.

      From time to time Janus is involved in various pending and threatened legal actions arising in the normal course of business. While the outcome of the various legal proceedings involving Janus cannot be

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      No matters were submitted to a vote of security holders during the three-month period ended December 31, 2002.

Executive Officers of the Company

      All executive officers are elected annually and serve at the discretion of the Company’s Board of Directors.

      Mark B. Whiston has served as Chief Executive Officer and President of the Company since January 1, 2003. He previously served as President of Retail and Institutional Services of JCM (and JCC prior to the formation of JCM) from November of 2000 to December of 2002 and as Vice President and Chief Marketing Officer for JCC from June 1995 to November 2000.

      Loren M. Starr has served as Chief Financial Officer and Vice President of the Company since January 1, 2003, and he has served as Chief Financial Officer of JCM (and JCC prior to the formation of JCM) since September 2001. He previously served as Head of Corporate Finance at Putnam Investments.

      Thomas A. Early has served as General Counsel, Chief Corporate Affairs Officer, Vice President, and Secretary of the Company since January 1, 2003. He has served as Vice President and General Counsel of JCM (and JCC prior to the formation of JCM) since February 1998.

      R. Timothy Hudner has served as Chief Operations Officer and Vice President of the Company since January 1, 2003. He has served as Chief Operations Officer of JCM since December 2002. He previously served as Chief Technology Officer of JCM (and JCC prior to the formation of JCM) from June 1999 to August 2002 and as Vice President of Information Systems from April 1996 to June 1999.

      Robin C. Beery has served as Chief Marketing Officer and Vice President of the Company since January 1, 2003. She has served as Chief Marketing Officer and Vice President of JCM since April 2002. She previously served as Director of Investor Marketing for JCC from January 1997 to April 2002, and Assistant Vice President of Marketing for JCC from January 1997 to January 1999.

      Lars O. Soderberg has served as Executive Vice President, Institutional Services for the Company since January 1, 2003, and for JCM since August 2002. He previously served as Vice President of Institutional Services and Director of Defined Contributions Services for JCM (and JCC prior to the formation of JCM) from January 1996 through August 2002.

      Gregory A. Frost has served as Vice President and Controller for the Company since January 1, 2003, and for JCM (and JCC prior to the formation of JCM) since January 2002. He previously served as Controller and Assistant Treasurer for JCC from December 1997 to December 2001.

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      Matthew R. Luoma has served as Vice President and Treasurer for the Company since January 1, 2003, and for JCM since August 2002. He was Vice President of Tax and Accounting for JCM (and JCC prior to the formation of JCM) from November 1996 to August 2002.

PART II

      Janus’ common stock is traded on the New York Stock Exchange (symbol: JNS). The following table sets forth the high and low sale and closing prices as reported on the New York Stock Exchange composite tape for each completed quarter since January 1, 2001.

On March 11, 2003, there were approximately 4,653 holders of record of our outstanding common stock.

      In December 2001, the Janus Board of Directors also approved a change in Janus’ dividend policy to pay a $0.04 per share dividend annually. Janus anticipates paying a $0.04 per share dividend in 2003.

      The selected financial data below should be read in conjunction with Part II Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, of this Form 10-K and the consolidated financial statements and the related notes thereto, and the Reports of Independent

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*

Diluted earnings per share has been adjusted from the amounts originally disclosed in the Quarterly Reports on Form 10-Q for the second and third quarters of 2002 and in our year-end press release on Form 8-K, dated January 30, 2003. The original diluted earnings per share calculation included all unvested restricted shares of JCM. The calculation did not include the impact of the assumed repurchase of shares (using total unamortized restricted stock compensation as the proceeds), pursuant to the treasury stock method defined in Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share.” Using the treasury stock method, the decline in fair market value of the JCM shares subsequent to the date of grant resulted in the unvested JCM shares becoming antidilutive.

General

      Janus’ principal business is to provide investment advisory, distribution and administrative services to individual and institutional investors, primarily through mutual funds in both domestic and international markets. Revenues are largely dependent on the total value and composition of assets under management, which include domestic and international equity and debt securities. Accordingly, fluctuations in the financial markets and in the composition of assets under management impact revenues and operating results. Assets under management are affected by new money investments or redemptions and by market appreciation or depreciation. Factors that impact the level of net fund sales or redemptions include competitive fund performance, marketing efforts, and introduction and market reception of new products. Market appreciation and depreciation reflect fluctuations in investment values.

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      Within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, historical transactions and events involving the financial services segment of Kansas City Southern (“KCS”) or Stilwell Financial Inc. (“Stilwell”) are discussed as if Janus were the entity involved in the transaction or event, unless otherwise indicated.

Significant Developments and Transactions — 2002

      Company Reorganization. On January 1, 2003, in response to the changing market environment, the Company reorganized its operations with the goal of eliminating redundant management teams, investment capabilities and infrastructure, and adopted a new business model that better capitalizes on the well-known Janus brand and leverages JCM’s existing and extensive global distribution relationships and network (the “Reorganization”). The Reorganization was accomplished by merging JCC into the Company, and changing the name of the Company to Janus Capital Group Inc. Janus’ headquarters were moved from Kansas City, Missouri to the existing JCM offices in Denver, Colorado.

      In conjunction with the Reorganization, the Berger Funds’ Trustees unanimously voted to approve the merger of Berger’s growth funds into similar Janus growth funds, subject to the receipt of Berger shareholder approval, which is expected to occur in March or April 2003.

      As a result of moving corporate headquarters and merging Berger funds into similar Janus funds, Janus expects to close the Stilwell facilities located in Kansas City, Missouri, and the Berger facilities located in Denver, Colorado, and eliminate a majority of the work force (approximately 140) at Stilwell and Berger. In the third quarter 2002, Janus recorded approximately $39.4 million for severance expenses and $6.7 million related to facility closing costs and fixed asset impairments. Janus expects to pay the majority of these costs during the first six months of 2003. See Part II, Item 8, Note 7 for a summary of accrued restructuring charges.

      Enhanced Investment Technology (“INTECH”) Acquisition. On February 28, 2002, Janus acquired a majority ownership interest of INTECH for approximately $93.4 million. INTECH, which had approximately $6.0 billion in assets under management at acquisition, uses a proprietary mathematical investment process to manage equity securities for institutional and private clients. The acquisition of INTECH expands the product offerings available to Janus clients.

      Creation of Janus Capital Management LLC (“JCM”). JCM is the primary operating company of Janus. JCM through its investment management contracts, which include the Janus Investment Fund (“JIF”), the Janus Aspen Series (“JAS”), the Janus Adviser Series (“JAD”), the Janus World Funds Plc (“JWF”) and subadvised and private accounts (collectively “Janus Funds”), generates the majority of Janus’ revenue. Prior to April 1, 2002, Janus Capital Corporation (“JCC”) was the investment advisor for the Janus Funds. On April 1, 2002, in conjunction with forming a limited liability company, Janus transferred the business and operations of JCC to JCM. Historical transactions and events (i.e., occurring prior to April 1, 2002) involving JCC are discussed as if JCM were the entity involved in the transaction or event, unless otherwise indicated.

      JCM Restricted Stock Awards. On April 1, 2002, concurrent with the conversion to JCM, approximately 6.2% of the shares of JCM were issued to key JCM employees, accomplished through two grants.

      The first grant was a special, one-time share grant equivalent to $235 million, or 5% of JCM, all of which was originally scheduled to vest at the end of seven years, but included the opportunity for accelerated vesting (either 20% or 33% annually) when defined investment performance targets were achieved. The second grant totaled $69 million, or 1.2% of JCM, and represented the customary long-term incentive component of the employees’ annual compensation package and was scheduled to vest at the end of five years, with opportunities for acceleration similar to the shares for the one-time grant.

      In connection with the Reorganization, the Company changed the vesting for these two grants and all previous JCM equity grants to a pro rata five-year schedule. The change in vesting resulted in the recognition of additional restricted stock compensation of approximately $26 million in 2002, which under

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      Compensation expense is recorded ratably over the vesting period. Annual compensation expense, without accelerated vesting, for these two awards will be approximately $59 million per year for the years ended December 31, 2003 through 2006. After issuance of the JCM interests, Janus owns approximately 92% of JCM, with JCM employees owning the remaining 8%.

      On March 12, 2003, JCM became a wholly-owned subsidiary through the conversion of all outstanding employee-held shares of JCM into shares of Janus common stock. The conversion was completed to simplify Janus’ corporate structure and more closely align interests of employees with those of shareholders.

      A special committee of independent members of Janus’ Board of Directors approved a conversion ratio of 20.1 shares of Janus common stock for each JCM share. The conversion ratio was based on the fair market value of each equity instrument at the date of conversion. The conversion resulted in the issuance of approximately 15.7 million shares of Janus common stock, of which 3.7 million were vested and an additional 1.8 million shares are expected to vest on March 31, 2003. The conversion does not modify any of the terms of the awards.

      Debt Repurchase and Offerings. On April 30, 2002, pursuant to the terms of the zero-coupon convertible senior notes due April 30, 2031, (“Convertible Notes”), holders of the notes required Janus to repurchase $820.7 million of the Convertible Notes (approximately $614.5 million of accreted value). To partially fund the payment of the Convertible Notes, Janus issued Senior Notes in April and July totaling $358.1 million.

      Shelf Registration. In April 2002, Janus filed a Shelf Registration Statement (“Shelf Registration”) with the SEC, which provides for the issuance of up to $800 million of Janus’ common stock, preferred stock and debt securities. At December 31, 2002, approximately $600 million of securities are available for issuance under the Shelf Registration.

      Significant Recent Accounting Pronouncements. As discussed in Part II, Item 8, Note 3, management does not expect that the adoption of recent accounting pronouncements in 2003 will have a material impact on Janus’ statement of financial position, results of operations or cash flow.

Significant Developments and Transactions — 2001

      JCM Share Purchases. During 2001, Janus completed a series of purchases of shares of JCM that increased Janus’ ownership interest of JCM from approximately 82% to 98%. The shares of JCM were purchased from JCM employees and Thomas H. Bailey (JCM’s former President and Chief Executive Officer) for approximately $1,558.6 million. The purchases were accounted for using the purchase method of accounting. As a result, Janus recorded goodwill and intangibles assets totaling $1,940.0 million (including $445.4 million of goodwill associated with deferred taxes).

      Debt Offerings. During 2001, Janus completed two debt offerings to partially fund the purchase of the shares of JCM. The two debt offerings resulted in net proceeds of approximately $1 billion. The first offering, Janus’ Convertible Notes, was completed in April and resulted in net proceeds of approximately $673.2 million. The second offering, a 7% Senior Notes offering, was completed in November and resulted in net proceeds of approximately $397.0 million.

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      Restructuring. Due to decreased shareholder transaction volume, combined with increased functionality of the Janus.com website, Janus recorded several non-recurring charges associated with the restructuring of the JCM shareholder communications and processing functions. The restructuring actions included closing the Austin, Texas, call center; closing a Denver, Colorado, facility; and work force reductions of approximately 1,200 employees. Janus recorded approximately $66.1 million in severance, fixed asset impairments and facility closing costs related to this restructuring. See Part II, Item 8, Note 7 for a summary of accrued restructuring charges.

      Bay Isle Financial (“Bay Isle”) Acquisition. On December 31, 2001, Janus acquired Bay Isle, a manager of primarily institutional accounts through a value style approach. Bay Isle had approximately $1.1 billion in assets under management at the date of acquisition.

Results of Operations — 2002 Compared to 2001

      Janus has two operating segments, Investment Management, and DST and Other. The Investment Management segment generated 98% and 93% of Janus’ revenue and operating expenses in 2002, respectively. The discussion surrounding the results of operations focuses primarily on the Investment Management segment and Janus’ investment in DST. The impact of the other subsidiaries on Janus’ operating results was not material.

      Net Income. Janus had net income of $84.7 million, or $0.38 per diluted share (see Item 6 “Selected Financial Data”), in 2002 compared to $302.3 million, or $1.31 per diluted share, in 2001. The 2002 results were negatively impacted by the continued decline in the equity markets combined with significant non-recurring charges recorded during 2002, including $46.1 million for severance expenses and facility closing costs resulting from the Reorganization; $23.3 million of investment and goodwill impairments; and a $107.8 million income tax charge (non-cash) resulting from the change in the Company’s assessment of its strategy to ultimately realize its equity investment in DST.

      Assets Under Management/ Revenue. Assets under management totaled $138.4 billion at December 31, 2002, a 28% decline from assets of $192.5 billion at December 31, 2001. Assets under management were negatively impacted by $41.9 billion of market depreciation, primarily due to the continued weak equity markets experienced in 2002. In addition to market declines, Janus also had $18.2 billion of net outflows during 2002, resulting from $22.1 billion in net outflows in the growth equity discipline, $2.2 billion in net outflows from money market funds and net inflows of $6.1 billion in Janus’ other investment disciplines. The acquisition of INTECH added $6.0 billion in assets under management.

      Assets under management at December 31 were as follows (in billions):

      For the year ended December 31, 2002, investment management and shareowner servicing fees decreased 26% from $1,555.7 million to $1,144.8 million, primarily reflecting the decline in average assets under management and changes in product mix from equity funds to lower fee fixed income and money market funds. Average assets under management in 2002 declined 23% to $164.5 billion from $214.1 billion in 2001. Investment management and shareowner servicing fees are generally based upon a percentage of the market value of assets under management and are calculated under contractual

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      Expenses. Employee compensation and benefits decreased $40.8 million, or 14%, in 2002 compared to 2001 reflecting lower cash incentive compensation (paid to portfolio management professionals) as well as a decline in the companywide annual cash incentive bonus (paid to non-investment personnel). Portfolio management incentive compensation decreased primarily due to a combination of lower management fee revenue and fewer fund performance targets achieved as compared to the prior year. The subjective component of the Company’s annual incentive bonus declined due to management’s assessment of the overall market conditions and the Company’s financial performance in 2002.

      Restricted stock compensation increased $60.8 million to $99.2 million in 2002, reflecting the equity granted to JCM employees in April 2002 (6.2% of JCM) and the change to a five-year pro-rata vesting schedule for all outstanding equity grants. This change in vesting resulted in the recognition of additional restricted stock compensation of approximately $26 million.

      Marketing and distribution declined $103.3 million in 2002 due to decreased assets under management distributed through the third-party or advisor-assisted segment, combined with lower overall marketing and promotion expenditures. Average assets under management subject to reimbursements/ concessions decreased 30% in 2002. Marketing, promotion and advertising continued to decline in 2002, resulting from reduced spending on Janus retail products in television, print and other media advertising.

      Depreciation and amortization decreased $58.3 million, or 45%, in 2002 compared to 2001 resulting from lower amortization associated with goodwill and indefinite-life intangible assets, which ceased being subject to amortization as of January 1, 2002, pursuant to the new accounting guidelines set forth in Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Intangible Assets.”

      The increase in interest expense in 2002 of $23.0 million was due to a higher average outstanding debt balance in 2002 as compared to 2001. The Convertible Notes (issued in April 2001) were replaced in 2002 by two issuances of Senior Notes bearing higher interest rates. In addition, $400 million of Senior Notes were issued in November of 2001, on which two months of interest expense was incurred in 2001 compared to a full year in 2002.

      The 2002 provision for income taxes as a percentage of income before taxes and minority interest is significantly higher than that of 2001 largely due to the significant income tax charge recorded in the third quarter of 2002 associated with Janus’ investment in DST. When the Reorganization was announced, management indicated that it expected to evaluate strategic alternatives for its DST investment, including transactions that would be taxable at the full federal and applicable state income tax rates. Accordingly, a non-cash charge of $107.8 million was recorded to accrue additional deferred income taxes, resulting in taxes being provided on Janus’ share of DST earnings since 1995 at full statutory rates. Previous to this change, the Company had provided deferred income taxes on the unremitted earnings of DST net of the 80% dividends received deduction provided for under current tax law. Also contributing to the increase in effective tax rate is the impact of the JCM equity grants. Since the shares represent “profits interests” which are considered to have no value for tax purposes, a tax deduction is not available to the Company with respect to this compensation expense.

      Minority interest declined significantly from 2001 due to Janus’ purchase of 16% of the outstanding shares of JCM during 2001.

      DST Systems, Inc. Janus’ equity earnings from DST in 2002 decreased to $69.1 million from $75.4 million recorded in 2001. DST’s consolidated net income decreased $19.2 million to $209.0 million in 2002 from $228.2 million in 2001. The decline in earnings is due primarily to non-recurring gains of $27.0 million (after tax) realized in 2001 and certain non-recurring charges of $6.8 million (after tax) in 2002. Operating income of DST’s financial services segment, which provided 83% of 2002 consolidated operating income, increased to $252.9 million in 2002 from $222.4 million in 2001. This increase was primarily due to the inclusion of EquiServe (acquired in 2001) earnings for a full year and was offset by a net decline in operating income of DST’s other segments.

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Results of Operations — 2001 Compared to 2000

      Net Income. Janus had net income of $302.3 million, or $1.31 per diluted share, in 2001 compared to $663.7 million, or $2.90 per diluted share, in 2000. The decline in earnings is primarily attributable to the decrease in average assets under management, $82.7 million of non-recurring charges for severance and facility closing costs and increased amortization expense resulting from the $1,558.6 million additional investment in JCM during 2001.

      Assets Under Management/Revenue. Assets under management totaled $192.5 billion at December 31, 2001, a 25% decline from assets of $258.1 billion at December 31, 2000. Assets under management were negatively impacted by $61.2 billion of market depreciation from the weak equity markets experienced in 2001. In addition to market declines, Janus also had $5.5 billion of net outflows during 2001, resulting from $14.9 billion in net outflows in the growth equity discipline, offset by net inflows of $6.6 billion in the money market funds and net inflows of $2.8 billion in Janus’ other disciplines. The acquisition of Bay Isle added approximately $1.1 billion in assets under management.

      Assets under management at December 31 were as follows (in billions):

      For the year ended December 31, 2001, investment management and shareowner servicing fees decreased 31% from $2,248.1 million to $1,555.7 million, as a result of a decline in average assets under management and a shift in product mix away from higher fee equity products. Average assets under management in 2001 declined 29% to $214.1 billion from $301.9 billion in 2000.

      Expenses. Employee compensation and benefits decreased $199.4 million, or 40%, in 2001 compared to 2000 primarily attributable to decreases in the number of employees and cash incentive compensation, as well as to lower base, bonus and overtime pay. During 2001, Janus eliminated approximately 1,200 full-time employees. Portfolio management cash incentive compensation decreased due to lower management fee revenue and fewer performance targets achieved, as compared to the prior year. Additionally, Janus experienced significant overtime compensation in 2000 as a result of the rapid growth experienced in investor activity.

      Marketing and distribution declined $97.4 million in 2001 due to the decreased assets under management distributed through the third-party or advisor-assisted segment, combined with lower marketing and promotion expenditures. Average assets under management subject to third-party concessions decreased 30% year over year. Marketing, promotional and advertising expenditures declined due to a reduction in print, television and radio media advertising.

      Depreciation and amortization increased $49.4 million, or 61%, in 2001 resulting from the amortization of goodwill and intangibles associated with the $1,558.6 million additional investment in JCM during 2001. Approximately 50% of the $1,558.6 million purchase price was subject to amortization until the adoption of SFAS No. 142 on January 1, 2002.

      Interest expense in 2001 exceeded 2000 by $27.1 million, primarily as a result of the amortization of approximately $11.0 million of debt issue costs associated with the Convertible Notes, approximately $7.0 million of interest associated with the acquisition of JCM stock from Mr. Bailey, and two months of interest on Janus’ $400 million Senior Notes, issued in November 2001.

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      DST Systems, Inc. Equity earnings from DST for 2001 totaled $75.4 million compared to $69.7 million in 2000. This improvement was attributable to higher earnings in DST’s financial services segment. Consolidated DST revenues increased 22%, due to the inclusion of revenue from EquiServe, in which DST acquired controlling ownership on March 30, 2001. Revenues also increased due to a higher number of shareowner accounts serviced (totaling 75.6 million at December 31, 2001, versus 72.1 million at December 31, 2000). Additionally, DST realized after-tax non-recurring gains of $27 million in 2001.

Liquidity and Capital Resources

      Summary of cash flow data for the years ended December 31, is as follows (in millions):

      Cash Flows — 2002. Janus’ cash flow from operations historically has been positive and sufficient to fund ordinary operations and capital expenditures. Janus generated $282.4 million of cash flows from operations in 2002 compared to $501.2 million in 2001, a decline of $218.8 million that was primarily attributable to lower net income in 2002.

      Net cash expended in investing activities decreased to $71.3 million in 2002 from $1,616.2 million in 2001, attributable to the additional investment in JCM made in 2001. Significant investing activities in 2002 consisted of the acquisition of INTECH. Capital expenditures continued to decline in 2002 to $16.3 million from $34.3 million in 2001, reflecting a lower level of infrastructure and project spending.

      Cash used in financing activities totaled $286.8 million in 2002 compared with cash provided by financing activities of $987.9 million in 2001. During 2002, Janus used cash flow from operations to repay a net $258.8 million of debt, primarily resulting from the requirement to purchase the Convertible Notes in April 2002, which was only partially financed with new borrowings. In 2001, Janus borrowed $1,089.5 million under the Convertible Notes and Senior Notes to fund the additional investment in JCM. All borrowings under Janus’ credit facilities were repaid within the year.

      Cash Flows — 2001. Janus generated $501.2 million of cash flows from operations in 2001 compared to $731.3 million in 2000. The decline was primarily attributable to lower net income in 2001.

      Net cash expended in investing activities increased to $1,616.2 million in 2001 from $219.6 million in 2000. During 2001, Janus completed a series of transactions (totaling approximately $1,558.6 million) that increased its ownership in JCM to 98%. Capital expenditures declined from $107.1 million in 2000 to $34.3 million in 2001, primarily due to the majority of significant infrastructure enhancements at JCM having been completed during the period from 1998 to 2000.

      Cash provided by financing activities totaled $987.9 million compared to cash used in financing activities of $471.5 million in 2000. The acquisition of the additional interest in JCM was financed through the borrowings of $1,089.5 million and cash provided by operating activities. In 2000, the significant financing activities included repayment of debt assumed during the Spin-off and common stock repurchases of $323.3 million.

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      Short-Term Capital Requirements. Significant uses of cash in 2003 include the exercise of the put/call agreement with INTECH ($45 million), the acquisition of a 30% stake in PWM, interest payments on outstanding debt, restructuring and severance payments and an expected dividend payment. Janus believes cash from operations in 2003 should be sufficient to satisfy its operating and capital requirements for 2003.

      Long-Term Capital Requirements. The Company expects the principal uses of cash beyond 2003 will include:

	•	capital expenditures, including the enhancement of technology infrastructure;
	•	strategic acquisitions;
	•	payment of dividends;
	•	repayment and servicing of the Company’s debt obligations;
	•	initial investments in new products (seed money);
	•	payment of upfront fund commissions; and
	•	repurchase Janus common stock.

      Upfront Fund Commissions. Janus pays commissions on the sale of Class B and C shares in the Janus World Funds and Class C shares in the Janus Adviser Series. Funding of such commissions during the years ended December 31, 2002, 2001 and 2000 totaled $29.7 million, $6.3 million and $68.7 million, respectively. Management expects future cash requirements for sales commissions will be more consistent with the level experienced in 2002. If necessary, Janus could finance or sell the future revenue generated from the payment of the sales commissions to finance this cash commitment.

      Long-Term Debt and Lease Obligations. Janus’ commitments under existing indebtedness and operating leases as of December 31, 2002 were as follows (in millions):

      Janus Credit Agreements. Janus has a $300 million Five-Year Facility (the “Facility”). The proceeds of any borrowings under the Facility are to be used for working capital and general corporate purposes, including repurchases of outstanding shares of common stock. The Facility contains a number of covenants that could restrict maximum utilization of the Facility, or the ability of the Company to issue securities that are currently available for issuance under the Company’s Registration Statement, including various financial covenants such as a specified financing leverage, minimum net worth, minimum unencumbered liquidity, a fixed charge coverage and minimum average assets under management.

      Pursuant to a provision included in the Facility, if Janus’ average assets under management over a rolling three-month period are below $180 billion but above $170 billion, the amount available under the Facility is $250 million. If average assets under management are below $170 billion but above $150 billion, the Facility is reduced to $200 million. If average assets under management are below $150 billion, the Facility is reduced to $150 million. Further, Janus is required to repay portions of amounts borrowed under the Facility in excess of the reduced credit availability amount. Janus had no borrowings under the Facility at December 31, 2002 and the total amount available was $150 million.

      Shelf Registration. The Company has a Shelf Registration Statement (“Shelf Registration”), under which Janus could issue up to $800 million in aggregate issue price of Janus’ common stock, preferred stock and debt securities. In July 2002, Janus issued $200 million of senior notes under the Shelf Registration. At December 31, 2002, $600 million of securities are available for issuance under the Shelf Registration, subject to the covenant limitations pursuant to Janus’ credit facilities.

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Critical Accounting Policies and Estimates

      Janus’ consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

      Janus continually evaluates the accounting policies and estimates it uses to prepare its consolidated financial statements. In general, management’s estimates are based on historical experience, on information from third-party professionals and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

      Janus management believes its critical accounting policies and estimates include:

	•	accounting for intangible assets and goodwill;
	•	value determination for compensatory fixed accounting stock plans; and
	•	accounting for income taxes.

      Accounting for Intangible Assets and Goodwill. Intangibles assets and goodwill comprise $2.4 billion, or 72%, of our total assets at December 31, 2002. The majority of this balance was recorded in 2001 with the additional 16% investment in JCM of approximately $1,558.6 million. Two issues arise with respect to these assets that require significant management estimates and judgment: the valuation in connection with the initial purchase price allocation and the ongoing evaluation for impairment.

      In connection with these investments, a valuation was completed by a third-party to determine a reasonable purchase price allocation. Upon completion of the allocation process, approximately 80% of the purchase price was assigned to various identified intangible assets and the remainder was allocated to goodwill. In addition to marketplace information, the third-party valuation considered management’s estimates and judgments as to growth rates and operating margins over a range of assumptions for the various products, distribution channels and business strategies.

      In addition, SFAS No. 142 requires that goodwill be tested at least annually using a two-step process. The first step is to identify a potential impairment by comparing the fair value of the “reporting unit” associated with the goodwill to the reporting unit’s recorded value. The second step measures the amount of the impairment loss, if any. Intangible assets with indefinite lives are tested for impairment using a one-step process that compares the fair value to the carrying amount of the asset.

      To complete the annual test for potential impairment of intangible assets and goodwill, Janus considers: performance compared to peers, significant changes in the underlying business and products of the reporting units, material and ongoing negative industry or economic trends, or other factors specific to each asset or reporting unit being evaluated. Due to the significance of the identified intangible assets and goodwill to Janus’ consolidated balance sheet, the annual impairment analysis is critical. Any changes in key assumptions about the business and its prospects, or changes in market conditions or other externalities, could result in an impairment charge and such a charge could have a material adverse effect on the Company’s financial condition and results of operations.

      Janus tested indefinite life intangibles and goodwill for potential impairment as of January 1, 2002, (adoption date of SFAS No. 141 and 142) and there was no impairment. In the third quarter of 2002, prior to the annual testing date, Janus recorded a $10.0 million goodwill impairment, associated with its investment in a subsidiary operating in the United Kingdom. In accordance with the annual testing requirement of SFAS No. 142, Janus again tested indefinite life intangibles and goodwill for potential impairment as of October 1, 2002, and no impairment charge was required.

      Value Determination for Compensatory Fixed Accounting Stock Plans. Since 1998, JCM has granted restricted shares to certain JCM employees pursuant to restricted grants. The shares vest on a pro-rata basis over a five-year period, although certain grants are subject to accelerated vesting of 33% in one

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      Accounting for Income Taxes. Significant management judgment is required in developing Janus’ provision for income taxes, including the determination of deferred tax assets and liabilities, valuation allowances that might be required against the deferred tax assets, and the evaluation of various income tax contingencies. Janus has not recorded a valuation allowance on its deferred tax assets as of December 31, 2002, based on management’s belief that operating income will, more likely than not, be sufficient to realize the benefit of these assets over time. In the event that actual results differ from these estimates or if Janus’ historical trend of positive operating income changes, Janus may be required to record a valuation allowance on deferred tax assets, which could have a material adverse effect on Janus’ consolidated financial condition and results of operations.

Janus’ Trends and Outlook

      Janus’ earnings and cash flows are heavily dependent on prevailing financial market conditions. Significant increases or decreases in the various securities markets, particularly the equity markets, can have a material impact on Janus’ results of operations, financial condition and cash flows.

      Additionally, Janus’ results are impacted by the relative performance of Janus’ products and their risk characteristics, introduction and market reception of new products and the closing of existing funds to new investors, as well as other factors, including increases in the rate of return of alternative investment products, increasing competition as the number of mutual funds and alternative investments continues to grow, changes in marketing and distribution channels, and inability to retain portfolio management professionals. Although management does not expect the high average growth rates of the late 1990s to be repeated in the foreseeable future, management also does not expect the declines over the last three years to be indicative of future years.

      Due primarily to the downturn in the financial equity markets, Janus’ assets under management significantly declined from levels experienced during 2000. Average assets under management for 2002 were $164.5 billion compared to $214.1 billion for 2001. Average assets under management can fluctuate based on fund flows and changes in the market value of funds and accounts managed by JCM, INTECH, Bay Isle or Berger. Accordingly, revenues during 2003 could decrease from the comparable 2002 periods to the extent that the markets continue to be unfavorable to equity growth investors and result in declines in average assets under management. A decrease in revenues could result in lower operating income and net income.

      Management expects that Janus may experience margin pressures in the future should assets continue to decline and Janus is unable to reduce its expenses.

      The following information, together with information included in other parts of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, describe the key aspects of certain financial instruments that have market risk to Janus.

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Interest Rate Sensitivity

      As of December 31, 2002, all of Janus’ long-term debt was at fixed interest rates. However, in February 2002, Janus entered into a receive-fixed, pay-float interest rate exchange agreement with a high rated financial institution with respect to Janus’ $400 million Senior Notes. The effect of this agreement was to increase Janus’ exposure to fluctuations in interest rates. In October 2002, Janus terminated the hedge contract and received $18.4 million from the third-party for the fair value of the interest rate exchange agreement.

Foreign Exchange Sensitivity

      Janus has subsidiaries in the United Kingdom and Hong Kong. With respect to these investments, matters arise as to financial accounting and reporting for foreign currency transactions and for translating foreign currency financial statements into U.S. dollars. The exposure to foreign currency fluctuations is not material as the majority of the revenue earned by our international subsidiaries is denominated in U.S. dollars.

Available for Sale Investment Sensitivity

      Janus invests a portion of the revenues earned from providing investment advisory services in certain non-money market sponsored funds. Accordingly, these investments are carried in Janus’ consolidated financial statements at fair market value and are subject to the investment performance of the underlying sponsored fund. Any unrealized gain or loss is recognized upon the sale of the investment.

      Additionally, DST, a 33% owned equity investment, holds available for sale investments that may affect Janus’ consolidated financial statements. Similar to the Janus securities, any changes to the market value of the DST’s available for sale investments are reflected, net of deferred income tax, in DST’s “accumulated other comprehensive income” component of its equity. Accordingly, Janus records its proportionate share of this amount as part of the investment in DST. While these changes in market value do not result in any impact to Janus’ consolidated results of operations currently, upon disposition by DST of these investments, Janus will record its proportionate share of the gain or loss as a component of equity earnings.

Equity Price Sensitivity

      Janus owns 33% of DST, a publicly traded company. While changes in the market price of DST are not reflected in Janus’ consolidated results of operation or financial position, they may affect the perceived value of the Janus common stock.

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Index to Financial Statements

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of
Janus Capital Group Inc.

      We have audited the accompanying consolidated balance sheet of Janus Capital Group Inc. (the Company) as of December 31, 2002, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of DST Systems, Inc. (DST), the Company’s investment in which is accounted for by use of the equity method. The Company’s investment in DST which constitutes 14% of the Company’s consolidated total assets at December 31, 2002, and the Company’s equity in earnings of DST which constitutes 22% of income before income taxes and minority interest for the year then ended are included in the accompanying consolidated financial statements. The financial statements of DST were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such company, is based solely on the report of such other auditors.

      We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion.

      In our opinion, based on our audit and the report of the other auditors, such 2002 consolidated financial statements present fairly, in all material respects, the financial position of Janus Capital Group Inc. as of December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Notes 2 and 6 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in 2002 with the implementation of Statement of Financial Accounting Standards No. 142.

Denver, Colorado

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

      In our opinion, the accompanying consolidated balance sheet as of December 31, 2001, and the related consolidated statements of income, of stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2001 present fairly, in all material respects, the financial position, results of operations and cash flows of Janus Capital Group Inc. and its subsidiaries at December 31, 2001, and for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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 provide a reasonable basis for our opinion.

Kansas City, Missouri

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JANUS CAPITAL GROUP INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of these consolidated financial statements.

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS