File No. 33-24962
Investment Company No. 811-5186
As filed with the Securities and Exchange Commission on December 24, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
Registration Statement under The Securities Act of 1933
Post-Effective Amendment No. 20
Registration Statement under The Investment Company Act of 1940
Amendment No. 22
AMERICAN SKANDIA TRUST
(Exact Name of Registrant as Specified in Charter)
One Corporate Drive, Shelton, Connecticut 06484
(Address of Principal Executive Offices) (Zip Code)
(203) 926-1888
(Registrant's Telephone Number, Including Area Code)
MARY ELLEN O'LEARY, ESQ., SECRETARY
AMERICAN SKANDIA TRUST
ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484
(Name and Address of Agent for Service)
Copies to:
JOHN T. BUCKLEY, ESQ.
WERNER & KENNEDY
1633 BROADWAY, 46TH FLOOR, NEW YORK, NEW YORK 10019
It is proposed that this filing will become effective (check appropriate space)
_____ immediately upon filing pursuant to paragraph (b).
[X} on December 30, 1996 pursuant to paragraph (b) of rule 485.
_____ 60 days after filing pursuant to paragraph (a)(1).
_____ on _______ pursuant to paragraph (a)(1).
_____ 75 days after filing pursuant to paragraph (a)(2).
_____ on _______ pursuant to paragraph (a)(2) of rule 485.
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has elected to maintain an indefinite
registration of shares under Rule 24f-2. The Rule
24f-2 Notice for Registrant's fiscal period ended
December 31, 1995 was filed on February 28, 1996.
<PAGE>
AMERICAN SKANDIA TRUST
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Form N-1A
Item Number
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Prospectus
Part A Prospectus Caption Page Number
1. Cover Page 1
2. *
3. Financial Highlights 5
4. Investment Objectives and
Policies; Organization and
Description of Shares of the Trust 14,108
5. (a)(b)(c) Management of the Trust
(d) Transfer and Shareholder Servicing
Agent and Custodian 111
(e) Management of the Trust 95
(f) Financial Highlights 5
(g) Brokerage Allocation 94
6. (a) Organization and Description of
Shares of the Trust 108
(b) Other Information 112
(c) Organization and Description of
Shares of the Trust 108
(d) *
(e) Cover Page; Other Information 1,112
(f) (g) Tax Matters 107
7. (a) *
(b) Purchase and Redemption of Shares;
Net Asset Values 95,94
(c) *
(d) *
(e) *
(f) *
8. Purchase and Redemption of Shares 95
9. *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Statement of
Additional
Statement of Additional Information
Part B Information Caption Page Number
10. Cover Page 1
11. Table of Contents 2
12. *
13. Investment Objectives and Policies;
Investment Restrictions; 3,147
Portfolio Turnover; Allocation
of Investments 181,187
14. Management 182
15. Other Information 190
16. (a) (b) Management of the Trust 184
(c) *
(d) Management of the Trust 184
(e) *
(f) *
(g) *
(h) See Prospectus
(i) *
17. (a) Brokerage Allocation 186
(b) *
(c) Brokerage Allocation 186
(d) *
(e) *
18. See Prospectus
19. (a) Purchase and Redemption of Shares; 188
See also Prospectus
(b) Computation of Net Asset Values 187
(c) *
20. See Prospectus
21. Underwriter 188
22. Other Information 190
23. Financial Statements 190
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
* Not Applicable
<PAGE>
PROSPECTUS DECEMBER 30, 1996
AMERICAN SKANDIA TRUST
One Corporate Drive, Shelton, Connecticut 06484
- --------------------------------------------------------------------------------
American Skandia Trust (the "Trust") is a managed, open-end investment company
whose separate portfolios ("Portfolios") are diversified, unless otherwise
indicated. The Trust seeks to meet the differing investment objectives of its
Portfolios. The Portfolios as of the date of this Prospectus and their
respective investment objectives are as follows:
Lord Abbett Growth and Income Portfolio seeks long-term growth of capital
and income while attempting to avoid excessive fluctuations in market value.
JanCap Growth Portfolio seeks growth of capital in a manner consistent with
preservation of capital. AST Janus Overseas Growth Portfolio seeks long-term
growth of capital. AST Money Market Portfolio seeks high current income and
maintenance of high levels of liquidity. Federated Utility Income Portfolio
seeks high current income and moderate capital appreciation by investing
primarily in equity and debt securities of utility companies. Federated High
Yield Portfolio seeks high current income by investing primarily in a
diversified portfolio of fixed income securities. T. Rowe Price Asset Allocation
Portfolio seeks a high level of total return by investing primarily in a
diversified group of fixed income and equity securities. T. Rowe Price
International Equity Portfolio seeks total return on its assets from long-term
growth of capital and income principally through investments in common stocks of
established, non-U.S. companies. T. Rowe Price Natural Resources Portfolio seeks
long-term growth of capital through investments primarily in common stocks of
companies which own or develop natural resources and other basic commodities. T.
Rowe Price International Bond Portfolio (formerly, the AST Scudder International
Bond Portfolio) seeks to provide high current income and capital appreciation by
investing in high-quality, non dollar-denominated government and corporate bonds
outside the United States. T. Rowe Price Small Company Value Portfolio seeks
long-term capital appreciation by investing primarily in small-capitalization
stocks that appear to be undervalued. Founders Capital Appreciation Portfolio
seeks capital appreciation. Founders Passport Portfolio (formerly, the Seligman
Henderson International Small Cap Portfolio) seeks capital appreciation. INVESCO
Equity Income Portfolio seeks high current income while following sound
investment practices. Capital growth potential is an additional, but secondary,
consideration in the selection of portfolio securities. PIMCO Total Return Bond
Portfolio seeks to maximize total return, consistent with preservation of
capital. PIMCO Limited Maturity Bond Portfolio seeks to maximize total return,
consistent with preservation of capital and prudent investment management.
Berger Capital Growth Portfolio seeks long-term capital appreciation. Robertson
Stephens Value + Growth Portfolio seeks capital appreciation. Twentieth Century
International Growth Portfolio seeks capital growth. Twentieth Century Strategic
Balanced Portfolio seeks capital growth and current income. AST Putnam Value
Growth & Income Portfolio seeks capital growth. Current income is a secondary
objective. AST Putnam International Equity Portfolio (formerly, the Seligman
Henderson International Equity Portfolio) seeks capital appreciation. AST Putnam
Balanced Portfolio (formerly, the AST Phoenix Balanced Asset Portfolio) seeks a
balanced investment composed of a well-diversified portfolio of stocks and bonds
which will produce both capital growth and current income.
Investments in American Skandia Trust are neither insured nor guaranteed by the
United States Government. Such investments are not bank deposits, and are not
insured by, guaranteed by, obligations of, or otherwise supported by, any bank.
Although the AST Money Market Portfolio seeks to maintain a stable net asset
value of $1.00 per share, there can be no assurance that it will be able to do
so.
This Prospectus sets forth concisely the information that a prospective investor
should know before investing in shares of the Trust and should be retained for
future reference. A Statement of Additional Information, dated December 30,
1996, containing additional information about the Trust has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference into
this Prospectus. That Statement is available without charge upon request to the
Trust at the address listed above or by calling (203) 926-1888.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(continued on page 2)
Shares of the Trust are available, and are marketed as a pooled funding vehicle,
for life insurance companies ("Participating Insurance Companies") writing
variable annuity contracts and variable life insurance policies. Shares of the
Trust also may be offered directly to qualified pension and retirement plans,
including, but not limited to, plans under sections 401, 403, 408 and 457 of the
Internal Revenue Code of 1986, as amended ("Qualified Plans"). As of the date of
this Prospectus, the only Participating Insurance Companies are American Skandia
Life Assurance Corporation and Kemper Investors Life Insurance Company. From
time to time, however, the Trust may enter into participation agreements with
other Participating Insurance Companies. The Trust sells and redeems its shares
at net asset value without any sales charges, commissions or redemption fees.
Each variable annuity contract and variable life insurance policy involves fees
and expenses not described in this Prospectus. Certain Portfolios may not be
available in connection with a particular variable annuity contract or variable
life insurance policy or Qualified Plan. Please read the Prospectus of the
variable annuity contracts and variable life insurance policies issued by
Participating Insurance Companies for information regarding contract fees and
expenses and any restrictions on purchases.
<PAGE>
TABLE OF CONTENTS
Caption Page
*Financial Highlights 5
Investment Objectives and Policies 14
Lord Abbett Growth and Income Portfolio 14
JanCap Growth Portfolio 15
AST Janus Overseas Growth Portfolio 18
AST Money Market Portfolio 21
Federated Utility Income Portfolio 23
Federated High Yield Portfolio 25
T. Rowe Price Asset Allocation Portfolio 28
T. Rowe Price International Equity Portfolio 31
T. Rowe Price Natural Resources Portfolio 34
T. Rowe Price International Bond Portfolio 37
T. Rowe Price Small Company Value Portfolio 40
Founders Capital Appreciation Portfolio 43
Founders Passport Portfolio 47
INVESCO Equity Income Portfolio 52
PIMCO Total Return Bond Portfolio 54
PIMCO Limited Maturity Bond Portfolio 58
Berger Capital Growth Portfolio 63
Robertson Stephens Value + Growth Portfolio 65
Twentieth Century International Growth Portfolio 67
Twentieth Century Strategic Balanced Portfolio 72
AST Putnam Value Growth & Income Portfolio 77
AST Putnam International Equity Portfolio 79
AST Putnam Balanced Portfolio 82
Certain Risk Factors and Investment Methods 85
Regulatory Matters 92
Portfolio Turnover 93
Brokerage Allocation 94
Investment Restrictions 94
Net Asset Values 94
Purchase and Redemption of Shares 95
Management of the Trust 95
Tax Matters 107
Organization and Description of Shares of the Trust 108
Portfolio Annual Expenses 108
Performance 110
Transfer and Shareholder Servicing Agent
and Custodian 111
Counsel and Auditors 112
Other Information 112
<PAGE>
FINANCIAL HIGHLIGHTS (Selected Per Share Data for an Average Share
Outstanding and Ratios Throughout Each Period): The tables below contain
unaudited financial information and financial information which has been audited
in conjunction with the annual audits of the financial statements of American
Skandia Trust by Deloitte & Touche LLP, Independent Auditors. Financial
information for the years ended December 31, 1991 through December 31, 1995 has
been audited. Audited Financial Statements for the year ended December 31, 1995,
including the Independent Auditors' Report thereon, and Unaudited Financial
Statements for the period ended June 30, 1996 are included in the Trust's
Statement of Additional Information, which is available without charge upon
request to the Trust at One Corporate Drive, Shelton, Connecticut or by calling
(203) 926-1888. No financial information is included for the AST Janus Overseas
Growth Portfolio, the T. Rowe Price Small Company Value Portfolio, the Twentieth
Century International Growth Portfolio, the Twentieth Century Strategic Balanced
Portfolio or the AST Putnam Value Growth & Income Portfolio, which are first
being offered as of the date of this Prospectus.
<PAGE>
<TABLE>
<CAPTION>
SELIGMAN HENDERSON INTERNATIONAL EQUITY PORTFOLIO*
-------------------------------------------------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 ----------------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989(2)
------------- -------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period.................... $ 18.20 $ 17.61 $ 17.34 $ 12.74 $ 13.90 $ 12.99 $ 13.76 $ 10.00
-------- -------- -------- ------- ------- ------- ------- -------
Increase (Decrease) from
Investment Operations
Net Investment Income
(Loss)................... 0.13 0.14 0.10 0.14 (0.17) 0.01 0.22 0.06
Net Realized & Unrealized
Gains (Losses) on
Investments and Foreign
Currency Transactions.... 1.02 1.44 0.36 4.46 (0.99) 0.90 (0.63) 3.70
-------- -------- -------- ------- ------- ------- ------- -------
Total Increase
(Decrease) From
Investment
Operations........... 1.15 1.58 0.46 4.60 (1.16) 0.91 (0.41) 3.76
-------- -------- -------- ------- ------- ------- ------- -------
Less Dividends and
Distributions
Dividends from Net
Investment Income........ (0.32) -- (0.03) -- -- -- (0.23) --
Distributions from Net
Realized Capital Gains... (0.37) (0.99) (0.16) -- -- -- (0.13) --
-------- -------- -------- ------- ------- ------- ------- -------
Total Dividends and
Distributions........ (0.69) (0.99) (0.19) -- -- -- (0.36) --
-------- -------- -------- ------- ------- ------- ------- -------
Net Asset Value at End of
Period....................... $ 18.66 $ 18.20 $ 17.61 $ 17.34 $ 12.74 $ 13.90 $ 12.99 $ 13.76
======== ======== ======== ======= ======= ======= ======= =======
Total Return................... 6.45% 10.00% 2.64% 36.11% (8.35%) 7.01% (2.97%) 37.60%
Ratios/Supplemental Data
Net Assets at End of Period
(in 000's)............... $325,623 $268,056 $238,050 $150,646 $24,998 $15,892 $ 6,015 $ 1,299
Ratios of Expenses to Average
Net Assets:
After Advisory Fee Waiver
and Expense
Reimbursement.......... 1.15%(1) 1.17% 1.22% 1.52% 2.50% 2.50% 2.38% 1.17%(1)
Before Advisory Fee
Waiver and Expense
Reimbursement.......... 1.26%(1) 1.27% 1.32% 1.52% 2.50% 2.82% 8.80% 67.51%(1)
Ratios of Net Investment Income
(Loss) to Average Net Assets:
After Advisory Fee Waiver
and Expense
Reimbursement.......... 1.51%(1) 0.88% 0.55% 0.28% (1.62%) 0.12% 1.67% 3.72%(1)
Before Advisory Fee
Waiver and Expense
Reimbursement.......... 1.40%(1) 0.78% 0.46% 0.28% (1.62%) (0.20%) (4.75%) (62.62%)(1)
Portfolio Turnover Rate........ 24.71% 58.62% 48.69% 31.69% 54.56% 58.74% 76.10% 55.06%
Average Commission Rate
Paid+........................ $ 0.0150 -- -- -- -- -- -- --
</TABLE>
- ----------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC for the period beginning January 1,
1996.
(1) Annualized.
(2) Commenced operations on April 19, 1989.
* Since October 15, 1996, Putnam Investment Management, Inc. has served as
Sub-advisor to the Portfolio, now named the AST Putnam International Equity
Portfolio. The information presented in these financial highlights is
historical and is not intended to indicate future performance of the
Portfolio.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
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PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
LORD ABBETT GROWTH AND INCOME
----------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 -----------------------------------------
(UNAUDITED) 1995 1994 1993 1992(3)
------------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................. $ 14.98 $ 12.00 $ 12.06 $ 10.70 $ 10.00
-------- ------- ------- ------- --------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)........................ 0.13 0.16 0.20 0.11 0.07
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............................. 0.85 3.22 0.06 1.35 0.63
-------- ------- ------- ------- --------
Total Increase (Decrease) From
Investment Operations........................ 0.98 3.38 0.26 1.46 0.70
-------- ------- ------- ------- --------
Less Dividends and Distributions
Dividends from Net Investment Income................ (0.17) (0.20) (0.12) (0.04) --
Distributions from Net Realized
Capital Gains..................................... (0.35) (0.20) (0.20) (0.06) --
-------- ------- ------- ------- --------
Total Dividends and Distributions.............. (0.52) (0.40) (0.32) (0.10) --
-------- ------- ------- ------- --------
Net Asset Value at End of Period........................ $ 15.44 $ 14.98 $ 12.00 $ 12.06 $ 10.70
======== ======= ======= ======= ========
Total Return............................................ 6.61% 28.91% 2.22% 13.69% 7.00%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's).............. $372,133 $288,749 $92,050 $48,385 $10,159
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.......................... 0.96%(1) 0.99% 1.06% 1.22% 0.99%(1)
Before Advisory Fee Waiver and
Expense Reimbursement.......................... 0.96%(1) 0.99% 1.06% 1.33% 1.75%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.......................... 2.04%(1) 2.50% 2.45% 2.05% 2.49%(1)
Before Advisory Fee Waiver and
Expense Reimbursement.......................... 2.04%(1) 2.50% 2.45% 1.94% 1.73%(1)
Portfolio Turnover Rate................................. 21.36% 50.28% 60.47% 56.70% 34.29%
Average Commission Rate Paid+........................... $ 0.0663 -- -- -- --
</TABLE>
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+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC for the period beginning January 1,
1996.
(1) Annualized.
(3) Commenced operations on May 1, 1992.
(4) Commenced operations on November 6, 1992.
(5) Commenced operations on November 10, 1992.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
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PORTFOLIO
------------------------------------------------------------------
JANCAP GROWTH
------------------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 ----------------------------------------------
(UNAUDITED) 1995 1994 1993 1992(4)
------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................. $ 15.40 $ 11.22 $ 11.78 $ 10.53 $ 10.00
-------- ------- ------- ------- -------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)........................ 0.01 0.06 0.06 0.03 (0.01)
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............................. 2.35 4.18 (0.59) 1.22 0.54
-------- ------- ------- ------- -------
Total Increase (Decrease) From
Investment Operations........................ 2.36 4.24 (0.53) 1.25 0.53
-------- ------- ------- ------- -------
Less Dividends and Distributions
Dividends from Net Investment Income................ (0.02) (0.06) (0.03) -- --
Distributions from Net Realized
Capital Gains..................................... (0.80) -- -- -- --
-------- ------- ------- ------- -------
Total Dividends and Distributions.............. (0.82) (0.06) (0.03) -- --
-------- ------- ------- ------- -------
Net Asset Value at End of Period........................ $ 16.94 $ 15.40 $ 11.22 $ 11.78 $ 10.53
======== ======= ======= ======= =======
Total Return............................................ 15.72% 37.98% (4.51%) 11.87% 5.30%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's).............. $611,024 $431,321 $245,645 $157,852 $15,218
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.......................... 1.10%(1) 1.12% 1.18% 1.22% 1.33%(1)
Before Advisory Fee Waiver and
Expense Reimbursement.......................... 1.10%(1) 1.12% 1.18% 1.22% 2.21%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.......................... 0.25%(1) 0.51% 0.62% 0.35% (0.90%)(1)
Before Advisory Fee Waiver and
Expense Reimbursement.......................... 0.25%(1) 0.51% 0.62% 0.35% (1.78%)(1)
Portfolio Turnover Rate................................. 65.51% 113.32% 93.92% 92.16% 1.52%
Average Commission Rate Paid+........................... $ 0.0630 -- -- -- --
<CAPTION>
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PORTFOLIO
------------------------------------------------------------------
AST MONEY MARKET
------------------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992(5)
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)........................ 0.0243 0.0494 0.0369 0.0252 0.0032
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............................. 0.0005 -- -- -- --
-------- -------- -------- -------- --------
Total Increase (Decrease) From
Investment Operations........................ 0.0248 0.0494 0.0369 0.0252 0.0032
-------- -------- -------- -------- --------
Less Dividends and Distributions
Dividends from Net Investment Income................ (0.0243) (0.0494) (0.0367) (0.0252 (0.0032)
Distributions from Net Realized
Capital Gains..................................... (0.0005) -- (0.0002) -- --
-------- -------- -------- -------- --------
Total Dividends and Distributions.............. (0.0248) (0.0494) (0.0369) (0.0252) (0.0032)
-------- -------- -------- -------- --------
Net Asset Value at End of Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return............................................ N/A N/A N/A N/A N/A
Ratios/Supplemental Data
Net Assets at End of Period (in 000's).............. $571,218 $344,225 $288,588 $114,074 $ 4,294
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.......................... 0.60%(1) 0.60% 0.64% 0.65 0.65%(1)
Before Advisory Fee Waiver and
Expense Reimbursement.......................... 0.72%(1) 0.72% 0.76% 0.84 1.15%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.......................... 4.88%(1) 5.38% 3.90% 2.53 2.43%(1)
Before Advisory Fee Waiver and
Expense Reimbursement.......................... 4.76%(1) 5.26% 3.78% 2.34 1.93%(1)
Portfolio Turnover Rate................................. N/A N/A N/A N/A N/A
Average Commission Rate Paid+........................... N/A -- -- -- --
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
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PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
FEDERATED UTILITY INCOME
--------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------------
(UNAUDITED) 1995 1994 1993(6)
------------- -------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................... $ 11.94 $ 9.87 $ 10.79 $ 10.00
------- -------- ------- --------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss).......................... 0.15 0.40 0.46 0.17
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............................... 0.35 2.09 (1.20) 0.62
------- -------- ------- --------
Total Increase (Decrease) From
Investment Operations.......................... 0.50 2.49 (0.74) 0.79
------- -------- ------- --------
Less Dividends and Distributions
Dividends from Net Investment Income.................. (0.44) (0.42) (0.16) --
Distributions from Net Realized
Capital Gains....................................... -- -- (0.02) --
------- -------- ------- --------
Total Dividends and Distributions................ (0.44) (0.42) (0.18) --
------- -------- ------- --------
Net Asset Value at End of Period.......................... $ 12.00 $ 11.94 $ 9.87 $ 10.79
======= ======== ======= ========
Total Return.............................................. 4.31% 26.13% (6.95%) 7.90%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)................ $121,778 $107,399 $71,205 $57,643
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............................ 0.92%(1) 0.93% 0.99% 1.18%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............................ 0.92%(1) 0.93% 0.99% 1.18%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............................ 3.07%(1) 4.58% 5.11% 5.09%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............................ 3.07%(1) 4.58% 5.11% 5.09%(1)
Portfolio Turnover Rate................................... 41.42% 70.94% 54.26% 5.30%
Average Commission Rate Paid+............................. $ 0.0488 -- -- --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC for the period beginning January 1,
1996.
(1) Annualized.
(6) Commenced operations on May 4, 1993.
(7) Commenced operations on January 4, 1994.
* Since October 15, 1996, Putnam Investment Management, Inc. has served as
Sub-advisor to the Portfolio, now named the AST Putnam Balanced Portfolio.
The information presented in these financial highlights is historical and is
not intended to indicate future performance of the Portfolio.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
FEDERATED
AST PHOENIX BALANCED ASSET* HIGH YIELD
--------------------------------------------- -------------
SIX MONTHS FOR THE YEAR ENDED SIX MONTHS
ENDED DECEMBER 31, ENDED
JUNE 30, 1996 ----------------------------- JUNE 30, 1996
(UNAUDITED) 1995 1994 1993(6) (UNAUDITED)
------------- -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................... $ 12.53 $ 10.49 $ 10.57 $ 10.00 $ 11.14
-------- ------- ------- ------- --------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss).......................... 0.16 0.26 0.27 0.08 0.31
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............................... 0.26 2.06 (0.26) 0.49 0.05
Total Increase (Decrease) From
Investment Operations.......................... 0.42 2.32 0.01 0.57 0.36
-------- ------- ------- ------- --------
Less Dividends and Distributions
Dividends from Net Investment Income.................. (0.25) (0.28) (0.07) -- (0.47)
Distributions from Net Realized
Capital Gains....................................... (0.43) -- (0.02) -- --
-------- ------- ------- ------- --------
Total Dividends and Distributions................ (0.68) (0.28) (0.09) -- (0.47)
-------- ------- ------- ------- --------
Net Asset Value at End of Period.......................... $ 12.27 $ 12.53 $ 10.49 $ 10.57 $ 11.03
======== ======= ======= ======= ========
Total Return.............................................. 3.47% 22.60% 0.09% 5.70% 3.28%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)................ $ 264,258 $255,206 $145,624 $91,591 $ 122,673
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............................ 0.91%(1) 0.94% 0.99% 1.13%(1) 1.01%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............................ 0.91%(1) 0.94% 0.99% 1.13%(1) 1.01%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............................ 2.71%(1) 3.28% 3.08% 2.53%(1) 8.27%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............................ 2.71%(1) 3.28% 3.08% 2.53%(1) 8.27%(1)
Portfolio Turnover Rate................................... 91.99% 160.94% 86.50% 46.35% 25.94%
Average Commission Rate Paid+............................. $ 0.0609 -- -- -- N/A
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE ASSET
FEDERATED HIGH YIELD ALLOCATION
-------------------- -------------------------------------
FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31,
-------------------- JUNE 30, 1996 -------------------
1995 1994(7) (UNAUDITED) 1995 1994(7)
------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................... $ 9.69 $ 10.00 $ 12.01 $ 9.94 $ 10.00
-------- -------- -------- -------- --------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss).......................... 0.38 0.55 0.15 0.26 0.21
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............................... 1.46 (0.86) 0.36 2.02 (0.27)
-------- -------- -------- -------- --------
Total Increase (Decrease) From
Investment Operations.......................... 1.84 (0.31) 0.51 2.28 (0.06)
-------- -------- -------- -------- --------
Less Dividends and Distributions
Dividends from Net Investment Income.................. (0.39) -- (0.25) (0.21) --
Distributions from Net Realized
Capital Gains....................................... -- -- (0.04) -- --
-------- -------- -------- -------- --------
Total Dividends and Distributions................ (0.39) -- (0.29) (0.21) --
-------- -------- -------- -------- --------
Net Asset Value at End of Period.......................... $ 11.14 $ 9.69 $ 12.23 $ 12.01 $ 9.94
======== ======== ======== ======== ========
Total Return.............................................. 19.57% (3.10%) 4.27% 23.36% (0.60%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)................ $83,692 $21,308 $86,302 $59,399 $23,463
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............................ 1.11% 1.15%(1) 1.16%(1) 1.25% 1.25%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............................ 1.11% 1.34%(1) 1.16%(1) 1.29% 1.47%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............................ 8.72% 9.06%(1) 3.21%(1) 3.53% 3.64%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............................ 8.72% 8.87%(1) 3.21%(1) 3.49% 3.42%(1)
Portfolio Turnover Rate................................... 29.64% 40.55% 27.64% 17.62% 31.62%
Average Commission Rate Paid+............................. -- -- $0.0359 -- --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
PIMCO TOTAL RETURN BOND INVESCO EQUITY INCOME
------------------------------------ ------------------------------------
SIX MONTHS FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
JUNE 30, 1996 ------------------- JUNE 30, 1996 -------------------
(UNAUDITED) 1995 1994(7) (UNAUDITED) 1995 1994(7)
------------- -------- ------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period... $ 11.34 $ 9.75 $ 10.00 $ 12.50 $ 9.75 $ 10.00
-------- -------- ------- -------- -------- -------
Increase (Decrease) from Investment
Operations
Net Investment Income (Loss)......... 0.21 0.25 0.26 0.15 0.25 0.16
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions.............. (0.44) 1.55 (0.51) 0.71 2.65 (0.41)
-------- -------- ------- -------- -------- -------
Total Increase (Decrease) From
Investment Operations......... (0.23) 1.80 (0.25) 0.86 2.90 (0.25)
-------- -------- ------- -------- -------- -------
Less Dividends and Distributions
Dividends from Net Investment
Income............................. (0.28) (0.21) -- (0.24) (0.15) --
Distributions from Net Realized
Capital Gains...................... (0.31) -- -- (0.33) -- --
-------- -------- ------- -------- -------- -------
Total Dividends and
Distributions................. (0.59) (0.21) -- (0.57) (0.15) --
-------- -------- ------- -------- -------- -------
Net Asset Value at End of Period......... $ 10.52 $ 11.34 $ 9.75 $ 12.79 $ 12.50 $ 9.75
======== ======== ======= ======== ======== =======
Total Return............................. (2.07%) 18.78% (2.50%) 7.04% 30.07% (2.50%)
Ratios/Supplemental Data
Net Assets at End of Period (in
000's)............................. $ 287,645 $225,335 $46,493 $ 236,140 $176,716 $65,201
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........... 0.88%(1) 0.89% 1.02%(1) 0.98%(1) 0.98% 1.14%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........... 0.88%(1) 0.89% 1.02%(1) 0.98%(1) 0.98% 1.14%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........... 5.25%(1) 5.95% 5.57%(1) 2.99%(1) 3.34% 3.41%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........... 5.25%(1) 5.95% 5.57%(1) 2.99%(1) 3.34% 3.41%(1)
Portfolio Turnover Rate.................. 318.44% 124.41% 139.25% 28.83% 89.48% 62.87%
Average Commission Rate Paid+............ N/A -- -- $ 0.0604 -- --
</TABLE>
- --------------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC for the period beginning January 1,
1996.
(1) Annualized.
(7) Commenced operations on January 4, 1994.
(8) Commenced operations on May 3, 1994.
* Prior to May 1, 1996, Scudder, Stevens & Clark, Inc. served as Sub-advisor to
the Portfolio (formerly, the AST Scudder International Bond Portfolio). As of
May 1, 1996, Rowe Price-Fleming International, Inc. has served as Sub-advisor
to the Portfolio. The information presented in these financial highlights is
historical and is not intended to indicate future performance of the
Portfolio.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE
FOUNDERS CAPITAL APPRECIATION INTERNATIONAL EQUITY
------------------------------------- ---------------------
SIX MONTHS FOR THE YEAR ENDED SIX MONTHS
ENDED DECEMBER 31, ENDED
JUNE 30, 1996 ------------------- JUNE 30, 1996
(UNAUDITED) 1995 1994(7) (UNAUDITED)
------------- ------- ------- -------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period... $ 14.25 $ 10.84 $ 10.00 $ 10.65
--------- ------- ------- ---------
Increase (Decrease) from Investment
Operations
Net Investment Income (Loss)......... 0.02 (0.04) 0.11 0.07
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions.............. 2.28 3.54 0.73 0.85
--------- ------- ------- --------
Total Increase (Decrease) From
Investment Operations......... 2.30 3.50 0.84 0.92
--------- ------- ------- --------
Less Dividends and Distributions
Dividends from Net Investment
Income............................. (0.09) (0.09) -- (0.08)
Distributions from Net Realized
Capital Gains...................... (0.18) -- -- --
--------- ------- ------- --------
Total Dividends and
Distributions................. (0.27) (0.09) -- (0.08)
--------- ------- ------- --------
Net Asset Value at End of Period......... $ 16.28 $ 14.25 $ 10.84 $ 11.49
========= ======= ======= =========
Total Return............................. 16.33% 32.56% 8.40% 8.68%
Ratios/Supplemental Data
Net Assets at End of Period (in
000's)............................. $ 147,916 $90,460 $28,559 $ 306,150
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........... 1.15%(1) 1.22% 1.30%(1) 1.29%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........... 1.15%(1) 1.22% 1.55%(1) 1.29%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........... (0.25%)(1) (0.28%) 2.59%(1) 1.68%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........... (0.25%)(1) (0.28%) 2.34%(1) 1.68%(1)
Portfolio Turnover Rate.................. 46.57% 68.32% 197.93% 6.99%
Average Commission Rate Paid+............ $ 0.0554 -- -- $ 0.0232
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE T. ROWE PRICE
INTERNATIONAL EQUITY INTERNATIONAL BOND*
--------------------- -------------------------------------
FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31,
--------------------- JUNE 30, 1996 -------------------
1995 1994(7) (UNAUDITED) 1995 1994(8)
-------- -------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period... $ 9.62 $ 10.00 $ 10.60 $ 9.68 $ 10.00
-------- -------- ------- ------- -------
Increase (Decrease) from Investment
Operations
Net Investment Income (Loss)......... 0.07 0.02 0.09 0.31 0.27
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions.............. 0.99 (0.40) (0.17) 0.75 (0.59)
-------- -------- ------- ------- -------
Total Increase (Decrease) From
Investment Operations......... 1.06 (0.38) (0.08) 1.06 (0.32)
-------- -------- ------- ------- -------
Less Dividends and Distributions
Dividends from Net Investment
Income............................. (0.01) -- (0.14) (0.14) --
Distributions from Net Realized
Capital Gains...................... (0.02) -- (0.17) -- --
-------- -------- ------- ------- -------
Total Dividends and
Distributions................. (0.03) -- (0.31) (0.14) --
-------- -------- ------- ------- -------
Net Asset Value at End of Period......... $ 10.65 $ 9.62 $ 10.21 $ 10.60 $ 9.68
======== ======== ======= ======= =======
Total Return............................. 11.09% (3.80%) (0.73%) 11.10% (3.20%)
Ratios/Supplemental Data
Net Assets at End of Period (in
000's)............................. $195,667 $108,751 $68,925 $45,602 $15,218
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........... 1.33% 1.75%(1) 1.29%(1) 1.53% 1.68%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........... 1.33% 1.77%(1) 1.29%(1) 1.53% 1.68%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........... 1.03% 0.45%(1) 5.25%(1) 6.17% 7.03%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........... 1.03% 0.43%(1) 5.25%(1) 6.17% 7.03%(1)
Portfolio Turnover Rate.................. 17.11% 15.70% 120.27% 325.00% 163.27%
Average Commission Rate Paid+............ -- -- N/A -- --
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
--------------------------------------------
PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
BERGER CAPITAL
GROWTH
------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 ----------------------
(UNAUDITED) 1995 1994(9)
------------- ------- --------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period................................ $ 12.40 $ 9.97 $10.00
-------- -------- -------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)...................................... -- 0.04 0.01
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions........................................... 1.55 2.40 (0.04)
-------- -------- -------
Total Increase (Decrease) From
Investment Operations...................................... 1.55 2.44 (0.03)
-------- -------- -------
Less Dividends and Distributions
Dividends from Net Investment Income.............................. (0.03) (0.01) --
Distributions from Net Realized
Capital Gains................................................... -- -- --
-------- -------- -------
Total Dividends and Distributions............................ (0.03) (0.01) --
-------- -------- -------
Net Asset Value at End of Period...................................... $ 13.92 $ 12.40 $ 9.97
======== ======== =======
Total Return.......................................................... 12.54% 24.42% (0.30%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)............................ $84,683 $45,979 $3,030
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........................................ 1.00%(1) 1.17% 1.25%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........................................ 1.00%(1) 1.17% 1.70%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........................................ 0.14%(1) 0.70% 1.41%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........................................ 0.14%(1) 0.70% 0.97%(1)
Portfolio Turnover Rate............................................... 58.88% 84.21% 5.36%
Average Commission Rate Paid+......................................... $0.0590 -- --
</TABLE>
- --------------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC for the period beginning January 1,
1996.
(1) Annualized.
(9) Commenced operations on October 20, 1994.
(10) Commenced operations on May 2, 1995.
(11) Commenced operations on May 2, 1996.
* Since October 15, 1996, Founders Asset Management, Inc. has served as
Sub-advisor to the Portfolio, now named the Founders Passport Portfolio. The
information presented in these financial highlights is historical and is not
intended to indicate future performance of the Portfolio.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
SELIGMAN HENDERSON T. ROWE PRICE
INTERNATIONAL SMALL CAP* NATURAL RESOURCES
---------------------------------- ----------------------------------
SIX MONTHS SIX MONTHS
ENDED FOR THE YEAR ENDED ENDED FOR THE YEAR ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995(10) (UNAUDITED) 1995(10)
------------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period....... $ 10.33 $ 10.00 $ 11.11 $10.00
------- ------- ------- ------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)............. 0.08 0.03 0.03 0.04
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions.................. 1.43 0.30 1.72 1.07
------- ------- ------- ------
Total Increase (Decrease) From
Investment Operations............. 1.51 0.33 1.75 1.11
------- ------- ------- ------
Less Dividends and Distributions
Dividends from Net Investment Income..... (0.03) -- (0.02) --
Distributions from Net Realized
Capital Gains.......................... -- -- (0.02) --
------- ------- ------- ------
Total Dividends and Distributions... (0.03) -- (0.04) --
------- ------- ------- ------
Net Asset Value at End of Period............. $ 11.81 $ 10.33 $ 12.82 $11.11
======= ======= ======= ======
Total Return................................. 14.66% 3.30% 15.83% 11.10%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)... $81,758 $ 28,455 $32,322 $9,262
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............... 1.32%(1) 1.46%(1) 1.35%(1) 1.35%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............... 1.32%(1) 1.46%(1) 1.38%(1) 1.80%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............... 2.19%(1) 0.94%(1) 1.15%(1) 1.28%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............... 2.19%(1) 0.94%(1) 1.12%(1) 0.83%(1)
Portfolio Turnover Rate...................... 8.58% 3.52% 28.78% 2.32%
Average Commission Rate Paid+................ $0.0219 -- $0.0171 --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
PIMCO LIMITED ROBERTSON STEPHENS
MATURITY BOND VALUE + GROWTH
---------------------------------- ---------------------------
SIX MONTHS
ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996(11)
(UNAUDITED) 1995(10) (UNAUDITED)
------------- ------------------ ---------------------------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period...... $ 10.47 $ 10.00 $ 10.00
--------- -------- -------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)............ 0.27 0.05 --
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions................. (0.26) 0.42 (0.27)
--------- -------- -------
Total Increase (Decrease) From
Investment Operations............ 0.01 0.47 (0.27)
--------- -------- -------
Less Dividends and Distributions
Dividends from Net Investment Income.... (0.05) -- --
Distributions from Net Realized
Capital Gains......................... (0.02) -- --
--------- -------- -------
Total Dividends and Distributions.. (0.07) -- --
--------- -------- -------
Net Asset Value at End of Period............ $ 10.41 $ 10.47 $ 9.73
========= ======== =======
Total Return................................ 0.05% 4.70% (2.70%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's).. $ 195,372 $161,940 $ 5,699
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.............. 0.87%(1) 0.89%(1) 1.33%(1)
Before Advisory Fee Waiver and
Expense Reimbursement.............. 0.87%(1) 0.89%(1) 1.33%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.............. 5.81%(1) 4.87%(1) (0.41%)(1)
Before Advisory Fee Waiver and
Expense Reimbursement.............. 5.81%(1) 4.87%(1) (0.41%)(1)
Portfolio Turnover Rate..................... 158.19% 204.85% 3.42%
Average Commission Rate Paid+............... N/A -- $0.0510
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES: The investment objective and policies for
each of the Portfolios are described below, and should be considered separately.
While certain policies apply to all Portfolios, generally each Portfolio has a
different investment objective and certain policies may vary. As a result, the
risks, opportunities and returns in each Portfolio may differ. The investment
objective of each Portfolio which is specifically identified as "fundamental"
may not be changed without approval of the shareholders of the affected
Portfolio. Each Portfolio's investment objective or investment policies, unless
otherwise specified, is not a fundamental policy and may be changed without
shareholder approval. There can be no assurance that any Portfolio's investment
objective will be achieved. Risk factors in relation to various securities and
instruments in which the Portfolios may invest are described in the sections of
this Prospectus and the Trust's Statement of Additional Information entitled
"Certain Risk Factors and Investment Methods." Additional information about the
investment objectives and policies of each Portfolio may be found in the Trust's
Statement of Additional Information under "Investment Objectives and Policies."
American Skandia Investment Services, Incorporated ("ASISI") is the
investment manager ("Investment Manager") for the Trust. Currently, ASISI
engages a sub-advisor ("Sub-advisor") for each Portfolio. The Sub-advisor for
each Portfolio is as follows: (a) Lord Abbett Growth and Income Portfolio: Lord,
Abbett & Co.; (b) JanCap Growth Portfolio: Janus Capital Corporation; (c) AST
Janus Overseas Growth Portfolio: Janus Capital Corporation; (d) AST Money Market
Portfolio: J.P. Morgan Investment Management, Inc.; (e) Federated Utility Income
Portfolio: Federated Investment Counseling; (f) Federated High Yield Portfolio:
Federated Investment Counseling; (g) T. Rowe Price Asset Allocation Portfolio:
T. Rowe Price Associates, Inc.; (h) T. Rowe Price International Equity
Portfolio: Rowe Price-Fleming International, Inc.; (i) T. Rowe Price Natural
Resources Portfolio: T. Rowe Price Associates, Inc.; (j) T. Rowe Price
International Bond Portfolio: Rowe Price-Fleming International, Inc. (formerly,
the AST Scudder International Bond Portfolio when the Sub-advisor was Scudder,
Stevens & Clark, Inc.); (k) T. Rowe Price Small Company Value Portfolio: T. Rowe
Price Associates, Inc.; (l) Founders Capital Appreciation Portfolio: Founders
Asset Management, Inc.; (m) Founders Passport Portfolio: Founders Asset
Management, Inc. (formerly, the Seligman Henderson International Small Cap
Portfolio when the Sub-advisor was Seligman Henderson Co.); (n) INVESCO Equity
Income Portfolio: INVESCO Trust Company; (o) PIMCO Total Return Bond Portfolio:
Pacific Investment Management Company; (p) PIMCO Limited Maturity Bond
Portfolio: Pacific Investment Management Company; (q) Berger Capital Growth
Portfolio: Berger Associates, Inc.; (r) Robertson Stephens Value + Growth
Portfolio: Robertson, Stephens & Company Investment Management, L.P.; (s)
Twentieth Century International Growth Portfolio: Investors Research Corporation
(name changed to "American Century Investment Management, Inc." as of January 1,
1997); (t) Twentieth Century Strategic Balanced Portfolio: Investors Research
Corporation (name changed to "American Century Investment Management, Inc." as
of January 1, 1997); (u) AST Putnam Value Growth & Income Portfolio: Putnam
Investment Management, Inc.; (v) AST Putnam International Equity Portfolio:
Putnam Investment Management, Inc. (formerly, the Seligman Henderson
International Equity Portfolio when the Sub-advisor was Seligman Henderson Co.);
and (w) AST Putnam Balanced Portfolio: Putnam Investment Management, Inc.
(formerly, the AST Phoenix Balanced Asset Portfolio when the Sub-advisor was
Phoenix Investment Counsel, Inc.).
Subject to approval of the Board of Trustees of the Trust, the Trust may
add one or more portfolios and may cease to offer one or more portfolios, any
such cessation to be subject to obtaining required regulatory approvals.
Each Portfolio may be subject to state regulatory requirements which may be
more restrictive than the stated investment policies, in which case, the
Sub-advisors will adhere to the more restrictive standard.
Lord Abbett Growth and Income Portfolio:
Investment Objective: The investment objective of the Lord Abbett Growth and
Income Portfolio is long-term growth of capital and income while attempting to
avoid excessive fluctuations in market value. This is a fundamental objective of
the Portfolio.
Investment Policies:
The Sub-advisor will try to keep the Portfolio's assets invested in those
securities which are selling at reasonable prices in relation to value. To do
so, the Portfolio may forgo some opportunities for gains when, in the judgment
of the Sub-advisor, they carry excessive risk. The Sub-advisor will try to
anticipate major changes in the economy and select stocks for the Portfolio
which it believes will benefit most from these changes.
The Portfolio normally will invest in common stocks (including securities
convertible into common stocks) of seasoned companies which are expected to show
above-average growth and which the Sub-advisor believes to be in sound financial
condition. Although the prices of common stocks fluctuate and their dividends
vary, historically, common stocks held over long periods of time have
appreciated in value and their dividends have increased when the companies they
represent have prospered and grown.
The Sub-advisor will be constantly balancing the opportunity for profit
against the risk of loss for the Portfolio. In the past, very few industries
have continuously provided the best investment opportunities. The Sub-advisor
will take a flexible approach and adjust the Portfolio to reflect changes in the
opportunity for sound investments relative to the risks assumed. Therefore, the
Portfolio will sell securities that the Sub-advisor judges to be overpriced and
reinvest the proceeds in other securities which the Sub-advisor believes offer
better values.
At such times that the Sub-advisor deems appropriate and consistent with
this Portfolio's investment objective, the Portfolio may: (a) write covered call
options which are traded on a national securities exchange with respect to
securities in the Portfolio; (b) invest up to 10% of the Portfolio's net assets
(at the time of investment) in foreign securities; and (c) invest in straight
bonds and other debt securities, including lower-rated high-yield bonds. It is
not intended for the Portfolio to write covered call options with respect to
securities with an aggregate market value of more than 10% of the Portfolio's
gross assets at the time an option is written. The Portfolio will not invest
more than 5% of its net assets (at the time of investment) in lower-rated (BB/Ba
or lower) high-yield bonds. For a discussion of the risks involved in options
transactions and in investing in lower-rated high-yield debt securities or
foreign securities, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods." For an
additional description of covered options, see the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
The Portfolio will not purchase securities for trading purposes. To create
reserve purchasing power and also for temporary defensive purposes, the
Portfolio may invest in short-term debt and other high quality fixed-income
securities.
Lending Portfolio Securities. The Portfolio may engage in the lending of
its securities. It is expected that no more that 5% of the Portfolio's gross
assets may be committed to securities lending. For a discussion of the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."
Lower-Rated High-Yield Bonds. The Portfolio may invest no more than 5% of
its net assets (at the time of investment) in lower-rated high-yield bonds.
Lower-rated debt obligations are generally considered to be high risk
investments. The Portfolio does not have any minimum rating criteria applicable
to the fixed-income securities in which it invests. For a description of these
instruments and the risks involved therein, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest in securities eligible for
resale pursuant to Rule 144A of the Securities Act of 1933. For a discussion of
these instruments and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Borrowing. For a discussion of limitations on borrowing by the Portfolio
and risks involved in borrowing, see this Prospectus under "Certain Risk Factors
and Investment Methods."
JanCap Growth Portfolio:
Investment Objective: The investment objective of the JanCap Growth Portfolio is
growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on the Portfolio's investments, therefore, will be incidental to
the Portfolio's objective. This is a fundamental objective of the Portfolio.
Investment Policies:
The Portfolio will pursue its objective by investing primarily in common
stocks. Common stock investments will be in industries and companies that the
Sub-advisor believes are experiencing favorable demand for their products and
services, and which operate in a favorable competitive and regulatory
environment. Although the Sub-advisor expects to invest primarily in equity
securities, the Sub-advisor may increase the Portfolio's cash position without
limitation when the Sub-advisor is of the opinion that appropriate investment
opportunities for capital growth with desirable risk/reward characteristics are
unavailable. The Portfolio may also invest to a lesser degree in preferred
stocks, convertible securities, warrants, and debt securities when the Portfolio
perceives an opportunity for capital growth from such securities or so that the
Portfolio may receive a return on its idle cash. Debt securities that the
Portfolio may purchase include corporate bonds and debentures (not to exceed 5%
of net assets in bonds rated below investment grade), government securities,
mortgage- and asset-backed securities, zero-coupon bonds, indexed/structured
notes, high-grade commercial paper, certificates of deposit and repurchase
agreements. For a discussion of risks involved in lower-rated securities,
mortgage- and asset-backed securities and zero coupon bonds, see this Prospectus
and the Trust's Statement of Additional Information under "Certain Risk Factors
and Investment Methods."
Although it is the general policy of the Portfolio to purchase and hold
securities for capital growth, changes in the Portfolio will be made as the
Sub-advisor deems advisable. For example, Portfolio changes may result from
liquidity needs, securities having reached a price objective, or by reason of
developments not foreseen at the time of the original investment decision.
Portfolio changes may be effected for other reasons. In such circumstances,
investment income will increase and may constitute a large portion of the return
on the Portfolio and the Portfolio will not participate in the market advances
or declines to the extent that it would if it were fully invested.
Because investment changes usually will be made without reference to the
length of time a security has been held, a significant number of short-term
transactions may result. To a limited extent, the Portfolio may also purchase
individual securities in anticipation of relatively short-term price gains, and
the rate of portfolio turnover will not be a determining factor in the sale of
such securities. However, certain tax rules may restrict the Portfolio's ability
to sell securities in some circumstances when the security has been held for
less than three months. Increased portfolio turnover necessarily results in
correspondingly higher brokerage costs for the Portfolio.
The Portfolio may invest in "special situations" from time to time. A
"special situation" arises when, in the opinion of the Sub-advisor, the
securities of a particular company will be recognized and appreciate in value
due to a specific development, such as a technological breakthrough, management
change or a new product at that company. Investment in "special situations"
carries an additional risk of loss in the event that the anticipated development
does not occur or does not attract the expected attention.
Foreign Securities. The Portfolio may also purchase securities of foreign
issuers, including foreign equity and debt securities and depositary receipts.
Foreign securities are selected on a stock-by-stock basis without regard to any
defined allocation among countries or geographic regions. However, certain
factors such as expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships, and prospects for
economic growth among countries, regions or geographic areas may warrant greater
consideration in selecting foreign stocks. No more than 25% of the Portfolio's
assets may be invested in foreign securities denominated in foreign currency and
not publicly traded in the United States. For a discussion of depositary
receipts and the risks involved in investing in foreign securities, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
Risks of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Futures, Options and Other Derivative Instruments. Subject to certain
limitations, the Portfolio may purchase and write options on securities,
financial indices, and foreign currencies, and may invest in futures contracts
on securities, financial indices, and foreign currencies ("futures contracts"),
options on futures contracts, forward contracts and swaps and swap-related
products. These instruments will be used primarily to hedge the Portfolio's
positions, against potential adverse movements in securities prices, foreign
currency markets or interest rates. To a limited extent, the Portfolio may also
use derivative instruments for non-hedging purposes such as increasing the
Portfolio's income or otherwise enhancing return. The Portfolio will not use
futures contracts and options for leveraging purposes. There can be no
assurance, however, that the use of these instruments by the Portfolio will
assist it in achieving its investment objective. The use of futures, options,
forward contracts and swaps involves investment risks and transaction costs to
which the Portfolio would not be subject absent the use of these strategies. The
Sub-advisor may, from time to time, at its own expense, call upon the experience
of experts to assist it in implementing these strategies. The Portfolio may also
use a variety of currency hedging techniques, including forward currency
contracts, to manage exchange rate risk with respect to investments exposed to
foreign currency fluctuations.
Risks of Futures and Options Transactions. There are risks involved in
futures and options transactions. For a discussion of futures and options
transactions and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Objectives and Policies" and "Certain Risk Factors
and Investment Methods."
Repurchase Agreements. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may enter into repurchase agreements, which
involve the purchase of a security by the Portfolio and a simultaneous agreement
(generally with a bank or dealer) to repurchase the security from the Portfolio
at a specified date or upon demand. The Portfolio's repurchase agreements will
at all times be fully collateralized. Pursuant to an exemptive order granted by
the Securities and Exchange Commission, the Portfolio and other funds advised by
the Sub-advisor may invest in repurchase agreements and other money market
instruments through a joint trading account. For a discussion of repurchase
agreements and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Reverse Repurchase Agreements. The Portfolio is permitted to enter into
reverse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date and
price. For a discussion of reverse repurchase agreements and the risks involved
therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."
When-Issued, Delayed Delivery and Forward Transactions. The Portfolio may
purchase securities on a when-issued or delayed delivery basis, which generally
involves the purchase of a security with payment and delivery due at some time
in the future. The Portfolio does not earn interest on such securities until
settlement and bears the risk of market value fluctuations in between the
purchase and settlement dates. For an additional discussion of when-issued
securities and certain risks involved therein, see the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may also invest up to 15% of its total
assets in securities that are considered illiquid because of the absence of a
readily available market or due to legal or contractual restrictions. Securities
eligible for resale under Rule 144A of the Securities Act of 1933, and
commercial paper issued under Section 4(2) of the Securities Act of 1933, could
be deemed "liquid" when saleable in a readily available market. For a discussion
of illiquid securities and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods."
Lending Portfolio Securities. Subject to the Portfolio's restrictions on
lending, the Portfolio may borrow money from or lend money to other Portfolios
of the Trust or other funds that permit such transactions and are managed by the
Investment Manager or are advised by the Sub-advisor if the Trust seeks, on
behalf of the Portfolio, permission to do so from the Securities and Exchange
Commission. There is no assurance that such permission will be sought or
granted. For a discussion of the risks involved in lending, see the Prospectus
under "Certain Risk Factors and Investment Methods."
Lower-Rated High-Yield Bonds. The Portfolio may invest no more than 5% of
its net assets (at the time of investment) in lower-rated high-yield bonds.
Lower-rated debt obligations are generally considered to be high risk
investments. The Portfolio does not have any minimum rating criteria applicable
to the fixed-income securities in which it invests. For a discussion of these
instruments and the risks involved therein, see this Prospectus and the
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Borrowing. Subject to the Portfolio's restrictions on borrowing, the
Portfolio may also borrow money from banks. For a discussion of the limitations
on borrowing by the Portfolio and certain risks involved in borrowing, see this
Prospectus under "Certain Risk Factors and Investment Methods" and the Trust's
Statement of Additional Information under "Investment Objectives and Policies."
AST Janus Overseas Growth Portfolio:
Investment Objective: The investment objective of the AST Janus Overseas
Growth Portfolio is to seek long-term growth of capital. This is a fundamental
objective of the Portfolio.
Investment Policies:
The Portfolio pursues its objective primarily through investments in common
stocks of issuers located outside the United States. The Portfolio has the
flexibility to invest on a worldwide basis in companies and organizations of any
size, regardless of country of organization or place of principal business
activity.
The Portfolio normally invests at least 65% of its total assets in
securities of issuers from at least five different countries, excluding the
United States. Although the Portfolio intends to invest substantially all of its
assets in issuers located outside the United States, it may at times invest in
U.S. issuers and it may at times invest all of its assets in fewer than five
countries or even a single country.
The Portfolio invests primarily in common stocks of foreign issuers
selected for their growth potential. The Portfolio may invest to a lesser degree
in other types of securities, including preferred stocks, warrants, convertible
securities and debt securities. Debt securities that the Portfolio may purchase
include corporate bonds and debentures (not to exceed 35% of net assets in
high-yield/high-risk securities); government securities; mortgage- and
asset-backed securities (not to exceed 25% of assets); zero coupon bonds (not to
exceed 10% of assets); indexed/structured securities; high-grade commercial
paper; certificates of deposit; and repurchase agreements. Such securities may
offer growth potential because of anticipated changes in interest rates, credit
standing, currency relationships or other factors. The Portfolio may also invest
in short-term debt securities, including money market funds managed by the
Sub-advisor, as a means of receiving a return on idle cash.
When the Sub-advisor believes that market conditions are not favorable for
profitable investing or when the Sub-advisor is otherwise unable to locate
favorable investment opportunities, the Portfolio's investments may be hedged to
a greater degree and/or its cash or similar investments may increase. In other
words, the Portfolio does not always stay fully invested in stocks and bonds.
Cash or similar investments are a residual - they represent the assets that
remain after the Sub-advisor has committed available assets to desirable
investment opportunities. When the Portfolio's cash position increases, it may
not participate in stock market advances or declines to the extent that it would
if it remained more fully invested in common stocks.
The fundamental risk associated with any common stock fund is the risk that
the value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative.
The Portfolio may invest in "special situations" from time to time. A
special situation arises when, in the opinion of the Sub-advisor, the securities
of a particular issuer will be recognized and appreciate in value due to a
specific development with respect to that issuer. Developments creating a
special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
Foreign Securities. The Portfolio may invest without limit in foreign
securities. The Portfolio may invest substantially all of its assets in common
stocks of foreign issuers to the extent the Sub-advisor believes that the
relevant market environment favors profitable investing in those securities. The
Sub-advisor generally takes a "bottom up" approach to building the Portfolio. In
other words, the Sub-advisor seeks to identify individual companies with
earnings growth potential that may not be recognized by the market at large
regardless of country of organization or place of principal business activity.
Although themes may emerge in the Portfolio, securities are generally selected
without regard to any defined allocation among countries, geographic regions or
industry sectors, or other similarly defined selection procedure. Realization of
income is not a significant investment consideration. Any income realized on the
Portfolio's investments will be incidental to its objective. For a discussion of
the risks involved in investing in foreign securities, see this Prospectus and
the Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Risks of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Futures, Options and Other Derivative Instruments. The Portfolio may use
options, futures and other types of derivatives for hedging purposes or as a
means of enhancing return. The Portfolio may enter into futures contracts on
securities, financial indices and foreign currencies and options on such
contracts ("futures contracts") and may invest in options on securities,
financial indices and foreign currencies ("options"), forward contracts and
interest rate swaps and swap-related products (collectively "derivative
instruments"). The Portfolio intends to use most derivative instruments
primarily to hedge the value of its portfolio against potential adverse
movements in securities prices, foreign currency markets or interest rates. To a
limited extent, the Portfolio may also use derivative instruments for
non-hedging purposes such as seeking to increase the Portfolio's income or
otherwise seeking to enhance return.
Although the Sub-advisor believes the use of derivative instruments will
benefit the Portfolio, the Portfolio's performance could be worse than if the
Portfolio had not used such instruments if the Sub-advisor's judgment proves
incorrect.
When the Portfolio invests in a derivative instrument, it may be required
to segregate cash and other liquid assets or certain portfolio securities with
its custodian to "cover" the Portfolio's position. Assets segregated or set
aside generally may not be disposed of so long as the Portfolio maintains the
positions requiring segregation or cover. Segregating assets could diminish the
Portfolio's return due to the opportunity losses of foregoing other potential
investments with the segregated assets.
The Portfolio may also use futures, options and other derivative
instruments to protect the portfolio from movements in securities prices and
interest rates. The Portfolio may also use a variety of currency hedging
techniques, including forward currency contracts, to manage exchange rate risk
with respect to investments exposed to foreign currency fluctuations.
Risks of Futures and Options Transactions. There are risks involved in
futures and options transactions. For a discussion of futures and options
transactions and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Objectives and Policies" and "Certain Risk Factors
and Investment Methods."
When-Issued, Delayed Delivery and Forward Transactions. The Portfolio may
purchase securities on a when-issued or delayed delivery basis, which generally
involves the purchase of a security with payment and delivery due at some time
in the future. The Portfolio does not earn interest on such securities until
settlement and bears the risk of market value fluctuations in between the
purchase and settlement dates. For an additional discussion of when-issued
securities and certain risks involved therein, see the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may engage in a repurchase agreement with
respect to any security in which it is authorized to invest. Repurchase
agreements that mature in more than seven days will be subject to the 15% limit
on illiquid investments. While it is not possible to eliminate all risks from
these transactions, it is the policy of the Portfolio to limit repurchase
agreements to those parties whose creditworthiness has been reviewed and found
satisfactory by the Sub-advisor. Pursuant to an exemptive order granted by the
Securities and Exchange Commission, the Portfolio and other funds advised by the
Sub-advisor may invest in repurchase agreements and other money market
instruments through a joint trading account. For a discussion of repurchase
agreements and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Reverse Repurchase Agreements. The Portfolio may use reverse repurchase
agreements to provide cash to satisfy unusually heavy redemption requests or for
other temporary or emergency purposes without the necessity of selling portfolio
securities, or to earn additional income on portfolio securities, such as
Treasury bills or notes. In a reverse repurchase agreement, the Portfolio sells
a security to another party, such as a bank or broker-dealer, in return for cash
and agrees to repurchase the instrument at a particular price and time. While a
reverse repurchase agreement is outstanding, the Portfolio will maintain cash
and appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Portfolio will enter into reverse repurchase
agreements only with parties that the Sub-advisor deems creditworthy. For a
discussion of reverse repurchase agreements and the risks involved therein, see
this Prospectus under "Certain Risk Factors and Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of its net assets in
illiquid investments, including restricted securities or private placements that
are not deemed to be liquid by the Sub-advisor. An illiquid investment is a
security or other position that is deemed as such because of the absence of a
readily available market or due to legal or contractual restrictions. Some
securities cannot be sold to the U.S. public because of their terms or because
of SEC regulations. The Sub-advisor may determine that securities that cannot be
sold to the U.S. public but that can be sold to institutional investors (for
example, Rule 144A securities) are liquid. The Sub-advisor will follow
guidelines established by the Trustees of the Trust in making liquidity
determinations for Rule 144A securities and other securities, including
privately placed commercial paper. For a discussion of illiquid securities and
the risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods."
Borrowing or Lending Portfolio Securities. Subject to the Portfolio's
restrictions on lending and borrowing, the Portfolio may borrow money and lend
securities or other assets, as follows. The Portfolio may borrow money for
temporary or emergency purposes in amounts up to 33 1/3% of its total assets.
The Portfolio may mortgage or pledge securities as security for borrowings in
amounts up to 15% of its net assets. The Portfolio may lend securities or other
assets if, as a result, no more than 25% of its total assets would be lent to
other parties. The Sub-advisor intends to seek permission from the SEC to borrow
money from or lend money to other funds that permit such transactions and for
which the Sub-advisor serves as investment adviser. All such borrowing and
lending will be subject to the above percentage limits. There is no assurance
that such permission will be granted.
Lower-Rated High-Yield Bonds. The Portfolio may invest up to 35% of its net
assets in corporate debt securities that are rated below investment grade
(securities rated BB or lower by Standard & Poor's Ratings Services ("Standard &
Poor's") or Ba or lower by Moody's Investors Services, Inc. ("Moody's")
(commonly referred to as "junk bonds")).
The Portfolio may also invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated securities, may not have as broad a market. Unrated debt securities will
be included in the 35% limit of the Portfolio unless the Sub-advisor deems such
securities to be the equivalent of investment grade securities. For a discussion
of these instruments and the risks involved therein, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Portfolio Turnover. The Portfolio generally intends to purchase securities
for long-term investment rather than short-term gains. However, short-term
transactions may result from liquidity needs, securities having reached a price
or yield objective, anticipated changes in interest rates or the credit standing
of an issuer, or by reason of economic or other developments not foreseen at the
time of the investment decision. Changes are made in the Portfolio whenever the
Sub-advisor believes such changes are desirable. Portfolio turnover rates are
generally not a factor in making buy and sell decisions.
To a limited extent, the Portfolio may purchase securities in anticipation
of relatively short-term price gains. The Portfolio may also sell one security
and simultaneously purchase the same or a comparable security to take advantage
of short-term differentials in bond yields or securities prices. Increased
portfolio turnover may result in higher costs for brokerage commissions, dealer
mark-ups and other transaction costs and may also result in taxable capital
gains. Certain tax rules may restrict the Portfolio's ability to engage in
short-term trading if the security has been held for less than three months.
AST Money Market Portfolio:
Investment Objective: The investment objective of the AST Money Market
Portfolio is to seek high current income and maintain high levels of liquidity.
This is a fundamental objective of the Portfolio.
Investment Policies:
The Portfolio attempts to accomplish its objectives by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in the types of high quality U.S. dollar-denominated securities
described below which have effective maturities of not more than 397 days. The
Portfolio will invest in one or more of the types of investments described
below.
United States Government Obligations. The Portfolio may invest in
obligations of the U.S. Government and its agencies ("U.S. Government
Obligations") and instrumentalities ("U.S. Government Instrumentalities")
maturing 397 days or less from the date of acquisition or purchased pursuant to
repurchase agreements that provide for repurchase by the seller within 397 days
from the date of acquisition. U.S. Government Obligations, for purposes of this
Portfolio, include: (i) direct obligations issued by the United States Treasury
such as Treasury bills, notes and bonds; and (ii) instruments issued or
guaranteed by government-sponsored agencies acting under authority of Congress,
such as, but not limited to, obligations of the Bank for Cooperatives, Federal
Financing Bank, Federal Intermediate Credit Banks, Federal Land Banks, and
Tennessee Valley Authority, Federal Home Loan Bank and Federal Farm Credit
Bureau. U.S. Government Instrumentalities are government agencies organized by
Congress under a Federal Charter and supervised and regulated by the U.S.
Government, such as the Federal National Mortgage Association and the Student
Loan Mortgage Association. Some of these U.S. Government Obligations are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Mortgage
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to the U.S. Government-sponsored instrumentalities if it is not obligated to do
so by law.
Bank Obligations. The Portfolio may invest in high quality United States
dollar-denominated negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
United States federal or state law, (ii) foreign branches of these banks or
foreign banks of equivalent size (Euros), and (iii) United States branches of
foreign banks of equivalent size (Yankees). The Portfolio may also invest in
obligations of international banking institutions designated or supported by
national governments to promote economic reconstruction, development or trade
between nations (e.g., the European Investment Bank, the Inter-American
Development Bank, or the World Bank). These obligations may be supported by
appropriated but unpaid commitments of their member countries, and there is no
assurance these commitments will be undertaken or met in the future.
Commercial Paper; Bonds. The Portfolio may invest in high quality
commercial paper and corporate bonds issued by United States corporations. The
Portfolio may also invest in bonds and commercial paper of foreign issuers if
the obligation is United States dollar-denominated and is not subject to foreign
withholding tax. For more information about foreign investments, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
Asset-Backed Securities. As may be permitted by current laws and
regulations and if expressly permitted by the Board of Trustees, the Portfolio
may also invest in securities generally referred to as asset-backed securities,
which directly or indirectly represent a participation interest in, or are
secured by and payable from, a stream of payments generated by particular assets
such as motor vehicle or credit card receivables. Asset-backed securities
provide periodic payments that generally consist of both interest and principal
payments. Consequently, the life of an asset-backed security varies with the
prepayment experience of the underlying debt instruments. For more information
about these instruments and the risks involved therein, see this Prospectus and
the Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Quality Information. The Portfolio will limit its investments to those
securities which, in accordance with guidelines adopted by the Trustees, present
minimal credit risks. In addition, the Portfolio will not purchase any security
(other than a United States Government security) unless: (i) if rated by only
one nationally recognized rating organization (such as Moody's and Standard &
Poor's), then such organization has rated it with the highest rating assigned to
short-term debt securities; (ii) if rated by more than one nationally recognized
rating organization, then at least two such rating organizations have rated it
with the highest rating assigned to short-term debt securities; or (iii) it is
not rated and is determined to be of comparable quality. Determinations of
comparable quality shall be made in accordance with procedures established by
the Trustees. These standards must be satisfied at the time an investment is
made. If the quality of the investment later declines, the Portfolio may
continue to hold the investment, subject in certain circumstances to a finding
by the Trustees that disposing of the investment would not be in the Portfolio's
best interest. For more information on ratings assigned to debt securities, see
the Appendix to the Trust's Statement of Additional Information.
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no interest or income accrues to the
Portfolio until settlement. The Portfolio maintains with the custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged. It is the current policy of the Portfolio not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Portfolio's total assets less liabilities other than the obligations created
by these commitments. For an additional discussion of when-issued securities and
certain risks involved therein, see the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio is permitted to enter into repurchase
agreements. For a discussion of repurchase agreements and the risks involved
therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."
Reverse Repurchase Agreements. The Portfolio is permitted to enter into
reverse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement. It
may also be viewed as the borrowing of money by the Portfolio. If interest rates
rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on the Portfolio's
ability to maintain a net asset value of $1.00 per share. For a discussion of
reverse repurchase agreements and the risks involved therein, see this
Prospectus under "Certain Risk Factors and Investment Methods.
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
foreign securities. Any foreign commercial paper must not be subject to foreign
withholding tax at the time of purchase. Foreign investments may be made
directly in securities of foreign issuers or in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Generally, ADRs and
EDRs are receipts issued by a bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation and that are designed for
use in the domestic, in the case of ADRs, or European, in the case of EDRs,
securities markets. For a discussion of depositary receipts and the risks
involved in investing in foreign securities, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Lending Portfolio Securities. Subject to applicable investment
restrictions, the Portfolio is permitted to lend its securities. These loans
must be secured continuously by cash or equivalent collateral or by a letter of
credit at least equal to the market value of the securities loaned plus accrued
interest or income. For a discussion of the risks involved in lending, see this
Prospectus under "Certain Risk Factors and Investment Methods," and for more
information on restrictions on lending, see the Trust's Statement of Additional
Information under "Investment Objectives and Policies."
Borrowing. For a discussion of the limitations on borrowing by the
Portfolio and risks involved in Borrowing, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Federated Utility Income Portfolio:
Investment Objective: The investment objective of the Federated Utility
Income Portfolio is to achieve high current income and moderate capital
appreciation by investing primarily in equity and debt securities of utility
companies. This is a fundamental objective of the Portfolio.
Investment Policies:
The Portfolio will pursue its investment objective by investing in equity
and debt securities of utility companies that produce, transmit, or distribute
gas and electric energy as well as those companies that provide communications
facilities, such as telephone and telegraph companies. The Portfolio will invest
at least 65% of its total assets in securities of utility companies, and such
investment policy may be changed by a vote of the Board of Trustees. The
Portfolio invests primarily in the common stocks of utility companies. The
Sub-advisor will select common stocks on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects and
the risk and volatility of the company's industry as well as other factors such
as product position, market share or profitability. The Portfolio may invest in
preferred stocks, corporate bonds, notes and warrants of these companies and in
cash, U.S. government securities and money market instruments in proportions
determined by the Sub-advisor. The Portfolio may also invest in one or more of
the types of investments described below.
Special Risks. There are certain risks associated with the utility
industry. These include difficulty in earning adequate returns on investment
despite frequent rate increases, restrictions on operations and increased costs
and delays due to governmental regulations, building or construction delays,
environmental regulations, difficulty of the capital markets in absorbing
utility debt and equity securities, and difficulties in obtaining fuel at
reasonable prices. The Investment Manager and Sub-advisor believe that the risks
of investing in utility securities can be reduced. The professional portfolio
management techniques used by the Portfolio to attempt to reduce these risks
include credit research. The Sub-advisor will perform its own credit analysis in
addition to using recognized ratings agencies and other sources, including
discussions with the issuer's management, the judgment of other investment
analysts, and its own informed judgment. The Sub-advisor's credit analysis will
consider the issuer's financial soundness, its responsiveness to changes in
interest rates and business conditions, and its anticipated cash flow, interest
or dividend coverage, and earnings. In evaluating an issuer, the Sub-advisor
places special emphasis on the estimated current value of the issuer's assets
rather than historical costs.
Foreign Securities. The Portfolio may invest in securities of foreign
issuers, whether traded on United States or foreign securities exchanges, in
United States or foreign over-the-counter markets, or in the form of depositary
receipts. The Portfolio will not invest more than 15% of total assets in
securities of foreign issuers not listed on recognized exchanges. Securities of
a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability or other national or international
restrictions. As a matter of practice, the Portfolio will not invest in the
securities of a foreign issuer if any such risk appears to the Sub-advisor to be
substantial. For a discussion of depositary receipts and the risks involved in
foreign investments, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of its net assets in
securities that are considered to be illiquid because of the absence of a
readily available market or due to legal or contractual restrictions. Illiquid
securities include non-negotiable time deposits, repurchase agreements providing
for settlement more than seven days after notice and restricted securities which
are determined by the Board of Trustees to be illiquid.
The Portfolio may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended ("Section 4(2)"). Section 4(2) commercial paper is restricted
as to disposition under federal securities law and is generally sold to
institutional investors, such as the Portfolio, who agree that they are
purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) commercial paper is normally resold to other institutional
investors like the Portfolio through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. For a discussion of illiquid and restricted securities and
the risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods."
Temporary Investments. When the Sub-advisor believes that market conditions
warrant a temporary defensive position, the Portfolio may also invest all or a
part of its assets in cash, cash items and short-term instruments, such as
commercial paper, notes, certificates of deposit, obligations issued or
guaranteed as to principal and interest by the U.S. government or any of its
agencies or instrumentalities and repurchase agreements. The Portfolio's
investment in repurchase agreements will be limited to those with banks and
other financial institutions, such as broker-dealers, which are determined by
the Sub-advisor to be creditworthy pursuant to guidelines promulgated by the
Board of Trustees. Repurchase agreements are arrangements in which banks,
broker-dealers, and other financial institutions sell U.S. government securities
or other securities to the Portfolio and agree at the time of sale to repurchase
them at a mutually agreed upon time and price. The Portfolio's custodian will
take possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the original
seller does not repurchase the securities from the Portfolio, the Portfolio
could receive less than the repurchase price on any sale of such securities. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Portfolio might be delayed
pending court action. The Portfolio will only enter into repurchase agreements
with banks or other recognized financial institutions, such as broker-dealers,
which are found by the Sub-advisor to be creditworthy.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements. When effecting reverse repurchase agreements, assets of
the Portfolio, in a dollar amount sufficient to make payment for the obligations
to be purchased, are segregated on the Portfolio's records at the trade date and
are maintained until the transaction is settled. For a discussion of reverse
repurchase agreements and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods."
Lending Portfolio Securities. The Portfolio may lend its securities to
brokers, dealers, banks or other institutional borrowers of securities in an
amount not to exceed 33% of the Portfolio's total assets. The Portfolio will
only enter into loan arrangements with brokers, dealers, banks and other
institutions which the Sub-advisor has determined to be creditworthy pursuant to
guidelines promulgated by the Board of Trustees. The Portfolio will receive
collateral at least equal to 100% of the value of the securities loaned. For an
additional discussion of the restrictions on the Portfolio's lending, see the
Trust's Statement of Additional Information under "Investment Objectives and
Policies," and for a discussion of the risks involved therein, see this
Prospectus under "Certain Risk Factors and Investment Methods."
When-Issued and Delayed Delivery Transactions. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. The Portfolio will not
enter into when-issued commitments exceeding in the aggregate 10% of the market
value of the Portfolio's total assets. For more information, see the Trust's
Statement of Additional Information under "Investment Objectives and Policies"
and "Certain Risk Factors and Investment Methods."
Put and Call Options. The Portfolio may purchase put options on all or a
portion of the Portfolio's securities for the purpose of hedging against
decreases in the value of the Portfolio's securities. The Portfolio will only
purchase puts on Portfolio securities which are traded on a recognized exchange.
The Portfolio may also write call options on all or a portion of the Portfolio's
securities to generate income. The Portfolio will write call options on either
Portfolio securities or securities which the Portfolio has the right to obtain
without payment of further consideration or for which it has segregated cash in
the amount of any additional consideration. The call options which the Portfolio
writes must be listed on a recognized options exchange. Although the Portfolio
reserves the right to write covered call options on its entire portfolio, it
will not write such options on more than 25% of its total assets unless a higher
limit is authorized by the Board of Trustees.
Risks of Options Transactions. For a discussion of put and call options and
the risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Futures Transactions and Related Options. The Portfolio may purchase and
sell financial futures contracts for the purpose of hedging all or a portion of
its long-term debt securities against changes in interest rates. The Portfolio
may also write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect Portfolio securities against
decreases in value. The Portfolio will not purchase or sell futures contracts if
immediately thereafter the sum of the amount of margin deposits on the
Portfolio's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Portfolio's total assets. When the
Portfolio purchases futures contracts, an amount of cash and cash equivalents
equal to the underlying commodity value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with the
Portfolio's custodian (or broker if legally permitted) to collateralize the
position and thereby insure that the use of such futures contracts is
unleveraged. Futures transactions and related options may not be used for
leveraging purposes.
Risks of Futures Transactions. For a discussion of futures transactions and
related options and the risks involved therein, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Borrowing. For a discussion of limitations on borrowing by the Portfolio
and risks involved in borrowing, see this Prospectus under "Certain Risk Factors
and Investment Methods."
Federated High Yield Portfolio:
Investment Objective: The investment objective of the Federated High Yield
Portfolio is to seek high current income by investing primarily in a diversified
portfolio of fixed income securities. The fixed income securities in which the
Portfolio intends to invest are lower-rated corporate debt obligations. This is
a fundamental objective of the Portfolio. Lower-rated debt obligations are
generally considered to be high risk investments.
Investment Policies:
The Portfolio will invest at least 65% of its assets in lower-rated fixed
income bonds. Under normal circumstances, the Portfolio will not invest more
than 10% of the value of its total assets in equity securities. The fixed income
securities in which the Portfolio may invest include, but are not limited to:
preferred stocks, bonds, debentures, notes, equipment lease certificates and
equipment trust certificates.
The Portfolio will invest primarily in fixed rate corporate debt
obligations. The fixed rate corporate debt obligations in which the Portfolio
intends to invest are expected to be lower rated. Permitted investments
currently include, but are not limited to, the following: corporate debt
obligations having fixed or floating rates of interest which are rated BBB or
lower by recognized rating agencies; commercial paper; obligations of the United
States; notes, bonds, and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Federal Farm
Credit Banks, Tennessee Valley Authority, Export-Import Bank of the United
States, Commodity Credit Corporation, Federal Financing Bank, Student Loan
Marketing Association, Federal Home Loan Mortgage Corporation, or National
Credit Union Administration; time and savings deposits (including certificates
of deposit) in commercial or savings banks whose deposits are insured by the
Bank Insurance Fund ("BIF"), or the Savings Association Insurance Fund ("SAIF"),
including certificates of deposit issued by and other time deposits in foreign
branches of BIF-insured banks; bankers' acceptances issued by a BIF-insured
bank, or issued by the bank's Edge Act subsidiary and guaranteed by the bank,
with remaining maturities of nine months or less. The total acceptances of any
bank held by the Portfolio cannot exceed 0.25 of 1% of such bank's total
deposits according to the bank's last published statement of condition preceding
the date of acceptance; and general obligations of any state, territory, or
possession of the United States, or their political subdivisions, so long as
they are either (1) rated in one of the four highest grades by nationally
recognized statistical rating organizations or (2) issued by a public housing
agency and backed by the full faith and credit of the United States.
The corporate debt obligations in which the Portfolio may invest are
generally rated BBB or lower by Standard & Poor's Corporation ("Standard &
Poor's") or Baa or lower by Moody's Investors Service, Inc. ("Moody's"), or are
not rated but are determined by the Sub-advisor to be of comparable quality. A
description of the rating categories is contained in the Appendix to the Trust's
Statement of Additional Information. There is no lower limit with respect to
rating categories for securities in which the Portfolio may invest.
Special Risks of Lower-Rated Debt Obligations or "Junk Bonds." The
corporate debt obligations in which the Portfolio invests are usually not in the
three highest rating categories of a nationally recognized rating organization
(AAA, AA, or A for Standard & Poor's and Aaa, Aa or A for Moody's) but are in
the lower rating categories or are unrated but are of comparable quality and
have speculative characteristics or are speculative. Lower-rated or unrated
bonds are commonly referred to as "junk bonds." There is no minimal acceptable
rating for a security to be purchased or held in the Portfolio, and the
Portfolio may, from time to time, purchase or hold securities rated in the
lowest rating category. A description of the rating categories is contained in
the Appendix to the Trust's Statement of Additional Information.
The Sub-advisor believes that lower-rated securities will usually offer
higher yields than higher-rated securities. However, there is more risk
associated with these investments. This is because of reduced creditworthiness
and increased risk of default. Lower-rated securities generally tend to reflect
short-term corporate and market developments to a greater extent than
higher-rated securities which react primarily to fluctuations in the general
level of interest rates. Short-term corporate and market developments affecting
the prices or liquidity of lower-rated securities could include adverse news
affecting major issuers, underwriters, or dealers in lower-rated securities. In
addition, since there are fewer investors in lower-rated securities, it may be
harder to sell the securities at an optimum time.
As a result of these factors, lower-rated securities tend to have more
price volatility and carry more risk to principal and income than higher-rated
securities. An economic downturn may adversely affect the value of some
lower-rated bonds. Such a downturn may especially affect highly leveraged
companies or companies in cyclically sensitive industries, where deterioration
in a company's cash flow may impair its ability to meet its obligation to pay
principal and interest to bondholders in a timely fashion. From time to time, as
a result of changing conditions, issuers of lower-rated bonds may seek or may be
required to restructure the terms and conditions of the securities they have
issued. As a result of these restructurings, holders of lower-rated securities
may receive less principal and interest than they had bargained for at the time
such bonds were purchased. In the event of a restructuring, the Trust may bear
additional legal or administrative expenses in order to maximize recovery from
an issuer.
The secondary trading market for lower-rated bonds is generally less liquid
than the secondary trading market for higher-rated bonds. In 1989, legislation
was enacted that required federally insured savings and loan associations to
divest their holdings of lower-rated bonds by 1994. The reduction of the number
of institutions empowered to purchase and hold lower-rated bonds could have an
adverse impact on the overall liquidity of the market. Adverse publicity and the
perception of investors relating to issuers, underwriters, dealers or underlying
business conditions, whether or not warranted by fundamental analysis, may also
affect the price or liquidity of lower-rated bonds. On occasion, therefore, it
may become difficult to price or dispose of a particular security in the
Portfolio.
For an additional discussion of the risks involved in lower-rated
securities, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may acquire securities which are subject to
legal or contractual delays, restrictions and costs on resale. As a matter of
investment policy which can be changed without shareholder approval, the
Portfolio will not invest more than 15% of its net assets in illiquid
securities, which include certain private placements not determined to be liquid
under criteria established by the Board of Trustees and repurchase agreements
providing for settlement in more than seven days after notice. Securities
eligible for resale under Rule 144A of the Securities Act of 1933, and
commercial paper issued under Section 4(2) of the Securities Act of 1933, could
be deemed "liquid" when saleable in a readily available market. For an
additional discussion of illiquid and restricted securities and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods" and the Trust's Statement of Additional Information under "Investment
Objectives and Policies."
When-Issued and Delayed Delivery Transactions. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. In when-issued and
delayed delivery transactions, the Portfolio relies on the seller to complete
the transaction. The seller's failure to complete the transaction may cause the
Portfolio to miss a price or yield considered to be advantageous. For an
additional discussion of these transactions and the risks involved therein, see
the Trust's Statement of Additional Information under "Investment Objectives and
Policies" and "Certain Risk Factors and Investment Methods."
Temporary Investments. The Portfolio may also invest all or a part of its
assets temporarily in cash or cash items during time of unusual market
conditions for defensive purposes or to maintain liquidity. Cash items may
include, but are not limited to: certificates of deposit; commercial paper
(generally lower-rated); short-term notes; obligations issued or guaranteed as
to principal and interest by the U.S. government or any of its agencies or
instrumentalities; and repurchase agreements.
Repurchase Agreements. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may enter into repurchase agreements and
certain securities in which the Portfolio invests may be purchased pursuant to
repurchase agreements. For an additional discussion of repurchase agreements and
the risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods" and the Trust's Statement of Additional Information under
"Investment Objectives and Policies."
Lending Portfolio Securities. In order to generate additional income, the
Portfolio may lend portfolio securities on a short-term or long-term basis to
broker/dealers, banks, or other institutional borrowers of securities. The
Portfolio will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Sub-advisor has determined are creditworthy under
guidelines established by the Board of Trustees and will receive collateral in
the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned. For an additional discussion of limitations on
lending and the risks involved in lending, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Objectives and Policies."
Borrowing. For a discussion of the limitations on borrowing by the
Portfolio and certain risks involved in borrowing, see this Prospectus under
"Certain Risk Factors and Investment Methods."
Portfolio Turnover. While the Sub-advisor does not intend to do substantial
short-term trading, from time-to-time it may sell Portfolio securities without
considering how long they have been held. The Portfolio would do this: to take
advantage of short-term differentials in yields or market values; to take
advantage of new investment opportunities; to respond to changes in
creditworthiness of an issuer; or to try to preserve gains or limit losses. Any
such trading would increase the Portfolio's turnover rate and its transaction
costs. However, the Sub-advisor will not attempt to set or meet an arbitrary
turnover rate since turnover is incidental to transactions considered necessary
to achieve the Portfolio investment objective.
Zero Coupon Bonds. The Portfolio may, from time to time, own zero coupon
bonds or pay-in-kind securities. A zero coupon bond makes no periodic interest
payments and the entire obligation becomes due only upon maturity. Pay-in-kind
securities make periodic payments in the form of additional securities (as
opposed to cash). The price of zero coupon bonds and pay-in-kind securities are
generally more sensitive to fluctuations in interest rates than are conventional
bonds. Additionally, federal tax law requires that interest on zero coupon bonds
and paid-in-kind securities be reported as income to the Trust even though the
Trust received no cash interest until the maturity or payment date of such
securities.
Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations earlier
than the stated maturity dates. Issuers are more likely to call bonds during
periods of declining interest rates. In these cases, if the Portfolio owns a
bond which is called, the Portfolio will receive its return of principal earlier
than expected and would likely be required to reinvest the proceeds at lower
interest rates, thus reducing income to the Portfolio.
For an additional discussion of zero coupon bonds, see the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Foreign Securities. The Portfolio may invest up to 5% of its total assets
in foreign securities which are not publicly traded in the United States. For a
discussion of the risks involved in foreign investing, see this Prospectus and
the Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Reducing Risks of Lower-Rated Securities. The Sub-advisor believes that the
risks of investing in lower-rated securities may be reduced. There can, however,
be no assurances that such risks will actually be reduced by the following
methods. The professional portfolio management techniques used by the
Sub-advisor to attempt to reduce these risks include:
Credit Research. The Sub-advisor will perform its own credit analysis in
addition to using nationally recognized rating organizations and other sources,
including discussions with the issuer's management, the judgment of other
investment analysts, and its own informed judgment. The Sub-advisor's credit
analysis will consider the issuer's financial soundness, its responsiveness to
changes in interest rates and business conditions, and its anticipated cash
flow, interest, or dividend coverage and earnings. In evaluating an issuer, the
Sub-advisor places special emphasis on the estimated current value of the
issuer's assets rather than historical cost.
Diversification. The Sub-advisor invests in securities of many different
issuers, industries, and economic sectors to reduce portfolio risk.
Economic Analysis. The Sub-advisor will analyze current developments and
trends in the economy and in the financial markets. When investing in
lower-rated securities, timing and selection are critical, and analysis of the
business cycle can be important.
T. Rowe Price Asset Allocation Portfolio:
Investment Objective: The investment objective of the T. Rowe Price Asset
Allocation Portfolio is to seek a high level of total return by investing
primarily in a diversified group of fixed income and equity securities. This is
a fundamental objective of the Portfolio.
Investment Policies:
The Portfolio is designed to balance the potential appreciation of common
stocks with the income and principal stability of bonds over the long term.
Under normal market conditions over the long-term, the Portfolio expects to
allocate its assets so that approximately 40% of such assets will be in fixed
income securities and approximately 60% in equity securities. This mix may vary
over shorter time periods within the ranges set forth below:
Range
Fixed Income Securities 30-50%
Equity Securities 50-70%
The primary consideration in varying from the 60-40 allocation will be the
Sub-advisor's outlook for the different markets in which the Portfolio invests.
Shifts between bonds and stocks will normally be done gradually and the
Sub-advisor will not attempt to precisely "time" the market. There is, of
course, no guarantee that even the Sub-advisor's gradual approach to allocating
the Portfolio's assets will be successful in achieving the Portfolio's
objective. The Portfolio will also maintain cash reserves to facilitate the
Portfolio's cash flow needs (redemptions, expenses and purchases of Portfolio
securities) and it may invest in cash reserves without limitation for temporary
defensive purposes.
Assets allocated to the fixed income portion of the Portfolio primarily
will be invested in U.S. and foreign investment grade bonds and high-yield
bonds, and cash reserves.
Assets allocated to the equity portion of the Portfolio primarily will be
invested in the common stocks of a diversified group of U.S. and foreign large
and small companies.
The Portfolio's price share will fluctuate with changing market conditions
and interest rate levels and your investment may be worth more or less when
redeemed than when purchased. The Portfolio should not be relied upon for
short-term financial needs, nor used to play short-term swings in the stock or
bond markets. The Portfolio cannot guarantee that it will achieve its investment
objectives.
Fixed Income Securities. The Portfolio's fixed income securities will be
allocated among investment grade, high-yield and non-dollar debt securities
generally within the ranges indicated below:
Range
Investment Grade 50-100%
High Yield 0-30%
Non-dollar 0-30%
Cash Reserves 0-20%
Investment Grade. Long, intermediate and short-term investment grade debt
securities (e.g., AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P"), or
if not rated, of equivalent investment quality as determined by Sub-advisor).
The weighted average maturity for this portion of the Portfolio is generally
expected to be intermediate, although it may vary significantly.
Non-Dollar. Non-dollar denominated, high-quality (e.g., AAA and AA by S&P,
or if not rated, of equivalent investment quality as determined by the
Sub-advisor) government and corporate debt securities of at least three
countries. See this Prospectus and the Trust's Statement of Additional
Information for a discussion of the risks involved in foreign investing.
High-Yield, Lower-Rated Securities. High-yielding, income-producing debt
securities (commonly referred to as "junk bonds") and preferred stocks including
convertible securities. Bonds may be purchased without regard to maturity,
however, the average maturity of the bonds is expected to be approximately 10
years, although it may vary if market conditions warrant. Quality will generally
range from lower-medium to low and the Portfolio may also purchase bonds in
default if, in the opinion of the Sub-advisor, there is significant potential
for capital appreciation. Lower-rated debt obligations are generally considered
to be high risk investments. See this Prospectus and the Trust's Statement of
Additional Information for a discussion of the risks involved in investing in
high-yield, lower-rated debt securities.
Cash Reserves. Liquid short-term investments of one year or less having the
highest ratings by at least one established rating organization, or if not
rated, of equivalent investment quality as determined by the Sub-advisor.
Equity Securities. The Portfolio's equity securities will be allocated
among large and small-cap U.S. and non-dollar equity securities within the
ranges indicated below:
Range
Large Cap 45-100%
Small Cap 0-30%
International 0-35%
Large-Cap. Generally, stocks of well-established companies with
capitalization over $1 billion which can produce increasing dividend income.
Non-Dollar. Common stocks of established non-U.S. companies. Investments
may be made solely for capital appreciation or solely for income or any
combination of both for the purpose of achieving a higher overall return. The
Sub-advisor intends to diversify this portion of the Portfolio broadly among
countries and to normally have at least three different countries represented.
The countries of the Far East and Western Europe as well as South Africa,
Australia, Canada, and other areas (including developing countries) may be
included. Under unusual circumstances, however, investment may be substantially
in one or two countries. See this Prospectus and the Trust's Statement of
Additional Information for a discussion of the risks in international investing
under "Certain Risk Factors and Investment Methods."
Risks of Small-Cap Investing. Common stocks of small companies or companies
which offer the possibility of accelerated earnings growth because of
rejuvenated management, new products or structural changes in the economy.
Current income is not a factor in the selection of these stocks. Higher risks
are often associated with small companies. These companies may have limited
product lines, markets and financial resources, or they may be dependent on a
small or inexperienced management group. In addition, their securities may trade
less frequently and in limited volume and move more abruptly than securities of
larger companies. However, securities of smaller companies may offer greater
potential for capital appreciation since they are often overlooked or
undervalued by investors.
The Portfolio's investments include, but are not limited to, equity and
fixed income securities of any type, as well as the investments described below.
Asset-Backed Securities. The Portfolio may invest in asset-backed
securities. There are risks involved in asset-backed securities. For a
discussion of asset-backed securities and the risks involved therein, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
Cash Reserves. While the Portfolio will remain invested in primarily common
stocks and bonds, it may, for temporary defensive purposes, invest in reserves
without limitation. The Portfolio may establish and maintain reserves as
Sub-advisor believes is advisable to facilitate the Portfolio's cash flow needs
(e.g., redemptions, expenses and purchases of portfolio securities ) or for
temporary, defensive purposes. The Portfolio's reserves will be invested in
domestic and foreign money market instruments rated within the top two credit
categories by a national rating organization, or if unrated, of equivalent
investment quality as determined by the Sub-advisor.
Collateralized Mortgage Obligations (CMOs). There are risks involved in
CMOs. The Portfolio may also invest in CMOs. For a discussion of CMOs and the
risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Stripped Mortgage Securities. Stripped mortgage securities are created by
separating the interest and principal payments generated by a pool of
mortgage-backed bonds to create two classes of securities. Generally, one class
receives interest only payments (IO's) and principal only payments (PO's).
IO's and PO's are acutely sensitive to interest rate changes and to the
rate of principal prepayments. They are very volatile in price and may have
lower liquidity than most mortgage-backed securities. Certain CMO's may also
exhibit these qualities, especially those which pay variable rates of interest
which adjust inversely with and more rapidly than short-term interest rates.
There is no guarantee the Portfolio's investment in CMO's, IO's or PO's will be
successful, and the Portfolio's total return could be adversely affected as a
result.
For an additional discussion of stripped mortgage securities and the risks
involved therein, see this Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Convertible Securities, Preferred Stocks, and Warrants. The Portfolio may
invest in debt or preferred equity securities convertible into or exchangeable
for equity securities. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on the
company's earnings and assets before common stock owners, but after bond owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants (generally, two or more
years).
Risks of Foreign Currency Fluctuations. Foreign securities of the Portfolio
are subject to currency risk, that is, the risk that the U.S. dollar value of
these securities may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. To manage this risk
and facilitate the purchase and sale of foreign securities, the Portfolio will
engage in foreign currency transactions involving the purchase and sale of
forward foreign currency exchange contracts. Although foreign currency
transactions will be used primarily to protect the Portfolio from adverse
currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted and the Portfolio's total return
could be adversely affected as a result. For a discussion of foreign currency
transactions, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Foreign Securities. The Portfolio may invest up to 35% of its total assets
in U.S. dollar-denominated and non U.S. dollar-denominated securities issued by
foreign issuers. Some of the countries in which the Portfolio may invest may be
considered to be developing and may involve special risks. For a discussion of
these risks as well as the risks involved in foreign securities investment in
general, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Futures Contracts and Options. The Portfolio may enter into futures
contracts (or options thereon) to hedge all or a portion of its portfolio, as a
hedge against changes in prevailing levels of interest rates or currency
exchange rates, or as an efficient means of adjusting its exposure to the bond,
stock, and currency markets. The Portfolio will not use futures contracts for
leveraging purposes. The Portfolio will limit its use of futures contracts so
that initial margin deposits and premiums on such contracts used for non-hedging
purposes will not equal more than 5% of the Portfolio's net assets. The
Portfolio may also write call and put options and purchase put and call options
on securities, financial indices, and currencies. The aggregate market value of
the Portfolio's portfolio securities or currencies covering call or put options
will not exceed 25% of the Portfolio's net assets.
Risks of Options and Futures Transactions. For a discussion of futures
contracts and options and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies" and "Certain
Risk Factors."
Hybrid Instruments. As part of its investment program and to maintain
greater flexibility, the Portfolio may invest in instruments which have the
characteristics of futures, options and securities. Such instruments may take a
variety of forms, such as debt instruments with interest or principal payments
determined by reference to the value of a currency, securities index or
commodity at a future point in time. The risks of such investments would reflect
both the risks of investing in futures, options and securities, including
volatility and illiquidity. Under certain conditions, the redemption value of a
hybrid instrument could be zero. For a discussion of hybrid securities and the
risks involved therein, see the Trust's Statement of Additional Information
under "Investment Objectives and Policies" and "Certain Risk Factors."
Lending of Portfolio Securities. As a fundamental policy, for the purpose
of realizing additional income, the Portfolio may lend securities with a value
of up to 33 1/3% of its total assets to broker-dealers, institutional investors,
or other persons. Any such loan will be continuously secured by collateral at
least equal to the value of the security loaned. Such lending could result in
delays in receiving additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower fail
financially. For an additional discussion on limitations on lending and risks of
lending, see this Prospectus under "Certain Risk Factors and Investment Methods"
and the Trust's Statement of Additional Information under "Investment Objectives
and Policies."
Mortgage-Backed Securities. The Portfolio may invest in mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or institutions such as banks, insurance companies and savings
and loans. Some of these securities, such as GNMA certificates, are backed by
the full faith and credit of the U.S. Treasury while others, such as Freddie Mac
certificates, are not. There are risks involved in mortgage-backed securities.
For an additional discussion of mortgage-backed securities, see the Trust's
Statement of Additional Information under "Investment Objectives and Policies"
and "Certain Risk Factors and Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may acquire illiquid securities (no more
than 15% of net assets). Because an active trading market does not exist for
such securities, the sale of such securities may be subject to delay and
additional costs. The Portfolio will not invest more than 10% of its total
assets in restricted securities (other than securities eligible for resale under
Rule 144A of the Securities Act of 1933). For a discussion of illiquid
securities and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Objectives and Policies."
Repurchase Agreements. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may enter into repurchase agreements with a
well-established securities dealer or a bank which is a member of the Federal
Reserve System. For a discussion of repurchase agreements and the risks involved
therein, see this Prospectus under "Certain Risk Factors and Investment Methods"
and the Trust's Statement of Additional Information under "Investment Objectives
and Policies."
Portfolio Turnover. The Portfolio will not generally trade in securities
(either common stocks or bonds) for short-term profits, but, when circumstances
warrant, securities may be purchased and sold without regard to the length of
time held.
Borrowing. For a discussion of the limitations on borrowing by the
Portfolio and certain risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."
T. Rowe Price International Equity Portfolio:
Investment Objective: The T. Rowe Price International Equity Portfolio seeks a
total return on its assets from long-term growth of capital and income,
principally through investments in common stocks of established, non-U.S.
companies. Investments may be made solely for capital appreciation or solely for
income or any combination of both for the purpose of achieving a higher overall
return. Total return consists of capital appreciation or depreciation, dividend
income, and currency gains or losses. This is a fundamental objective of the
Portfolio.
Investment Policies:
The Portfolio intends to diversify investments broadly among countries
and to normally have at least three different countries represented in the
Portfolio. The Portfolio may invest in countries of the Far East and Western
Europe as well as South Africa, Australia, Canada and other areas (including
developing countries). Under unusual circumstances, the Portfolio may invest
substantially all of its assets in one or two countries.
In seeking its objective, the Portfolio will invest primarily in common
stocks of established foreign companies which have the potential for growth of
capital or income or both. However, the Portfolio may also invest in a variety
of other equity-related securities, such as preferred stocks, warrants and
convertible securities, as well as corporate and governmental debt securities,
when considered consistent with the Portfolio's investment objectives and
program. Under normal market conditions, the Portfolio's investment in
securities other than common stocks is limited to no more than 35% of total
assets. Under exceptional economic or market conditions abroad, the Portfolio
may temporarily invest all or a major portion of its assets in U.S. government
obligations or debt obligations of U.S. companies. The Portfolio will not
purchase any debt security which at the time of purchase is rated below
investment grade. This would not prevent the Portfolio from retaining a security
downgraded to below investment grade after purchase.
The Portfolio may also invest its reserves in domestic as well as
foreign money market instruments. Also, the Portfolio may enter into forward
foreign currency exchange contracts in order to protect against uncertainty in
the level of future foreign exchange rates.
In addition to the investments described below, the Portfolio's
investments may include, but are not limited to, American Depositary Receipts
(ADRs), bonds, notes, other debt securities of foreign issuers, and the
securities of foreign investment funds or trusts (including passive foreign
investment companies).
Cash Reserves. While the Portfolio will remain primarily invested in
common stocks, it may, for temporary defensive measures, invest in cash reserves
without limitation. The Portfolio may establish and maintain reserves as
Sub-advisor believes is advisable to facilitate the Portfolio's cash flow needs
(e.g., redemptions, expenses and purchases of portfolio securities) or for
temporary, defensive purposes. The Portfolio's reserves may be invested in
domestic and foreign money market instruments rated within the top two credit
categories by a national rating organization, or if unrated, of equivalent
investment quality as determined by the Sub-advisor.
Convertible Securities, Preferred Stocks, and Warrants. The Portfolio
may invest in debt or preferred equity securities convertible into or
exchangeable for equity securities. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on the company's earnings and assets before common stock owners, but after bond
owners. Warrants are options to buy a stated number of shares of common stock at
a specified price any time during the life of the warrants (generally, two or
more years).
Risks of Currency Fluctuations. The Portfolio will normally conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. The
Portfolio will generally not enter into a forward contract with a term of
greater than one year.
The Portfolio will generally enter into forward foreign currency
exchange contracts only under two circumstances. First, when the Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. Second, when Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, it may enter into a forward contract to sell or buy the former foreign
currency (or another currency which acts as a proxy for that currency)
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. Under certain circumstances, the Portfolio may commit
a substantial portion or the entire value of its portfolio to the consummation
of these contracts. Sub-advisor will consider the effect such a commitment of
its portfolio to forward contracts would have on the investment program of the
Portfolio and the flexibility of the Portfolio to purchase additional
securities. Although forward contracts will be used primarily to protect the
Portfolio from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted and the
Portfolio's total return could be adversely affected as a result.
For a discussion of foreign currency contracts and the risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Futures Contracts and Options. The Portfolio may enter into stock index
or currency futures contracts (or options thereon) to hedge a portion of the
portfolio, to provide an efficient means of regulating the Portfolio's exposure
to the equity markets, or as a hedge against changes in prevailing levels of
currency exchange rates. The Portfolio will not use futures contracts for
leveraging purposes. The Portfolio will limit its use of futures contracts so
that initial margin deposits and premiums on such contracts used for non-hedging
purposes will not equal more than 5% of the Portfolio's net assets. Such
contracts may be traded on U.S. or foreign exchanges. The Portfolio may write
covered call options and purchase put and call options on foreign currencies,
securities, and stock indices. The aggregate market value of the Portfolio's
currencies or portfolio securities covering call or put options will not exceed
25% of the Portfolio's total assets. The Portfolio will not commit more than 5%
of its total assets to premiums when purchasing call or put options.
Risks of Options and Futures Transactions. There are risks involved in
options and futures transactions. For a discussion of futures contracts and
options and the risks involved therein, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods" and the Trust's Statement of Additional Information under "Investment
Objectives and Policies" and "Certain Risk Factors."
Hybrid Investments. The Portfolio may invest up to 10% of its total
assets in hybrid instruments. As part of its investment program and to maintain
greater flexibility, the Portfolio may invest in instruments which have the
characteristics of futures, options and securities. Such instruments may take a
variety of forms, such as debt instruments with interest or principal payments
determined by reference to the value of a currency, security index or commodity
at a future point in time. The risks of such investments would reflect both the
risks of investing in futures, options, currencies, and securities, including
volatility and illiquidity. Under certain conditions, the redemption value of a
hybrid instrument could be zero. For a discussion of hybrid investments and the
risks involved therein, see the Trust's Statement of Additional Information
under "Investment Objectives and Policies" and "Certain Risk Factors and
Investment Methods."
Passive Foreign Investment Companies. The Portfolio may purchase the
securities of certain foreign investment funds or trusts called passive foreign
investment companies. Such trusts have been the only or primary way to invest in
certain countries. In addition to bearing their proportionate share of the
trusts' expenses (management fees and operating expenses) shareholders will also
indirectly bear similar expenses of such trusts.
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may acquire illiquid securities (no more
than 15% of net assets). The Portfolio will not invest more than 10% of its
total assets in restricted securities (other than securities eligible for resale
under Rule 144A of the Securities Act of 1933). For a discussion of illiquid
securities and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Objectives and Policies."
Lending of Portfolio Securities. As a fundamental policy, for the
purpose of realizing additional income, the Portfolio may lend securities with a
value of up to 33 1/3% of its total assets to broker-dealers, institutional
investors, or other persons. Any such loan will be continuously secured by
collateral at least equal to the value of the security loaned. For an additional
discussion of limitations on lending and risks of lending, see this Prospectus
under "Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with a well-established securities dealer or a bank which is a member of the
Federal Reserve System. For a discussion of repurchase agreements and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods" and the Trust's Statement of Additional Information under "Investment
Objectives and Policies."
Portfolio Turnover. The Portfolio will not generally trade in
securities for short-term profits, but, when circumstances warrant, securities
may be purchased and sold without regard to the length of time held.
Borrowing. For a discussion of the limitations on borrowing by the
Portfolio and risks involved in borrowing, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."
T. Rowe Price Natural Resources Portfolio:
Investment Objective: The T. Rowe Price Natural Resources Portfolio's objective
is to seek long-term growth of capital through investment primarily in common
stocks of companies which own or develop natural resources and other basic
commodities. Current income is not a factor in the selection of stocks for
investment by the Portfolio. Total return will consist primarily of capital
appreciation (or depreciation).
Investment Policies:
The Portfolio will invest primarily (at least 65% of its total assets)
in common stocks of companies which own or develop natural resources and other
basic commodities. However, it may also purchase other types of securities, such
as selected, non-resource growth companies, foreign securities, convertible
securities and warrants, when considered consistent with the Portfolio's
investment objective and policies. The Portfolio may also engage in a variety of
investment management practices, such as buying and selling futures and options.
Some of the most important factors evaluated by the Sub-advisor in
selecting natural resource companies are the capability for expanded production,
superior exploration programs and production facilities, and the potential to
accumulate new resources. The Portfolio expects to invest in those natural
resource companies which own or develop energy sources (such as oil, gas, coal
and uranium), precious metals, forest products, real estate, nonferrous metals,
diversified resources, and other basic commodities which, in the opinion of the
Sub-advisor, can be produced and marketed profitably during periods of rising
labor costs and prices. However, the percentage of the Portfolio's assets
invested in natural resource and related businesses versus the percentage
invested in non-resource companies may vary greatly depending upon economic
monetary conditions and the outlook for inflation. The earnings of natural
resource companies may be expected to follow irregular patterns, because these
companies are particularly influenced by the forces of nature and international
politics. Companies which own or develop real estate might also be subject to
irregular fluctuations of earnings, because these companies are affected by
changes in the availability of money, interest rates, and other factors.
In the opinion of the Sub-advisor, inflation represents one of the
major economic problems investors will face over the long term. From the early
1970's through the late 1980's, the inflation rate was considerably above the
average historic levels. Although inflation was slowed in recent years, the
Sub-advisor believes the strenuous efforts required on the part of government,
business, labor, and consumers to control inflation are difficult to maintain
for extended periods - particularly during recessions. Political pressure to
counteract these economic slowdowns often leads to governmental policies which
in turn renew inflationary forces. The investment policies of the Portfolio have
been developed in light of these considerations.
The Portfolio invests in a diversified group of companies whose
earnings and/or value of tangible assets the Sub-advisor expects to grow faster
than the rate of inflation over the long term. The Sub-advisor believes the most
attractive opportunities which satisfy the Portfolio's objective are in
companies which own or develop natural resources and in companies where
management has the flexibility to adjust prices or the ability to control
operating costs.
Common and Preferred Stocks. Stocks represent shares of ownership in a
company. Generally preferred stock has a specified dividend and ranks after
bonds and before common stocks in its claim on income for dividend payments and
on assets should the company be liquidated. After other claims are satisfied,
common stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's stock
price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred stocks
pay a dividend, the Portfolio may purchase preferred stock where the issuer has
omitted, or is in danger of omitting, payment of its dividend. Such investments
would be made primarily for their capital appreciation potential.
Convertible Securities and Warrants. The Portfolio may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities. For a discussion of these instruments, see this Prospectus under
"Certain Risk Factors and Investment Methods."
Foreign Securities. The Portfolio may invest up to 50% of its total
assets in foreign securities. These include non-dollar denominated securities
traded outside of the U.S. and dollar denominated securities traded in the U.S.
(such as ADRs). Some of the countries in which the Portfolio may invest may be
considered to be developing and may involve special risks. For a discussion of
these risks as well as the risks involved in foreign securities investments in
general, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Risk of Currency Fluctuations. The Portfolio will normally conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. The
Portfolio will generally not enter into a forward contract with a term of
greater than one year.
The Portfolio will generally enter into forward foreign currency
exchange contracts only under two circumstances. First, when the Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. Second, when the Sub-advisor believes that the currency of a
particular foreign country may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell or buy the former
foreign currency (or another currency which acts as a proxy for that currency)
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. Under certain circumstances, the Portfolio may commit
a substantial portion or the entire value of its portfolio to the consummation
of these contracts. The Sub-advisor will consider the effect such a commitment
of its portfolio to forward contracts would have on the investment program of
the Portfolio and the flexibility of the Portfolio to purchase additional
securities. Although forward contracts will be used primarily to protect the
Portfolio from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted and the
Portfolio's total return could be adversely affected as a result.
For a discussion of foreign currency contracts and the risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Fixed Income Securities. The Portfolio may invest in debt securities of
any type without regard to quality or rating. Such securities would be purchased
in companies which meet the investment criteria for the Portfolio. The price of
a bond fluctuates with changes in interest rates, rising when interest fall and
falling when interest rise.
Stripped Mortgage Securities. Stripped mortgage securities are created
by separating the interest and principal payments generated by a pool of
mortgage-backed bonds to create two classes of securities. Generally, one class
receives interest only payments (IO's) and principal only payments (PO's). The
Portfolio will treat IOs and POs, other than government-issued IOs or POs backed
by fixed rate mortgages, as illiquid securities and, accordingly, limit its
investments in such securities, together with all other illiquid securities, to
15% of the Portfolio's net assets.
IO's and PO's are acutely sensitive to interest rate changes and to the
rate of principal prepayments. They are very volatile in price and may have
lower liquidity than most mortgage-backed securities. Certain CMO's may also
exhibit these qualities, especially those which pay variable rates of interest
which adjust inversely with and more rapidly than short-term interest rates.
There is no guarantee the Portfolio's investment in CMO's, IO's or PO's will be
successful, and the Portfolio's total return could be adversely affected as a
result.
For an additional discussion of stripped mortgage securities and the
risks involved therein, see this Trust's Prospectus under "Certain Risk Factors
and Investment Methods."
High-Yield/High-Risk Investing. The Portfolio will not purchase a
non-investment grade debt security (or junk bond) if immediately after such
purchase the Portfolio would have more than 10% of its total assets invested in
such securities. The total return and yield of lower quality (high-yield/high
risk) bonds, commonly referred to as "junk bonds," can be expected to fluctuate
more than the total return and yield of higher quality, shorter-term bonds, but
not as much as common stocks. Junk bonds are regarded as predominantly
speculative and high risk with respect to the issuer's continuing ability to
meet principal and interest payments. See this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods" for a discussion of the risks involved in investing in high-yield
lower-rated debt securities.
Hybrid Instruments. The Portfolio may invest up to 10% of its total
assets in hybrid instruments. As part of its investment program and to maintain
greater flexibility, the Portfolio may invest in instruments which have the
characteristics of futures, options and securities. Such instruments may take a
variety of forms, such as debt instruments with interest or principal payments
determined by reference to the value of a currency, security index or commodity
at a future point in time. The risks of such investments would reflect both the
risks of investing in futures, options, currencies, and securities, including
volatility and illiquidity. Under certain conditions, the redemption value of a
hybrid instrument could be zero. For a discussion of hybrid investments, see the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may acquire illiquid securities (no more
than 15% of net assets). For a discussion of illiquid securities and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods" and the Trust's Statement of Additional Information under "Investment
Objectives and Policies."
Private Placements (Restricted Securities). These securities are sold
directly to a small number of investors, usually institutions. Unlike public
offerings, such securities are not registered with the SEC. Although certain of
these securities may be readily sold, for example under Rule 144A, the sale of
others may involve substantial delays and additional costs. Subject to
guidelines promulgated by the Board of Trustees of the Trust, the Portfolio will
not invest more than 15% of its net assets in illiquid securities, but not more
than 10% of its total assets in restricted securities (other than Rule 144A
securities). For a discussion of illiquid or restricted securities and the risks
involved therein, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Cash Position. The Portfolio will hold a certain portion of its assets
in U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in one
year or less. For temporary, defensive purposes, the Portfolio may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments,
and serves as a short-term defense during periods of unusual market volatility.
Borrowing. The Portfolio can borrow money from banks as a temporary measure
for emergency purposes, to facilitate redemption requests, or for other purposes
consistent with the Portfolio's investment objectives and policies. Such
borrowings may be collateralized with Portfolio assets, subject to restrictions.
For a discussion of limitations on borrowing by the Portfolio and certain risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods" and the Trust's Statement of Additional Information under "Investment
Restrictions."
Futures and Options. The Portfolio may buy and sell futures contracts
(and options on such contracts) to manage its exposure to certain markets. The
Portfolio may purchase, sell or write call and put options on securities,
financial indices, and foreign currencies. The Portfolio may enter into stock
index or currency futures contracts (or options thereon) to hedge a portion of
the portfolio, to provide an efficient means of regulating the Portfolio's
exposure to the equity markets, or as a hedge against changes in prevailing
levels of currency exchange rates. The Portfolio will not use futures contracts
for leveraging purposes. The Portfolio will limit its use of futures contracts
so that initial margin deposits or premiums on such contracts used for
non-hedging purposes will not equal more than 5% of the Portfolio's net asset
value. Such contracts may be traded on U.S. or foreign exchanges. The Portfolio
may write covered call options and purchase put and call options on foreign
currencies, securities, and stock indices. The total market value of the
Portfolio's currencies or portfolio securities covering call or put options will
not exceed 25% of the Portfolio's total assets. The Portfolio will not commit
more than 5% of its total assets in premium when purchasing call or put options.
Risks of Options and Futures Transactions. There are risks involved in
options and futures transactions. For a discussion of futures contracts and
options and the risks involved therein, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Lending of Portfolio Securities. As a fundamental policy, for the
purpose of realizing additional income, the Portfolio may lend securities with a
value of up to 33 1/3% of its total assets to broker-dealers, institutional
investors, or other persons. Any such loan will be continuously secured by
collateral at least equal to the value of the security loaned. For an additional
discussion on limitations in lending and the risks of lending, see this
Prospectus under "Certain Risk Factors and Investment Methods" and the Trust's
Statement of Additional Information under "Investment Objectives and Policies."
Portfolio Turnover. The Portfolio will not generally trade in
securities for short-term profits, but, when circumstances warrant, securities
may be purchased and sold without regard to the length of time held.
T. Rowe Price International Bond Portfolio:
Investment Objective: The Portfolio seeks to provide high current income and
capital appreciation by investing in high-quality, non dollar-denominated
government and corporate bonds outside the United States. This is a fundamental
objective of the Portfolio.
Special Risk Considerations. The Portfolio is intended for long-term
investors who can accept the risks associated with investing in international
bonds. Total return consists of income after expenses, bond price gains (or
losses) in terms of the local currency and currency gains (or losses). The value
of the Portfolio will fluctuate in response to various economic factors, the
most important of which are fluctuations in foreign currency exchange rates and
interest rates.
Because the Portfolio's investments are primarily denominated in
foreign currencies, exchange rates are likely to have a significant impact on
total Portfolio performance. For example, a fall in the U.S. dollar's value
relative to the Japanese yen will increase the U.S. dollar value of a Japanese
bond held in the Portfolio, even though the price of that bond in yen terms
remains unchanged. Conversely, if the U.S. dollar rises in value relative to the
yen, the U.S. dollar value of a Japanese bond will fall. Investors should be
aware that exchange rate movements can be significant and endure for long
periods of time.
The Sub-advisor's techniques include management of currency, bond
market and maturity exposure and security selection which will vary based on
available yields and the Sub-advisor's outlook for the interest rate cycle in
various countries and changes in foreign currency exchange rates. In any of the
markets in which the Portfolio invests, longer maturity bonds tend to fluctuate
more in price as interest rates change than shorter-term instruments-again
providing both opportunity and risk.
Because of the Portfolio's long-term investment objectives, investors
should not rely on an investment in the Portfolio for their short-term financial
needs and should not view the Portfolio as a vehicle for playing short-term
swings in the international bond and foreign exchange markets. Shares of the
Portfolio alone should not be regarded as a complete investment program. Also,
investors should be aware that investing in international bonds may involve a
higher degree of risk than investing in U.S. bonds.
Investments in foreign securities involve special considerations. For a
discussion of the risks involved in investing in foreign securities, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
Investment Policies:
To achieve its objectives, the Portfolio will invest at least 65% of
its assets in high-quality, non dollar-denominated government and corporate
bonds outside the United States. The Portfolio also seeks to moderate price
fluctuation by actively managing its maturity structure and currency exposure.
The Sub-advisor bases its investment decisions on fundamental market factors,
currency trends, and credit quality. The Portfolio generally invests in
countries where the combination of fixed-income returns and currency exchange
rates appears attractive, or, if the currency trend is unfavorable, where the
currency risk can be minimized through hedging.
Although the Portfolio expects to maintain an intermediate to long
weighted average maturity, it has no maturity restrictions on the overall
portfolio or on individual securities. Normally, the Portfolio does not hedge
its foreign currency exposure back to the dollar, nor involve more than 50% of
total assets in cross hedging transactions. Therefore, changes in foreign
interest rates and currency exchange rates are likely to have a significant
impact on total return and the market value of portfolio securities. Such
changes provide greater opportunities for capital gains and greater risks of
capital loss. The Sub-advisor attempts to reduce these risks through
diversification among foreign securities and active management of maturities and
currency exposures.
The Portfolio may also invest up to 20% of its assets in below
investment-grade, high-risk bonds, including bonds in default or those with the
lowest rating. Defaulted bonds are acquired only if the Sub-advisor foresees the
potential for significant capital appreciation. Securities rated below
investment-grade are commonly referred to as "junk bonds" and involve greater
price volatility and higher degrees of speculation with respect to the payment
of principal and interest than higher quality fixed-income securities. The
market prices of such lower-rated debt securities may decline significantly in
periods of general economic difficulty. In addition, the trading market for
these securities is generally less liquid than for higher rated securities and
the Portfolio may have difficulty disposing of these securities at the time it
wishes to do so. The lack of a liquid secondary market for certain securities
may also make it more difficult for the Portfolio to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. For a discussion of the risks involved in lower-rated debt securities,
see this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
The Portfolio's investments may include:
Debt securities issued or guaranteed by a foreign national government,
its agencies, instrumentalities or political subdivisions; debt securities
issued or guaranteed by supranational organizations (e.g., European Investment
Bank, InterAmerican Development Bank or the World Bank); corporate debt
securities; bank or bank holding company debt securities; other debt securities,
including those convertible into common stock.
The Portfolio may invest in zero coupon securities which pay no cash
income and are sold at substantial discounts from their value at maturity. When
held to maturity, their entire income, which consists of accretion of discount,
comes from the difference between the issue price and their value at maturity.
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current cash distribution of interest. For a discussion of zero coupon
securities, see the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
The Portfolio may purchase securities which are not publicly offered.
If such securities are purchased, they may be subject to restrictions applicable
to restricted securities. For a discussion of the risks involved with restricted
securities, see this Prospectus under "Certain Risk Factors and Investment
Methods."
The Portfolio intends to select its investments from a number of
country and market sectors. It may substantially invest in the issuers in one or
more countries and intends to have investments in securities of issuers from a
minimum of three different countries. The Portfolio may invest 15% of its net
assets in illiquid securities and securities of unseasoned issuers. For
temporary defensive or emergency purposes, however, the Portfolio may invest
without limit in U.S. debt securities, including short-term money market
securities. It is impossible to predict for how long such alternative strategies
will be utilized.
Short-Term Investments. To protect against adverse movements of
interest rates and for liquidity, the Portfolio may also purchase short-term
obligations denominated in U.S. and foreign currencies (including the ECU) such
as, but not limited to, bank deposits, bankers' acceptances, certificates of
deposit, commercial paper, short-term government, government agency,
supranational agency and corporate obligations, and repurchase agreements.
Nondiversified Investment Company. The Portfolio may invest more than 5% of
its assets in the fixed-income securities of individual foreign governments. The
Portfolio generally will not invest more than 5% of its assets in any individual
corporate issuer, provided that (1) the Portfolio may place assets in bank
deposits or other short-term bank instruments with a maturity of up to 30 days
provided that (i) the bank has a short-term credit rating of A1+ (or, if
unrated, the equivalent as determined by the Sub-advisor) and (ii) the Portfolio
may not maintain more than 10% of its total assets with any single bank; and (2)
the Portfolio may maintain more than 5% of its total assets, including cash and
currencies, in custodial accounts or deposits of the Trust's custodian or
sub-custodians. In addition, the Portfolio intends to qualify as a regulated
investment company for purposes of the Internal Revenue Code. Such qualification
requires the Portfolio to limit its investments so that, at the end of each
calendar quarter, with respect to at least 50% of its total assets, not more
than 5% of such assets are invested in the securities of a single issuer, and
with respect to the remaining 50%, no more than 25% is invested in a single
issuer. Since, as a nondiversified investment company, the Portfolio is
permitted to invest a greater proportion of its assets in the securities of a
smaller number of issuers, the Portfolio may be subject to greater credit risk
with respect to its portfolio securities than an investment company that is more
broadly diversified.
Brady Bonds. The Portfolio may invest in Brady Bonds. Brady bonds,
named after former U.S. Secretary of the Treasury Nicholas Brady, are used as a
means of restructuring the external debt burden of a government in certain
emerging markets. A Brady bond is created when an outstanding commercial bank
loan to a government or private entity is exchanged for a new bond in connection
with a debt restructuring plan. Brady bonds may be collateralized or
uncollateralized and issued in various currencies (although typically in the
U.S. dollar). They are often fully collateralized as to principal in U.S.
Treasury zero coupon bonds. However, even with this collateralization feature,
Brady Bonds are often considered speculative, below investment grade investments
because the timely payment of interest is the responsibility of the issuing
party (for example, a Latin American country) and the value of the bonds can
fluctuate significantly based on the issuer's ability or perceived ability to
make these payments. Finally, some Brady Bonds may be structured with floating
rate or low fixed rate coupons. The Portfolio does not expect to have more than
10% of its total assets invested in Brady Bonds.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with well-established securities dealers or a bank that is a member of the
Federal Reserve System. For a discussion of repurchase agreements and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."
When-Issued or Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or forward delivery basis, for payment and delivery
at a later date. The price and yield are generally fixed on the date of
commitment to purchase. During the period between purchase and settlement, no
interest accrues to the Portfolio. At the time of settlement, the market value
of the security may be more or less than the purchase price. For an additional
discussion of when-issued securities and the risks involved therein, see the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Passive Foreign Investment Companies. The Portfolio may purchase the
securities of certain foreign investment funds or trusts called passive foreign
investment companies. Such trusts have been the only or primary way to invest in
certain countries. In addition to bearing their proportionate share of the
trusts' expenses (management fees and operating expenses) shareholders will also
indirectly bear similar expenses of such trusts.
Hybrid Instruments. The Portfolio may invest up to 10% of its total
assets in hybrid instruments. As part of its investment program and to maintain
greater flexibility, the Portfolio may invest in instruments which have the
characteristics of futures, options and securities. Such instruments may take a
variety of forms, such as debt instruments with interest or principal payments
determined by reference to the value of a currency, securities index or
commodity at a future point in time. The risks of such investments would reflect
both the risks of investing in futures, options and securities, including
volatility and illiquidity. Under certain conditions, the redemption value of a
hybrid instrument could be zero. For a discussion of hybrid securities and the
risks involved therein, see the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Foreign Currency Transactions. The Portfolio may engage in foreign
currency transactions either on a spot (cash) basis at the rate prevailing in
the currency exchange market at the time or through forward currency contracts
("forwards") with terms generally of less than one year. Forwards will be used
primarily to adjust the foreign exchange exposure of the Portfolio with a view
to protecting the Portfolio from adverse currency movements, based on the
Sub-advisor's outlook, and the Portfolio might be expected to enter into such
contracts under the following circumstances:
Lock In. When management desires to lock in the U.S. dollar price on the
purchase or sale of a security denominated in a foreign currency.
Cross Hedge. If a particular currency is expected to decrease
against another currency, the Portfolio may sell the currency expected to
decrease and purchase a currency which is expected to increase against the
currency sold in an amount approximately equal to some or all of the Portfolio's
holdings denominated in the currency sold.
Proxy Hedge. The Sub-advisor might choose to use a proxy
hedge, where the Portfolio, having purchased a bond, will sell a currency whose
value is believed to be closely linked to the currency in which the bond is
denominated. Interest rates prevailing in the country whose currency was sold
would be expected to be closer to those in the U.S. and lower than those of
bonds denominated in the currency of the original holding. This type of hedging
entails greater risk than a direct hedge because it is dependent on a stable
relationship between the two currencies paired as proxies and the relationships
can be very unstable at times.
For an additional discussion of foreign currency exchange contracts and
the risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Costs of Hedging. When the Portfolio purchases a foreign bond with a higher
interest rate than is available on U.S. bonds of a similar maturity, the
additional yield on the foreign bond could be substantially lost if the
Portfolio were to enter into a direct hedge by selling the foreign currency and
purchasing the U.S. dollar. This is what is known as the "cost" of hedging.
Proxy hedging attempts to reduce this cost through an indirect hedge back to the
U.S. dollar. It is important to note that hedging costs are treated as capital
transactions and are not, therefore, deducted from the Portfolio's dividend
distribution and are not reflected in its yield. Instead such costs will, over
time, be reflected in the Portfolio's net asset value per share.
Futures and Options. The Portfolio may buy and sell futures and options
contracts for any number of reasons including: to manage their exposure to
changes in interest rates, securities prices and foreign currencies; as an
efficient means of adjusting overall exposure to certain markets; to enhance
income; to protect the value of portfolio securities; and to adjust the
portfolio's duration. The Portfolio may purchase, sell, or write call and put
options on securities, financial indices, and foreign currencies.
The Portfolio will limit its use of futures contracts so that initial
margin deposits and premiums on options used for non-hedging purposes will not
equal more than 5% of the Portfolio's net asset value. The total market value of
securities against which the Portfolio has written call or put options may not
exceed 25% of its total assets. The Portfolio will not commit more than 5% of
its total assets to premiums when purchasing call or put options.
Risks in Futures and Options Transactions. There are risks involved in
futures and options transactions. For a discussion of such transactions and the
risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Borrowing. For a discussion of the limitations on borrowing by the
Portfolio and certain risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."
T. Rowe Price Small Company Value Portfolio:
Investment Objective: The investment objective of the T. Rowe Price Small
Company Value Portfolio is to provide long-term capital appreciation by
investing primarily in small-capitalization stocks that appear to be
undervalued. This is a fundamental objective of the Portfolio.
Investment Policies:
Reflecting a value approach to investing, the Portfolio will seek the
stocks of companies whose current stock prices do not appear to adequately
reflect their underlying value as measured by assets, earnings, cash flow, or
business franchises. The Portfolio will invest at least 65% of its total assets
in companies with a market capitalization of $1 billion or less that appear
undervalued by various measures, such as price/earnings or price/book value
ratios.
Although the Portfolio will invest primarily in U.S. common stocks, it
may also purchase other types of securities, for example, foreign securities,
convertible stocks and bonds, and warrants when considered consistent with the
Portfolio's investment objective and policies. The Portfolio may also engage in
a variety of investment management practices, such as buying and selling futures
and options.
In managing the Portfolio, the Sub-advisor will apply a value
investment approach. Value investors seek to buy a stock (or other security)
when its price is low relative to its perceived worth. They hope to identify
companies whose stocks are currently out of favor or are not followed closely by
stock analysts. Often these stocks have above-average yields and offer the
potential for capital appreciation as other investors recognize their intrinsic
value and drive up their prices. Some of the principal measures used to identify
such stocks are:
(i) Price/Earnings Ratio. Dividing a stock's price by its
earnings per share generates a price/earnings or P/E ratio. A stock with a P/E
that is significantly below that of its peers, the market as a whole, or its own
historical norm may represent an attractive opportunity.
(ii) Price/Book Value Ratio. This ratio, calculated by
dividing a stock's price by its book value per share, indicates how a stock is
priced relative to the accounting (i.e., book) value of the company's assets. A
ratio below the market, that of its competitors, or its own historic norm could
indicate an undervalued situation.
(iii) Dividend Yield. Value investors look for undervalued
assets. A stock's dividend yield is found by dividing its annual dividend by its
share price. A yield significantly above a stock's own historic norm or that of
its peers may suggest an investment opportunity.
(iv) Price/Cash Flow. Dividing a stock's price by the
company's cash flow per share, rather than its earnings or book value, provides
a more useful measure of value in some cases. A ratio below that of the market
or of its peers suggests the market may be incorrectly valuing the company's
cash flow for reasons that may be temporary.
(v) Undervalued Assets. This analysis compares a company's
stock price with its underlying asset values, its projected value in the private
(as opposed to public) market, or its expected value if the company or parts of
it were sold or liquidated.
(vi) Restructuring Opportunities. The market can react
favorably to the announcement or the successful implementation of a corporate
restructuring, financial reengineering, or asset redeployment. Such events can
result in an increase in a company's stock price. A value investor may try to
anticipate these actions and invest before the market places an appropriate
value on any actual or expected changes.
Risks of a Value Approach to Small-Cap Investing. Small
companies--those with a capitalization (market value) of $1 billion or less--may
offer greater potential for capital appreciation since they are often overlooked
or undervalued by investors. Small-capitalization stocks are less actively
followed by stock analysts than are larger-capitalization stocks, and less
information is available to evaluate small-cap stock prices. As a result,
compared with larger-capitalization stocks, there may be greater variations
between the current stock price and the estimated underlying value, which could
represent greater opportunity for appreciation.
Investing in small companies involves greater risk as well as greater
opportunity than is customarily associated with more established companies.
Stocks of small companies may be subject to more abrupt or erratic price
movements than larger company securities. Small companies often have limited
product lines, markets, or financial resources, and their management may lack
depth and experience. In addition, a value approach to investing includes the
risks that 1) the market will not recognize a security's intrinsic value for an
unexpectedly long time, and 2) a stock that is judged to be undervalued is
actually appropriately priced due to intractable or fundamental problems that
are not yet apparent.
Common and Preferred Stocks. Stocks represent shares of ownership in a
company. Generally, preferred stock has a specified dividend and ranks after
bonds and before common stocks in its claim on income for dividend payments and
on assets should the company be liquidated. After other claims are satisfied,
common stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's stock
price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred stocks
pay a dividend, the Portfolio may purchase preferred stock where the issuer has
omitted, or is in danger of omitting, payment of its dividend. Such investments
would be made primarily for their capital appreciation potential.
Convertible Securities and Warrants. The Portfolio may invest in debt
or preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than nonconvertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertibles have been developed which combine higher or lower
current income with options and other features. Warrants are options to buy a
stated number of shares of common stock at a specified price anytime during the
life of the warrants (generally, two or more years).
Foreign Securities. The Portfolio may invest up to 20% of its total
assets (excluding reserves) in foreign securities. These include
nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). Some of the countries in which the Portfolio may invest may be considered
to be developing and may involve special risks. For a discussion of these risks
as well as the risks involved in foreign securities investments in general, see
this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
Risks of Foreign Currency Fluctuations. Investors in foreign securities may
"hedge" their exposure to potentially unfavorable currency changes by purchasing
a contract to exchange one currency for another on some future date at a
specified exchange rate. In certain circumstances, a "proxy currency" may be
substituted for the currency in which the investment is denominated, a strategy
known as "proxy hedging." Although foreign currency transactions will be used
primarily to protect the Portfolio's foreign securities from adverse currency
movements relative to the dollar, they involve the risk that anticipated
currency movements will not occur and the Portfolio's total return could be
reduced.
Fixed Income Securities. The Portfolio may invest in debt securities of
any type without regard to quality or rating. Such securities would be purchased
in companies that meet the investment criteria for the Portfolio. The price of a
bond fluctuates with changes in interest rates, rising when interest rates fall
and falling when interest rates rise.
High-Yield/High-Risk Investing. The Portfolio will not purchase a
noninvestment-grade debt security (or junk bond) if immediately after such
purchase the Portfolio would have more than 5% of its total assets invested in
such securities. The total return and yield of lower-quality
(high-yield/high-risk) bonds commonly referred to as "junk" bonds, can be
expected to fluctuate more than the total return and yield of higher-quality,
shorter-term bonds, but not as much as common stocks. Junk bonds (those rated
below BBB or in default) are regarded as predominantly speculative with respect
to the issuer's continuing ability to meet principal and interest payments. For
a discussion of the risks involved in investing in high-yield lower-rated debt
securities, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Hybrid Instruments. The Portfolio may invest up to 10% of its total assets
in hybrid instruments. Hybrids can have volatile prices and limited liquidity
and their use by the Portfolio may not be successful. These instruments (a type
of potentially high-risk derivative) can combine the characteristics of
securities, futures, and options. For example, the principal amount, redemption,
or conversion terms of a security could be related to the market price of some
commodity, currency, or securities index. Such securities may bear interest or
pay dividends at below market (or even relatively nominal) rates. Under certain
conditions, the redemption value of such an investment could be zero. For a
discussion of hybrid investments, see the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may acquire illiquid securities (no more
than 15% of net assets). For a discussion of illiquid securities and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods" and the Trust's Statement of Additional Information under "Investment
Objectives and Policies."
Private Placements (Restricted Securities). These securities are sold
directly to a small number of investors usually institutions. Unlike public
offerings, such securities are not registered with the SEC. Although certain of
these securities may be readily sold, for example under Rule 144A, the sale of
others may involve substantial delays and additional costs. Subject to
guidelines promulgated by the Board of Trustees of the Trust, the Portfolio will
not invest more than 15% of its net assets in illiquid securities, but not more
than 10% of its total assets in restricted securities (other than Rule 144A
securities). For a discussion of illiquid or restricted securities and the risks
involved therein, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Cash Position. The Portfolio will hold a certain portion of its assets in
U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in one
year or less. For temporary, defensive purposes, the Portfolio may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments
and serves as a short-term defense during periods of unusual market volatility.
Borrowing. The Portfolio can borrow money from banks as a temporary measure
for emergency purposes, to facilitate redemption requests, or for other purposes
consistent with the Portfolio's investment objective and program. Such
borrowings may be collateralized with Portfolio assets, subject to restrictions.
For a discussion of limitations on borrowing by the Portfolio and certain risks
involved in borrowing, see this Prospectus under "Certain Risk Factors and
Investment Methods" and the Trust's Statement of Additional Information under
"Investment Restrictions."
Futures and Options. The Portfolio may enter into futures contracts (or
options thereon) to hedge all or a portion of its portfolio, as a hedge against
changes in prevailing levels of interest rates or currency exchange rates, or as
an efficient means of adjusting its exposure to the bond, stock, and currency
markets. The Portfolio will not use futures contracts for leveraging purposes.
The Portfolio will limit its use of futures contracts so that initial margin
deposits and premiums on such contracts used for non-hedging purposes will not
equal more than 5% of the Portfolio's net assets. The Portfolio may also write
call and put options and purchase put and call options on securities, financial
indices, and currencies. The aggregate market value of the Portfolio's
securities or currencies covering call or put options will not exceed 25% of the
Portfolio's net assets.
Risks of Options and Futures Transactions. For a discussion of futures
contracts and options and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies and Certain
Risk Factors."
Lending of Portfolio Securities. As a fundamental policy, for the
purpose of realizing additional income, the Portfolio may lend securities with a
value of up to 33 1/3% of its total assets to broker-dealers, institutional
investors, or other persons. Any such loan will be continuously secured by
collateral at least equal to the value of the security loaned. For an additional
discussion on limitations in lending and the risks in lending, see this
Prospectus under "Certain Risk Factors and Investment Methods" and the Trust's
Statement of Additional Information under "Investment Objectives and Policies."
Portfolio Turnover. The Portfolio will not generally trade in
securities for short-term profits, but, when circumstances warrant, securities
may be purchased and sold without regard to the length of time held.
Founders Capital Appreciation Portfolio:
Investment Objective: The investment objective of the Founders Capital
Appreciation Portfolio is capital appreciation. This is a fundamental objective
of the Portfolio.
Investment Policies:
To achieve its objective, the Portfolio will normally invest at least
65% of its total assets in common stocks of U.S. companies with market
capitalizations of $1.5 billion or less. Market capitalization is a measure of
the size of a company and is based upon the total market value of a company's
outstanding equity securities. Ordinarily, the common stocks of the U.S.
companies selected for this Portfolio will not be listed on a national
securities exchange but will be traded in the over-the-counter market.
Companies selected for investment generally will be small corporations
still in the developing stages of their life cycles that are attempting to
achieve rapid growth in both sales and earnings. Capable management and fertile
operating areas are two of the most important characteristics of such companies.
In addition, these companies should employ sound financial and accounting
policies; demonstrate effective research and successful product development;
provide efficient services; and possess pricing flexibility.
Risks of Small Cap Investing. Investments in such companies may involve
greater risk than is associated with more established companies. Smaller
companies often have limited product lines, markets or financial resources, and
may be dependent upon one-person management. Securities of smaller companies may
have limited marketability and may be subject to more abrupt or erratic
movements in prices than securities of larger companies or the market averages
in general. Therefore, the net asset value of the Portfolio may fluctuate more
widely than the popular market averages.
Fixed Income Securities. The Portfolio may invest in convertible
securities, preferred stocks, bonds, debentures, and other corporate obligations
when the Sub-advisor believes that these investments offer opportunities for
capital appreciation. Current income will not be a substantial factor in the
selection of these securities. Bonds, debentures, and corporate obligations
other than convertible securities and preferred stock purchased by the Portfolio
will be rated at or above investment grade at the time of purchase (Baa or
higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by
Standard & Poor's ("S&P")). Bonds in the lowest investment grade category (Baa
or BBB) may have speculative characteristics, with changes in the economy or
other circumstances more likely to lead to a weakened capacity of the bonds to
make principal and interest payments than would occur with bonds rated in higher
categories. Convertible securities and preferred stocks purchased by the
Portfolio may be rated in medium and lower categories by Moody's or S&P (Ba or
lower by Moody's and BB or lower by S&P), but will not be rated lower than B.
The Portfolio may also invest in unrated convertible securities and preferred
stocks in instances in which the Sub-advisor believes that the financial
condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the Portfolio rated in categories no lower than B. Securities rated
B are referred to as "high risk" securities, generally lack characteristics of a
desirable investment, and are deemed speculative with respect to the issuer's
capacity to pay interest and repay principal over a long period of time. At no
time will the Portfolio have more than 5% of its assets invested in any
fixed-income securities which are unrated or are rated below investment grade
either at the time of purchase or as a result of a reduction in rating after
purchase. For a description of ratings of securities, see the Appendix to the
Trust's Statement of Additional Information. For a discussion of the special
risks involved in lower-rated debt securities, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
The fixed-income securities in which the Portfolio may invest are
generally subject to two kinds of risk: credit risk and market risk. Credit risk
relates to the ability of the issuer to meet interest or principal payments, or
both, as they come due. The ratings given a security by Moody's and S&P provide
a generally useful guide as to such credit risk. The lower the rating given a
security by such rating service, the greater the credit risk such rating service
perceives to exist with respect to such security. Increasing the amount of
Portfolio assets invested in unrated or lower-grade securities, while intended
to increase the yield produced by those assets, also will increase the credit
risk to which those assets are subject. Market risk relates to the fact that the
market values of securities in which the Portfolio may invest generally will be
affected by changes in the level of interest rates. An increase in interest
rates will tend to reduce the market values of such securities, whereas a
decline in interest rates will tend to increase their values. Medium- and
lower-rated securities (Baa or BBB and lower) and non-rated securities of
comparable quality tend to be subject to wider fluctuations in yields and market
values than higher-rated securities. Medium-rated securities (those rated Baa or
BBB) have speculative characteristics while lower-rated securities are
predominantly speculative. The Portfolio is not required to dispose of debt
securities whose ratings are downgraded below these ratings subsequent to the
Portfolio's purchase of the securities, unless such a disposition is necessary
to reduce the Portfolio's holdings of such securities to less than 5% of its
total assets. Relying in part on ratings assigned by credit agencies in making
investments will not protect the Portfolio from the risk that fixed-income
securities in which it invests will decline in value, since credit ratings
represent evaluations of the safety of principal, dividend and interest payments
on preferred stocks and debt securities, not the market values of such
securities, and such ratings may not be changed on a timely basis to reflect
subsequent events.
The Sub-advisor seeks to reduce overall risk associated with the
investments of the Portfolio through diversification and consideration of
relevant factors affecting the value of securities. No assurance can be given,
however, regarding the degree of success that will be achieved in this regard or
in the Portfolio achieving its investment objective.
Foreign Securities. The Portfolio may invest in dollar-denominated
American Depositary Receipts which are traded on exchanges or over-the-counter
in the United States without limit, and in foreign securities. The term "foreign
securities" refers to securities of issuers, wherever organized, which in the
judgment of the Sub-advisor have their principal business activities outside of
the United States. The determination of whether an issuer's principal activities
are outside of the United States will be based on the location of the issuer's
assets, personnel, sales, and earnings, and specifically on whether more than
50% of the issuer's assets are located, or more than 50% of the issuer's gross
income is earned, outside of the United States.
Foreign investments may include securities issued by companies located
in countries not considered to be major industrialized nations. Such countries
are subject to more economic, political and business risk than major
industrialized nations and the securities they issue are expected to be more
volatile and more uncertain as to payment of interest and principal. The
secondary market for such securities is expected to be less liquid than for
securities of major industrialized nations. Examples of such countries include,
but are not limited to: Argentina, Australia, Austria, Belgium, Bolivia, Brazil,
Chile, China, Colombia, Costa Rica, Croatia, Czech Republic, Denmark, Ecuador,
Egypt, Finland, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Italy,
Israel, Jordan, Malaysia, Mexico, Netherlands, New Zealand, Nigeria, North
Korea, Norway, Pakistan, Paraguay, Peru, Philippines, Poland, Portugal,
Singapore, Slovak Republic, South Africa, South Korea, Spain, Sri Lanka, Sweden,
Switzerland, Taiwan, Thailand, Turkey, Uruguay, Venezuela, Vietnam and the
countries of the former Soviet Union. Investments may include securities created
through the Brady Plan, a program under which heavily indebted countries have
restructured their bank debt into bonds. Since the Portfolio will pay dividends
in dollars, it may incur currency conversion costs. The Portfolio will not
invest more than 25% of its total assets in any one foreign country.
Foreign Securities Risks. Investments in foreign securities involve
certain risks which are not typically associated with U.S. investments. For a
discussion of the special risks involved in investing in developing countries
and certain risks involved in foreign investing, in general, see this Prospectus
and the Trust's Statement of Additional Information under "Certain Risk Factors
and Investment Methods."
Risks of Currency Fluctuations. Since a portion of the Portfolio's
assets may be invested in foreign securities and some of its revenue received in
foreign currencies, the Portfolio's net asset value may be affected by changes
in currency exchange rates. Changes in foreign currency exchange rates may also
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Portfolio. The rate of exchange between the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets and in some cases, exchange controls. For
an additional discussion of the risks of currency fluctuations, see this
Prospectus and Trust's Statement of Additional Information under "Certain Risk
Factors and Investment Methods."
Foreign Currency Exchange Contracts. The Portfolio is permitted to use
forward foreign currency contracts in connection with the purchase or sale of a
specific security. For a discussion of foreign currency transactions, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
The Portfolio may conduct its foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market, or on a forward basis to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars, of the amount of foreign currency involved in the
underlying transactions, the Portfolio attempts to protect itself against
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold and the date on which such
payments are made or received.
In addition, the Portfolio may enter into forward contracts for hedging
purposes. When the Sub-advisor believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar (or
sometimes against another currency), the Portfolio may enter into forward
contracts to sell, for a fixed dollar or other currency amount, foreign currency
approximating the value of some or all of the its securities denominated in that
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible. The future value of such
securities in foreign currencies changes as a consequence of market movements in
the value of those securities between the date on which the contract is entered
into and the date it expires.
The Portfolio generally will not enter into forward contracts with a
term greater than one year, or enter into forward contracts or maintain a net
exposure to such contracts where the fulfillment of the contracts would require
the Portfolio to deliver an amount of foreign currency in excess of the value of
its securities or other assets denominated in that currency. Under normal
circumstances, consideration of the possibility of changes in currency exchange
rates will be incorporated into the Portfolio's long-term investment strategies.
In the event that forward contracts and any securities placed in a segregated
account in an amount at least equal to the value of the total assets of the
Portfolio committed to the consummation of a forward contract are considered to
be illiquid, the securities would be subject to the Portfolio's limitation on
investing in illiquid securities. For an additional discussion of foreign
currency contracts and the risks involved therein, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of the market value of
its net assets in securities which are not readily marketable, including
repurchase agreements maturing in more than seven days. The Portfolio may invest
in Rule 144A securities (securities issued in offerings made pursuant to Rule
144A under the Securities Act of 1933), which may or may not be deemed to be
readily marketable. Factors which may be considered by Sub-advisor in evaluating
whether such a security is readily marketable include eligibility for trading,
trading activity, dealer interest, purchase interest, and ownership transfer
requirements. The Sub-advisor is required to monitor the readily marketable
nature of each Rule 144A security no less frequently than quarterly.
For an additional discussion of illiquid or restricted securities and
the risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods" and the Trust's Statement of Additional Information under
"Investment Options and Policies."
Borrowing. The Portfolio may borrow money from banks for extraordinary
or emergency purposes in amounts up to 10% of its net assets. While any
borrowings are outstanding, no purchases of securities will be made. For a
discussion of limitations on borrowing by the Portfolio and risks involved in
borrowing, see this Prospectus under "Certain Risk Factors and Investment
Methods."
Futures Contracts and Options. The Portfolio may enter into futures
contracts (or options thereon) for hedging purposes. The acquisition or sale of
a futures contract could occur, for example, if the Portfolio held or considered
purchasing equity securities and sought to protect itself from fluctuations in
prices without buying or selling those securities. The Portfolio may also enter
into interest rate and foreign currency futures contracts. Interest rate futures
contracts currently are traded on a variety of fixed-income securities. Foreign
currency futures contracts currently are traded on the British pound, Canadian
dollar, Japanese yen, Swiss franc, German mark and on Eurodollar deposits.
An option is a right to buy or sell a security at a specified price
within a limited period of time. The Portfolio may write ("sell") covered call
options on any or all of its portfolio securities from time to time as the
Sub-advisor shall deem appropriate. The extent of the Portfolio's option writing
activities will vary from time to time depending upon the Sub-advisor's
evaluation of market, economic and monetary conditions.
The Portfolio may purchase options on securities and stock indices.
Options on stock indices are similar to options on securities. However, because
options on stock indices do not involve the delivery of an underlying security,
the option represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price 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 exercise date. The purpose of these transactions is not
to generate gain, but to "hedge" against possible loss. Therefore, successful
hedging activity will not produce net gain to the Portfolio. The Portfolio may
also purchase put and call options on futures contracts. An option on a futures
contract provides the holder with the right to enter into a "long" position in
the underlying futures contract, in the case of a call option, or a "short"
position in the underlying futures contract, in the case of a put option, at a
fixed exercise price to a stated expiration date. Upon exercise of the option by
the holder, a contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position, in the case of a put option.
The Portfolio will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
total assets after taking into account unrealized profits and losses on options
entered into. The Portfolio may buy and sell options on foreign currencies for
hedging purposes in a manner similar to that in which futures on foreign
currencies would be utilized.
Temporary Investments. The Portfolio may invest up to 100% of its
assets for temporary defensive purposes in U.S. government obligations,
commercial paper, bank obligations, repurchase agreements relating to each of
these securities, negotiable U.S. dollar-denominated obligations of domestic and
foreign branches of U.S. depository institutions, U.S. branches of foreign
depository institutions, and foreign depository institutions, cash, or in other
cash equivalents, if the Sub-advisor determines it to be appropriate for
purposes of enhancing liquidity or preserving capital in light of prevailing
market or economic conditions. There can be no assurance that the Portfolio will
be able to achieve its investment objective; however, while it is in a defensive
position, the opportunity to achieve capital growth will be limited; moreover,
to the extent that this assessment of market conditions is incorrect, the
Portfolio will be foregoing the opportunity to benefit from capital growth
resulting from increases in the value of equity investments.
U.S. government obligations include Treasury bills, notes and bonds,
and issues of United States agencies, authorities and instrumentalities. Some
government obligations, such as Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
United States Treasury. Other obligations, such as securities of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
United States Treasury; and others, such as bonds issued by Federal National
Mortgage Association (a private corporation), are supported only by the credit
of the agency, authority or instrumentality.
The obligations of foreign branches of U.S. depository institutions may
be general obligations of the parent depository institution in addition to being
an obligation of the issuing branch. These obligations, and those of foreign
depository institutions, may be limited by the terms of the specific obligation
and by governmental regulation. The payment of these obligations, both interest
and principal, may also be affected by governmental action in the country of
domicile of the institution or branch, such as imposition of currency controls
and interest limitations. In connection with these investments, the Portfolio
will be subject to the risks associated with the holding of portfolio securities
overseas, such as possible changes in investment or exchange control
regulations, expropriation, confiscatory taxation, or political or financial
instability.
Obligations of U.S. branches of foreign depository institutions may be
general obligations of the parent depository institution in addition to being an
obligation of the issuing branch, or may be limited by the terms of a specific
foreign regulation applicable to the depository institutions and by government
regulation (both domestic and foreign).
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements.
The Portfolio may enter into repurchase agreements with banks or
well-established securities dealers meeting the criteria established by the
Sub-advisor. All repurchase agreements entered into by the Portfolio will be
fully collateralized and marked to market daily. The Portfolio has not adopted
any limits on the amount of its total assets that may be invested in repurchase
agreements which mature in less than seven days. For a discussion of repurchase
agreements and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Portfolio Turnover. The Portfolio reserves the right to sell its
securities, regardless of the length of time that they have been held, when it
is determined by the Sub-advisor that those securities have attained or are
unable to meet the investment objective of the Portfolio. The Portfolio may
engage in short-term trading and therefore normally will have annual portfolio
turnover rates in excess of 100%. Such portfolio turnover rates, which are
considered to be high, often may be greater than those of other investment
companies seeking capital appreciation. Such turnover rates would cause the
Portfolio to incur greater brokerage commissions than would otherwise be the
case. A 100% portfolio turnover rate would occur if all of the securities in the
portfolio were replaced during the period. Portfolio turnover rates may also
increase as a result of the need for the Portfolio to effect significant amounts
of purchases or redemptions of portfolio securities due to economic, market, or
other factors that are not within the Sub-advisor's control.
Founders Passport Portfolio:
Investment Objective: The investment objective of the Founders Passport
Portfolio is to seek capital appreciation. This is a fundamental objective of
the Portfolio.
Investment Policies:
To achieve its objective, the Portfolio invests primarily in securities
issued by foreign companies which have market capitalizations or annual revenues
of $1 billion or less. These securities may represent companies in both
established and emerging economies throughout the world.
At least 65% of the Portfolio's total assets will normally be invested
in foreign securities representing a minimum of three countries. The Portfolio
may invest in larger foreign companies or in U.S.-based companies if, in the
Sub-advisor's opinion, they represent better prospects for capital appreciation.
Risks of Investments in Small and Medium-Sized Companies. The Portfolio
normally will invest a significant proportion of its assets in the securities of
small and medium-sized companies. As used with respect to this Portfolio, small
and medium-sized companies are those which are still in the developing stages of
their life cycles and are attempting to achieve rapid growth in both sales and
earnings. Capable management and fertile operating areas are two of the most
important characteristics of such companies. In addition, these companies should
employ sound financial and accounting policies; demonstrate effective research
and successful product development and marketing; provide efficient service; and
possess pricing flexibility. The Portfolio tries to avoid investing in companies
where operating results may be affected adversely by excessive competition,
severe governmental regulation, or unsatisfactory productivity.
Investments in small and medium-sized companies involve greater risk
than is customarily associated with more established companies. These companies
often have sales and earnings growth rates which exceed those of large
companies. Such growth rates may in turn be reflected in more rapid share price
appreciation. However, smaller companies often have limited operating histories,
product lines, markets, or financial resources, and they may be dependent upon
one-person management. These companies may be subject to intense competition
from larger entities, and the securities of such companies may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of larger companies or the market averages in general.
Therefore, the net asset value of the Portfolio's shares may fluctuate more
widely than the popular market averages.
Fixed-Income Securities. The Portfolio may invest in convertible
securities, preferred stocks, bonds, debentures, and other corporate obligations
when the Sub-advisor believes that these investments offer opportunities for
capital appreciation. Current income will not be a substantial factor in the
selection of these securities.
The Portfolio will only invest in bonds, debentures, and corporate
obligations (other than convertible securities and preferred stock) rated
investment grade (BBB or higher) at the time of purchase. Bonds in the lowest
investment grade category (BBB) have speculative characteristics, with changes
in the economy or other circumstances more likely to lead to a weakened capacity
of the bonds to make principal and interest payments than would occur with bonds
rated in higher categories. Convertible securities and preferred stocks
purchased by the Portfolio may be rated in medium and lower categories by
Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P), but will not be
rated lower than B. The Portfolio may also invest in unrated convertible
securities and preferred stocks in instances in which the Sub-advisor believes
that the financial condition of the issuer or the protection afforded by the
terms of the securities limits risk to a level similar to that of securities
eligible for purchase by the Portfolio rated in categories no lower than B.
Securities rated B are referred to as "high-risk" securities, generally lack
characteristics of a desirable investment, and are deemed speculative with
respect to the issuer's capacity to pay interest and repay principal over a long
period of time. For a description of ratings of securities, see the Appendix to
the Trust's Statement of Additional Information. At no time will the Portfolio
have more than 5% of its total assets invested in any fixed-income securities
which are unrated or are rated below investment grade either at the time of
purchase or as a result of a reduction in rating after purchase. For a
discussion of the special risks involved in investing in lower-rated debt
securities, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
The fixed-income securities in which the Portfolio may invest are
generally subject to two kinds of risk: credit risk and market risk. Credit risk
relates to the ability of the issuer to meet interest or principal payments, or
both, as they come due. The ratings given a security by Moody's and S&P provide
a generally useful guide as to such credit risk. The lower the rating given a
security by such rating service, the greater the credit risk such rating service
perceives to exist with respect to such security. Increasing the amount of
Portfolio assets invested in unrated or lower-grade securities, while intended
to increase the yield produced by those assets, also will increase the credit
risk to which those assets are subject. Market risk relates to the fact that the
market values of securities in which the Portfolio may invest generally will be
affected by changes in the level of interest rates. An increase in interest
rates will tend to reduce the market values of such securities, whereas a
decline in interest rates will tend to increase their values. Medium- and
lower-rated securities (Baa or BBB and lower) and non-rated securities of
comparable quality tend to be subject to wider fluctuations in yields and market
values than higher-rated securities. Medium-rated securities (those rated Baa or
BBB) have speculative characteristics while lower-rated securities are
predominantly speculative. The Portfolio is not required to dispose of debt
securities whose ratings are downgraded below these ratings subsequent to the
Portfolio's purchase of the securities, unless such a disposition is necessary
to reduce the Portfolio's holdings of such securities to less than 5% of its
total assets. Relying in part on ratings assigned by credit agencies in making
investments will not protect the Portfolio from the risk that fixed-income
securities in which it invests will decline in value, since credit ratings
represent evaluations of the safety of principal, dividend and interest payments
on preferred stocks and debt securities, not the market values of such
securities, and such ratings may not be changed on a timely basis to reflect
subsequent events.
The Sub-advisor seeks to reduce overall risk associated with the
investments of the Portfolio through diversification and consideration of
relevant factors affecting the value of securities. No assurance can be given,
however, regarding the degree of success that will be achieved in this regard or
in the Portfolio achieving its investment objective.
Foreign Securities. The Portfolio may invest without limit in American
Depositary Receipts and may invest in foreign securities. The term "foreign
securities" refers to securities of issuers, wherever organized, which, in the
judgment of the Sub-advisor, have their principal business activities outside of
the United States. The determination of whether an issuer's principal activities
are outside of the United States will be based on the location of the issuer's
assets, personnel, sales, and earnings, and specifically on whether more than
50% of the issuer's assets are located, or more than 50% of the issuer's gross
income is earned, outside of the United States, or on whether the issuer's sole
or principal stock exchange listing is outside of the United States. Foreign
securities typically will be traded on the applicable country's principal stock
exchange but may also be traded on regional exchanges or over-the-counter. For a
discussion of American Depositary Receipts, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Foreign investments of the Portfolio may include securities issued by
companies located in countries not considered to be major industrialized
nations. Such countries are subject to more economic, political and business
risk than major industrialized nations, and the securities they issue are
expected to be more volatile and more uncertain as to payments of interest and
principal. The secondary market for such securities is expected to be less
liquid than for securities of major industrialized nations. Such countries may
include (but are not limited to) Argentina, Australia, Austria, Belgium,
Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Croatia, Czech Republic,
Denmark, Ecuador, Egypt, Finland, Greece, Hong Kong, Hungary, India, Indonesia,
Ireland, Italy, Israel, Jordan, Malaysia, Mexico, Netherlands, New Zealand,
Nigeria, North Korea, Norway, Pakistan, Paraguay, Peru, Philippines, Poland,
Portugal, Singapore, Slovak Republic, South Africa, South Korea, Spain, Sri
Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, Uruguay, Venezuela,
Vietnam and the countries of the former Soviet Union. Investments may include
securities created through the Brady Plan, a program under which heavily
indebted countries have restructured their bank debt into bonds.
Foreign Securities Risks. Investments in foreign securities involve
certain risks which are not typically associated with U.S. investments. For a
discussion of the special risks involved in investing in developing countries
and certain risks involved in foreign investing, in general, see this Prospectus
and the Trust's Statement of Additional Information under "Certain Risk Factors
and Investment Methods."
Risks of Currency Fluctuations. Since the Portfolio's assets will be
invested primarily in foreign securities and since substantially all of the
Portfolio's revenues will be received in foreign currencies, the Portfolio's net
asset value will be affected by changes in currency exchange rates. Changes in
foreign currency exchange rates may also affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders by the
Portfolio. The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the foreign exchange markets
and in some cases, exchange controls. For an additional discussion of the risks
of currency fluctuations, see this Prospectus and Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Foreign Currency Exchange Contracts. The Portfolio is permitted to use
forward foreign currency contracts in connection with the purchase or sale of a
specific security. For a discussion of foreign currency transactions, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
The current investment policy for the Portfolio provides that the
Portfolio may conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign exchange currency
market, or on a forward basis to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars, of the amount of foreign currency involved in the
underlying transactions, the Portfolio attempts to protect itself against
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold and the date on which such
payments are made or received.
In addition, the Portfolio is permitted to enter into forward contracts
for hedging purposes. When the Sub-advisor believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar (or sometimes against another currency), the Portfolio is permitted to
enter into forward contracts to sell, for a fixed-dollar or other currency
amount, foreign currency approximating the value of some or all of the
Portfolio's securities denominated in that currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible. The future value of such securities in foreign currencies
changes as a consequence of market movements in the value of those securities
between the date on which the contract is entered into and the date it expires.
The Portfolio generally will not enter into forward contracts with a
term greater than one year. In addition, the Portfolio generally will not enter
into forward contracts or maintain a net exposure to such contracts where the
fulfillment of the contracts would require the Portfolio to deliver an amount of
foreign currency in excess of the value of the Portfolio's securities or other
assets denominated in that currency. Under normal circumstances, consideration
of the possibility of changes in currency exchange rates will be incorporated
into the Portfolio's long-term investment strategies. In the event that forward
contracts and any securities placed in a segregated account in an amount at
least equal to the value of the total assets of the Portfolio committed to the
consummation of a forward contract are considered to be illiquid, the securities
would be subject to the Portfolio's limitation on investing in illiquid
securities. For an additional discussion of foreign currency contracts and the
risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of the market value of
its net assets, measured at the time of purchase, in securities which are not
readily marketable, including repurchase agreements maturing in more than seven
days. Securities which are not readily marketable are those which, for whatever
reason, cannot be disposed of within seven days in the ordinary course of
business at approximately the amount at which the Portfolio has valued the
investment. Restricted securities are securities which cannot be resold or
distributed to the public without an effective registration statement under the
Securities Act of 1933.
The Portfolio may invest in Rule 144A securities (securities issued in
offerings made pursuant to Rule 144A under the Securities Act of 1933). Rule
144A securities are restricted securities which may or may not be deemed to be
readily marketable. Factors considered in evaluating whether such a security is
readily marketable include eligibility for trading, trading activity, dealer
interest, purchase interest, and ownership transfer requirements. The
Sub-advisor is required to monitor the readily marketable nature of each Rule
144A security no less frequently than quarterly. Readily marketable Rule 144A
securities may be resold to qualified institutional buyers as defined under Rule
144A. The liquidity of the Portfolio's investments in Rule 144A securities could
be impaired if institutional investors become disinterested in purchasing such
securities. For an additional discussion of Rule 144A securities and illiquid or
restricted securities, and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Borrowing. The Portfolio may borrow money from banks in amounts up to
33 1/3% of the Portfolio's total assets. If the Portfolio borrows money, its
share price may be subject to greater fluctuation until the borrowing is repaid.
The Portfolio will attempt to minimize such fluctuations by not purchasing
securities when borrowings are greater than 5% of the value of the Portfolio's
total assets. For an additional discussion of the Portfolio's limitations on
borrowing and the risks involved in borrowing, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Restrictions."
Futures Contracts and Options. The Portfolio may enter into futures
contracts (or options thereon) for hedging purposes. The acquisition or sale of
a futures contract could occur, for example, if the Portfolio held or considered
purchasing equity securities and sought to protect itself from fluctuations in
prices without buying or selling those securities. The Portfolio may also enter
into interest rate and foreign currency futures contracts. Interest rate futures
contracts currently are traded on a variety of fixed-income securities. Foreign
currency futures contracts currently are traded on the British pound, Canadian
dollar, Japanese yen, Swiss franc, German mark and on Eurodollar deposits.
An option is a right to buy or sell a security at a specified price
within a limited period of time. The Portfolio may write ("sell") covered call
options on any or all of its portfolio securities from time to time as the
Sub-advisor shall deem appropriate. The extent of the Portfolio's option writing
activities will vary from time to time depending upon the Sub-advisor's
evaluation of market, economic and monetary conditions.
The Portfolio may purchase options on securities and stock indices.
Options on stock indices are similar to options on securities. However, because
options on stock indices do not involve the delivery of an underlying security,
the option represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price 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 exercise date. The purpose of these transactions is not
to generate gain, but to "hedge" against possible loss. Therefore, successful
hedging activity will not produce net gain to the Portfolio. The Portfolio may
also purchase put and call options on futures contracts. An option on a futures
contract provides the holder with the right to enter into a "long" position in
the underlying futures contract, in the case of a call option, or a "short"
position in the underlying futures contract, in the case of a put option, at a
fixed exercise price to a stated expiration date. Upon exercise of the option by
the holder, a contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position, in the case of a put option.
The Portfolio will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
total assets after taking into account unrealized profits and losses on options
entered into. The Portfolio may buy and sell options on foreign currencies for
hedging purposes in a manner similar to that in which futures on foreign
currencies would be utilized.
Risks of Futures Contracts and Options. There are risks involved in futures
contracts and options. For an additional discussion of futures contracts and
options and the risks involved therein, see this Prospectus under "Certain Risk
Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Objectives and Policies" and "Certain Risk Factors
and Investment Methods."
Temporary Investments. Up to 100% of the assets of the Portfolio may be
invested temporarily in U.S. government obligations, commercial paper, bank
obligations, repurchase agreements relating to each of these securities,
negotiable U.S. dollar-denominated obligations of domestic and foreign branches
of U.S. depository institutions, U.S. branches of foreign depository
institutions, and foreign depository institutions, in cash, or in other cash
equivalents, if the Sub-advisor determines it to be appropriate for purposes of
enhancing liquidity or preserving capital in light of prevailing market or
economic conditions. There can be no assurance that the Portfolio will be able
to achieve its investment objective. While the Portfolio is in a defensive
position, the opportunity to achieve capital growth will be limited, and, to the
extent that this assessment of market conditions is incorrect, the Portfolio
will be foregoing the opportunity to benefit from capital growth resulting from
increases in the value of equity investments.
U.S. government obligations include Treasury bills, notes and bonds;
Government National Mortgage Association (GNMA) pass-through securities; and
issues of United States agencies, authorities and instrumentalities. Obligations
of other agencies and instrumentalities of the U.S. government include
securities issued by the Federal Farm Credit Bank System (FFCB), the Federal
Agricultural Mortgage Corporation ("Farmer Mac"), the Federal Home Loan Bank
System (FHLB), the Financing Corporation (FICO), Federal Home Loan Mortgage
Corporation (FHLMC), the Federal National Mortgage Association (FNMA), the
Student Loan Marketing Association (SLMA), the International Bank for
Reconstruction and Development (IBRD or "World Bank"), and the U.S. Small
Business Administration (SBA). Some government obligations, such as GNMA
pass-through certificates, are supported by the full faith and credit of the
United States Treasury. Other obligations, such as securities of the FHLB, are
supported by the right of the issuer to borrow from the United States Treasury;
and others, such as bonds issued by FNMA (a private corporation), are supported
only by the credit of the agency, authority or instrumentality.
The Portfolio may also acquire certificates of deposit and bankers'
acceptances of banks which meet criteria established by the Board of Trustees of
the Trust. A certificate of deposit is a short-term obligation of a bank. A
banker's acceptance is a time draft drawn by a borrower on a bank, usually
relating to an international commercial transaction.
The obligations of foreign branches of U.S. depository institutions may
be general obligations of the parent depository institution in addition to being
an obligation of the issuing branch. These obligations, and those of foreign
depository institutions, may be limited by the terms of the specific obligation
and by governmental regulation. The payment of these obligations, both interest
and principal, also may be affected by governmental action in the country of
domicile of the institution or branch, such as imposition of currency controls
and interest limitations. In connection with these investments, the Portfolio
will be subject to the risks associated with the holding of portfolio securities
overseas, such as possible changes in investment or exchange control
regulations, expropriation, confiscatory taxation, or political or financial
instability.
Obligations of U.S. branches of foreign depository institutions may be
general obligations of the parent depository institution in addition to being an
obligation of the issuing branch, or may be limited by the terms of a specific
foreign regulation applicable to the depository institutions and by government
regulation (both domestic and foreign).
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with banks or well-established securities dealers. All repurchase agreements
entered into by the Portfolio will be fully collateralized and marked to market
daily. The Portfolio has not adopted any limits on the amounts of its total
assets that may be invested in repurchase agreements which mature in less than
seven days. For a discussion of repurchase agreements and certain risks involved
therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."
Portfolio Turnover. The Portfolio reserves the right to sell its
securities, regardless of the length of time that they have been held, when it
is determined by the Sub-advisor that those securities have attained or are
unable to meet the investment objective of the Portfolio. The Portfolio may
engage in short-term trading and therefore normally will have annual portfolio
turnover rates in excess of 100%. Such portfolio turnover rates, which are
considered to be high, often may be greater than those of other investment
companies seeking capital appreciation. Such turnover rates would cause the
Portfolio to incur greater brokerage commissions than would otherwise be the
case. A 100% portfolio turnover rate would occur if all the securities of the
Portfolio were replaced during the period. Portfolio turnover rates may also
increase as a result of the need for the Portfolio to effect significant amounts
of purchases or redemptions of portfolio securities due to economic, market, or
other factors that are not within the Sub-advisor's control.
INVESCO Equity Income Portfolio:
Investment Objective: The investment objective of the INVESCO Equity Income
Portfolio is to seek high current income while following sound investment
practices. This is a fundamental objective of the Portfolio. Capital growth
potential is an additional, but secondary, consideration in the selection of
portfolio securities.
Investment Policies:
The Portfolio seeks to achieve its objective by investing in securities
which will provide a relatively high-yield and stable return and which, over a
period of years, may also provide capital appreciation. The Portfolio normally
will invest at least 65% of its assets in dividend-paying, marketable common
stocks of domestic and foreign industrial issuers. Up to 10% of the Portfolio's
assets may be invested in equity securities that do not pay regular dividends.
The Portfolio also will invest in convertible bonds, preferred stocks and debt
securities. In periods of uncertain market and economic conditions, as
determined by the Board of Trustees, the Portfolio may depart from the basic
investment objective and assume a defensive position with up to 50% of its
assets temporarily invested in high quality corporate bonds, or notes and
government issues, or held in cash.
The Portfolio's investments in common stocks may, of course, decline in
value. To minimize the risk this presents, the Sub-advisor only invests in
common stocks and equity securities of domestic and foreign industrial issuers
which are marketable; and will not invest more than 5% of the Portfolio's assets
in the securities of any one company or more than 25% of the Portfolio's assets
in any one industry.
Debt Securities. The Portfolio's investments in debt securities will
generally be subject to both credit risk and market risk. Credit risk relates to
the ability of the issuer to meet interest or principal payments, or both, as
they come due. Market risk relates to the fact that the market values of debt
securities in which the Portfolio invests generally will be affected by changes
in the level of interest rates. An increase in interest rates will tend to
reduce the market values of debt securities, whereas a decline in interest rates
will tend to increase their values. Although the Sub-advisor will limit the
Portfolio's debt security investments to securities it believes are not highly
speculative, both kinds of risk are increased by investing in debt securities
rated below the top four grades by Standard & Poor's Corporation ("Standard &
Poor's) or Moody's Investors Services, Inc. ("Moody's") and unrated debt
securities, other than Government National Mortgage Association modified
pass-through certificates. For an additional discussion of the special risks
involved in lower-rated debt securities, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
In order to decrease its risk in investing in debt securities, the
Portfolio will invest no more than 15% of its assets in debt securities rated
below AAA, AA, A or BBB by Standard & Poor's, or Aaa, Aa, A or Baa by Moody's,
and in no event will the Portfolio ever invest in a debt security rated below
Caa by Moody's or CCC by Standard & Poor's. Lower rated bonds by Moody's
(categories Ba, B, Caa) are of poorer quality and may have speculative
characteristics. Bonds rated Caa may be in default or there may be present
elements of danger with respect to principal or interest. Lower rated bonds by
Standard & Poor's (categories BB, B, CCC) include those which are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with their terms; BB indicates
the lowest degree of speculation and CCC a high degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. For more information on debt securities, see the Appendix to the
Trust's Statement of Additional Information.
While the Sub-advisor will monitor all of the debt securities in the
Portfolio for the issuers' ability to make required principal and interest
payments and other quality factors, the Sub-advisor may retain in the Portfolio
a debt security whose rating is changed to one below the minimum rating required
for purchase of such a security.
Risks Involved in Lower-Rated High-Yield Bonds. For a discussion of the
special risks involved in lower-rated bonds, see this Prospectus and the
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover. The rate of portfolio turnover may fluctuate as a result of constantly
changing economic conditions and market circumstances. Securities initially
satisfying the Portfolio's basic objectives and policies may be disposed of when
they are no longer suitable. As a result, it is anticipated that the Portfolio's
annual portfolio turnover rate may be in excess of 100%, and may be higher than
that of other investment companies seeking current income with capital growth as
a secondary consideration. Increased portfolio turnover would cause the
Portfolio to incur greater brokerage costs than would otherwise be the case.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with respect to debt instruments eligible for investment by the Portfolio. These
agreements are entered into with member banks of the Federal Reserve System,
registered broker-dealers, and registered government securities dealers which
are deemed creditworthy. A repurchase agreement is a means of investing moneys
for a short period. In a repurchase agreement, the Portfolio acquires a debt
instrument (generally a security issued by the U.S. Government or an agency
thereof, a banker's acceptance or a certificate of deposit) subject to resale to
the seller at an agreed upon price and date (normally, the next business day).
In the event that the original seller defaults on its obligation to repurchase
the security, the Portfolio could incur costs or delays in seeking to sell such
security. To minimize risk, the securities underlying each repurchase agreement
will be maintained with the Portfolio's custodian in an amount at least equal to
the repurchase price under the agreement (including accrued interest), and such
agreements will be effected only with parties that meet certain creditworthiness
standards established by the Trust's Board of Trustees. The Portfolio will not
enter into a repurchase agreement maturing in more than seven days if as a
result more than 15% of the Portfolio's total net assets would be invested in
such repurchase agreements and other illiquid securities. The Portfolio has not
adopted any limit on the amount of its total assets that may be invested in
repurchase agreements maturing in seven days or less.
Lending Portfolio Securities. The Portfolio also may lend its
securities to qualified brokers, dealers, banks, or other financial
institutions. This practice permits the Portfolio to earn income, which, in
turn, can be invested in additional securities to pursue the Portfolio's
investment objective. Loans of securities by the Portfolio will be
collateralized by cash, letters of credit, or securities issued or guaranteed by
the U.S. Government or its agencies, equal to at least 100% of the current
market value of the loaned securities, determined on a daily basis. Lending
securities involves certain risks, the most significant of which is the risk
that a borrower may fail to return a portfolio security. The Sub-advisor
monitors the creditworthiness of borrowers in order to minimize such risks. The
Portfolio will not lend any security if, as a result of such loan, the aggregate
value of securities then on loan would exceed 33-1/3% of the Portfolio's total
net assets (taken at market value). For an additional discussion on lending, see
this Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Securities. The Portfolio may invest up to 25% of its total
assets in foreign securities. Investments in securities of foreign companies and
in foreign markets involve certain additional risks not associated with
investments in domestic companies and markets. The Portfolio may invest in
countries considered to be developing which may involve special risks. For a
discussion of these risks and the risks of foreign investing in general, see
this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
Risk of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of its net assets in
securities that are illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market. The Board of Trustees or
the Investment Manager, acting pursuant to authority delegated by the Board of
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, or
any successor to that rule, and therefore that such securities are not subject
to the foregoing limitation. For a discussion of restricted securities and the
risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods."
Borrowing. For a discussion of the risks involved with and the limitations
on borrowing and risks involved in borrowing, see this Prospectus under "Certain
Risk Factors and Investment Methods."
PIMCO Total Return Bond Portfolio:
Investment Objective: The investment objective of the PIMCO Total Return Bond
Portfolio is to maximize total return, consistent with preservation of capital.
The Sub-advisor will seek to employ prudent investment management techniques,
especially in light of the broad range of investment instruments in which the
Portfolio may invest.
Investment Policies:
In selecting securities for the Portfolio, the Sub-advisor will utilize
economic forecasting, interest rate anticipation, credit and call risk analysis,
foreign currency exchange rate forecasting, and other security selection
techniques. The proportion of the Portfolio's assets committed to investment in
securities with particular characteristics (such as maturity, type and coupon
rate) will vary based on the Sub-advisor's outlook for the U.S. and foreign
economies, the financial markets and other factors. The Portfolio will invest at
least 65% of its assets in the following types of securities which may be issued
by domestic or foreign entities and denominated in U.S. dollars or foreign
currencies: securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities; corporate debt securities; corporate commercial paper;
mortgage and other asset-backed securities; variable and floating rate debt
securities; bank certificates of deposit; fixed time deposits and bankers'
acceptances; repurchase agreements and reverse repurchase agreements;
obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies or supranational entities; and foreign
currency exchange-related securities, including foreign currency warrants.
The Portfolio will invest in a diversified portfolio of fixed-income
securities of varying maturities with a portfolio duration from three to six
years. The duration of the Portfolio will vary within the three- to six-year
time frame based upon the Sub-advisor's forecast for interest rates. The
Sub-advisor bases its analysis of the average duration of the bond market on
bond market indices which it believes to be representative, and other factors.
The Portfolio may invest up to 10% of its assets in fixed income securities that
are rated below investment grade but rated B or higher by Moody's Investors
Services, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") (or, if
unrated, determined by the Sub-advisor to be of comparable quality). The
Portfolio will maintain an overall dollar-weighted average quality of at least A
(as rated by Moody's or S&P). Securities rated B are judged to be predominantly
speculative with respect to their capacity to pay interest and repay principal
in accordance with the terms of the obligations. The Sub-advisor will seek to
reduce the risks associated with investing in such securities by limiting the
Portfolio's holdings in such securities and by the depth of its own credit
analysis. For a discussion of the risks involved in lower-rated high-yield
bonds, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
The Portfolio may invest up to 20% of its assets in securities
denominated in foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. Portfolio holdings will be
concentrated in areas of the bond market (based on quality, sector, coupon or
maturity) which the Sub-advisor believes to be relatively undervalued.
The Portfolio may buy or sell interest rate futures contracts, options
on interest rate futures contracts and options on debt securities for the
purpose of hedging against changes in the value of securities which the
Portfolio owns or anticipates purchasing due to anticipated changes in interest
rates. The Portfolio may engage in foreign currency transactions. Foreign
currency exchange transactions may be entered into the purpose of hedging
against foreign currency exchange risk arising from the Portfolio's investment
or anticipated investment in securities denominated in foreign currencies.
The Portfolio may enter into swap agreements for the purposes of
attempting to obtain a particular investment return at a lower cost to the
Portfolio than if the Portfolio had invested directly in an instrument that
provided that desired return. In addition, the Portfolio may purchase and sell
securities on a when-issued and delayed delivery basis and enter into forward
commitments to purchase securities; lend its securities to brokers, dealers and
other financial institutions to earn income; and borrow money for investment
purposes. See the Appendix to the Trust's Statement of Additional Information
for a description of Moody's and S&P's ratings applicable to fixed income
securities.
The "total return" sought by the Portfolio will consist of interest and
dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities or realized from the
purchase and sale of securities, and use of futures and options or gains from
favorable changes in foreign currency exchange rates. Generally, over the long
term, the total return of the Portfolio investing primarily in fixed income
securities is not expected to be as great as that obtained by a portfolio
investing in equity securities. At the same time, the market risk and volatility
of a fixed income portfolio is expected to be less than that of an equity
portfolio, so that a fixed income portfolio is generally considered to be a more
conservative investment. The change in the market value of fixed income
securities (and therefore their capital appreciation or depreciation) is largely
a function of changes in the current level of interest rates. When interest
rates are falling, a portfolio with a shorter duration generally will not
generate as high a level of total return as a portfolio with a longer duration.
Conversely, when interest rates are rising, a portfolio with a shorter duration
will generally outperform longer duration portfolios. When interest rates are
flat, shorter duration portfolios generally will not achieve as high a level of
return as longer duration portfolios (assuming that long-term interest rates are
higher than short-term interest rates, which is commonly the case). With respect
to any fixed-income portfolio, the longer the duration of the portfolio, the
greater the potential for total return, with, however, greater attendant market
risk and price volatility than for a portfolio with a shorter duration. The
market value of securities denominated in currencies other than U.S. dollars
also may be affected by movements in foreign currency exchange rates.
The Portfolio's investments include, but are not limited to, the
following:
U.S. Government Securities. The Portfolio may invest in U.S. Government
Securities. U.S. Government securities are obligations of, or guaranteed by, the
U.S. Government, its agencies or instrumentalities. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as the
Student Loan Marketing Association, are supported only by the credit of the
instrumentality.
Corporate Debt Securities. The Portfolio may invest in corporate debt
securities. Corporate debt securities include corporate bonds, debentures, notes
and other similar corporate debt instruments, including convertible securities.
Debt securities may be acquired with warrants attached. Corporate
income-producing securities may also include forms of preferred or preference
stock. The rate of return or return of principal on some debt obligations may be
linked or indexed to the level of exchange rates between the U.S. dollar and a
foreign currency or currencies. Investment in corporate debt securities that are
below investment grade (rated below Baa (Moody's) or BBB (S&P)) are described as
"speculative" both by Moody's and S&P. For a description of the special risks
involved with lower-rated high-yield bonds, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Mortgage-Related and Other Asset-Backed Securities. The Portfolio may
invest all of its assets in mortgage-related and other asset-backed securities,
including mortgage pass-through securities and collateralized mortgage
obligations. The value of some mortgage- or asset-backed securities in which the
Portfolio invests may be particularly sensitive to changes in prevailing
interest rates, and, like the other investments of the Portfolio, the ability of
the Portfolio to successfully utilize these instruments may depend in part upon
the ability of the Sub-advisor to forecast interest rates and other economic
factors correctly. These investments involve special risks. For a description of
these securities and the special risks involved therein, see this Prospectus and
the Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Repurchase Agreements. For the purpose of achieving income, the
Portfolio may enter into repurchase agreements, subject to guidelines
promulgated by the Board of Trustees of the Trust. The Portfolio will not invest
more than 15% of its net assets (taken at current market value) in repurchase
agreements maturing in more than seven days. For a discussion of repurchase
agreements and the risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Reverse Repurchase Agreements and Other Borrowings. The Portfolio may
enter into reverse repurchase agreements. For a discussion of reverse repurchase
agreements, see this Prospectus under "Certain Risk Factors and Investment
Methods." The Portfolio will maintain a segregated account consisting of cash,
U.S. Government securities or high-grade debt obligations, maturing not later
than the expiration of the reverse repurchase agreement, to cover its
obligations under reverse repurchase agreements. The Portfolio may also borrow
money for investment purposes. Such a practice will result in leveraging of the
Portfolio's assets. Leverage will tend to exaggerate the effect on net asset
value of any increase or decrease in the value of the Portfolio and may cause
the Portfolio to liquidate portfolio positions when it would not be advantageous
to do so.
Lending Portfolio Securities. For the purpose of achieving income, the
Portfolio may lend its portfolio securities, provided (1) the loan is secured
continuously by collateral consisting of U.S. Government securities or cash or
cash equivalents (cash, U.S. Government securities, negotiable certificates of
deposit, bankers' acceptances or letters of credit) maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned, (2) the Portfolio may at any time call the loan and
obtain the return of securities loaned, (3) the Portfolio will receive any
interest or dividends received on the loaned securities, and (4) the aggregate
value of the securities loaned will not at any time exceed one-third of the
total assets of the Portfolio. For a discussion of the risks involved in
lending, see this Prospectus under "Certain Risk Factors and Investment
Methods."
When-Issued or Delayed-Delivery Transactions. The Portfolio may
purchase or sell securities on a when-issued or delayed delivery basis. These
transactions involve a commitment by the Portfolio to purchase or sell
securities for a predetermined price or yield, with payment and delivery taking
place more than seven days in the future, or after a period longer than the
customary settlement period for that type of security. When delayed delivery
purchases are outstanding, the Portfolio will set aside and maintain until the
settlement date, in a segregated account, cash, U.S. Government securities or
high grade debt obligations in an amount sufficient to meet the purchase price.
Typically, no income accrues on securities purchased on a delayed delivery basis
prior to time delivery of the securities is made, although the Portfolio may
earn income on securities it has deposited in a segregated account. When
purchasing a security on a delayed delivery basis, the Portfolio assumes the
rights and risks of ownership of the security, including the risk of price and
yield fluctuations, and takes such fluctuations into account when determining
its net asset value. Because the Portfolio is not required to pay for the
security until the delivery date, these risks are in addition to the risks
associated with the Portfolio's other investments. If the Portfolio remains
substantially fully invested at a time when delayed delivery purchases are
outstanding, the delayed delivery purchases may result in a form of leverage.
When the Portfolio has sold a security on a delayed delivery basis, the
Portfolio does not participate in future gains or losses with respect to the
security. If the other party to a delayed delivery transaction fails to deliver
or pay for the security, the Portfolio could miss a favorable price or yield
opportunity or could suffer a loss. The Portfolio may dispose of or renegotiate
a delayed delivery transaction after it is entered into, and may sell
when-issued securities before they are delivered, which may result in a capital
gain or loss. There is no percentage limitation on the extent to which the
Portfolio may purchase or sell securities on a delayed delivery basis.
Foreign Securities. The Portfolio may invest directly in U.S. dollar-
or foreign currency-denominated fixed income securities. The Portfolio will
limit its foreign investments to securities of issuers based in developed
countries (including newly industrialized countries, such as Taiwan, South Korea
and Mexico). For a discussion of the risks involved in investing in foreign
securities, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
Brady Bonds. The Portfolio may invest in Brady Bonds. Brady Bonds are
securities created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady. Brady Bonds have been issued only recently, and for
that reason do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar), and are actively traded in the over-the-counter
secondary market. Brady Bonds are not considered to be U.S. Government
Securities. In light of the residual risk of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities in countries issuing Brady Bonds, investments in Brady
Bonds may be viewed as speculative. There can be no assurance that Brady Bonds
acquired by the Portfolio will not be subject to restructuring arrangements or
to requests for new credit, which may cause the Portfolio to suffer a loss of
interest or principal on any of its holdings.
Options on Securities, Securities Indexes and Currencies. The Portfolio
may purchase and write call and put options on securities, securities indexes
and on foreign currencies, and enter into futures contracts and use options on
futures contracts as further described below. The Portfolio may also enter into
swap agreements with respect to foreign currencies, interest rates and
securities indexes. The Portfolio may use these techniques to hedge against
changes in interest rates, foreign currency, exchange rates or securities prices
or as part of its overall investment strategy.
The Portfolio may purchase options on securities to protect holdings in
an underlying or related security against a substantial decline in market value.
A Portfolio may purchase call options on securities to protect against
substantial increases in prices of securities the Portfolio intends to purchase
pending its ability to invest in such securities in an orderly manner. The
Portfolio may sell put or call options it has previously purchased, which could
result in a net gain or loss depending on whether the amount realized on the
sale is more or less than the premium and other transaction costs paid on the
put or call option which is sold. A Portfolio may write a call or put option
only if it is "covered" by the Portfolio holding a position in the underlying
securities or by other means which would permit immediate satisfaction of the
Portfolio's obligation as writer of the option. Prior to exercise or expiration,
an option may be closed out by an offsetting purchase or sale of an option on of
the same series.
Risks of Options. The Portfolio may invest in foreign-denominated
securities and may buy or sell put and call options on foreign currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Portfolio to reduce foreign currency
risk using such options. For a discussion of the risks involved in investing in
foreign currency, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods." For a
discussion of options and the risks involved therein, see this Prospectus and
the Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Swaps. The Portfolio may enter into interest rate, index and currency
exchange rate swap agreements for the purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded the desired return. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Commonly used swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate or "cap"; interest floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level or "floor"; and interest rate collars, under which
a party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
The "notional amount" of a swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Portfolio would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, the Portfolio's obligations (or rights) under a swap agreement
will generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement ("net amount"). The Portfolio's obligations under a swap agreement
will be accrued daily (offset against amounts owed to the Portfolio) and any
accrued unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, U.S. Government
securities, or high grade debt obligations, to avoid any potential leveraging of
the Portfolio. The Portfolio will not enter into a swap agreement with any
single party if the net amount owed or to be received under existing contracts
with that party would exceed 5% of the Portfolio's total assets.
Risks of Swaps. Whether the Portfolio's use of swap agreements will be
successful in furthering its investment objective will depend on the Portfolio's
ability to predict correctly whether certain types of investment are likely to
produce greater returns than other investments. Because they are two-party
contracts and because they have terms of greater than seven days, swap
agreements may be considered illiquid. Moreover, the Portfolio bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of a default or bankruptcy of a swap agreement counterparty. The Sub-advisor
will cause the Portfolio to enter into swap agreements only with counterparties
that would be eligible for consideration as repurchase agreement counterparties
under the Portfolio's repurchase agreement guidelines. Certain restrictions
imposed on the Portfolio by the Internal Revenue Code may limit the Portfolio's
ability to use swap agreements. The swaps market is relatively new and is
largely unregulated. It is possible that developments in the swaps market,
including potential governmental regulation, could adversely affect the
Portfolio's ability to terminate existing swap agreements or to realize amounts
to be received under such agreements.
Futures Contracts and Options on Futures Contracts. The Portfolio may
invest in interest rate futures contracts, stock index futures contracts and
foreign currency futures contracts and options thereon that are traded on a U.S.
or foreign exchange or board of trade. The Portfolio will only enter into
futures contracts or futures options which are standardized and traded on a U.S.
or foreign exchange or board of trade, or similar entity, or quoted on an
automated quotation system. The Portfolio will use financial futures contracts
and related options only for "bona fide" hedging purposes, as such term is
defined in the applicable regulations of the CFTC, or, with respect to positions
in financial futures and related options that do not qualify as "bona fide
hedging" positions, will enter such non-hedging positions only to the extent
that aggregate initial margin deposit plus premiums paid by it for the open
futures options position, less the amount by which any such positions are
"in-the-money," would not exceed 5% of the Portfolio's total assets.
Risks of Futures Contracts and Related Options. There are risks
involved in futures and options contracts. For a discussion of futures contracts
and related options, and the risks involved therein, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Risk of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Other Foreign Currency Transactions. The Portfolio may buy and sell
foreign currency futures contracts and options on foreign currencies and foreign
currency futures contracts, enter into forward foreign currency exchange
contracts to reduce the risks of adverse changes in foreign exchange rates. The
Portfolio may enter into these contracts for the purpose of hedging against
foreign exchange risk arising from the Portfolio's investment or anticipated
investment in securities denominated in foreign currencies. For a discussion of
foreign currency transactions and the risks involved therein, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
Borrowing. For a discussion of the limitations on borrowing by the
Portfolio and certain risks involved therein, see this Prospectus under "Certain
Risk Factors and Investment Methods."
PIMCO Limited Maturity Bond Portfolio:
Investment Objective: The investment objective of the PIMCO Limited Maturity
Bond Portfolio is to seek to maximize total return, consistent with preservation
of capital and prudent investment management. This is a fundamental objective of
the Portfolio.
Investment Policies:
In selecting securities for the Portfolio, the Sub-advisor utilizes
economic forecasting, interest rate anticipation, credit and call risk analysis,
foreign currency exchange rate forecasting, and other security selection
techniques. The proportion of each Portfolio's assets committed to investment in
securities with particular characteristics (such as maturity, type and coupon
rate) will vary based on the Sub-advisor's outlook for the U.S. and foreign
economies, the financial markets, and other factors.
The Portfolio will invest at least 65% of its total assets in the
following types of securities, which may be issued by domestic or foreign
entities and denominated in U.S. dollars or foreign currencies: securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
("U.S. Government securities"); corporate debt securities; corporate commercial
paper; mortgage and other asset-backed securities; variable and floating rate
debt securities; bank certificates of deposit, fixed time deposits and bankers'
acceptances; repurchase agreements and reverse repurchase agreements;
obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies or supranational entities; and foreign
currency exchange-related securities, including foreign currency warrants.
The Portfolio may hold different percentages of its assets in these
various types of securities, and may invest all of its assets in derivative
instruments or in mortgage- or asset-backed securities. There are special risks
involved in these instruments.
The Portfolio will invest in a diversified portfolio of fixed income
securities of varying maturities with a portfolio duration from one to three
years. The Portfolio may invest up to 10% of its assets in corporate debt
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Sub-advisor to be of
comparable quality). The Portfolio may also invest up to 20% of its assets in
securities denominated in foreign currencies. The Portfolio will make use of use
of average portfolio credit quality standards to assist institutional investors
whose own investment guidelines limit its investments accordingly. In
determining the Portfolio's overall dollar-weighted average quality, unrated
securities are treated as if rated, based on the Sub-advisor's view of their
comparability to rated securities. The Portfolio's investments may range in
quality from securities rated in the lowest category in which the Portfolio is
permitted to invest to securities rated in the highest category (as rated by
Moody's or S&P or, if unrated, determined by the Sub-advisor to be of comparable
quality). The percentage of a the Portfolio's assets invested in securities in a
particular rating category will vary.
The Portfolio may buy or sell interest rate futures contracts, options
on interest rate futures contracts and options on debt securities for the
purpose of hedging against changes in the value of securities which the
Portfolio owns or anticipates purchasing due to anticipated changes in interest
rates. The Portfolio may invest in securities denominated in foreign currencies
also may engage in foreign currency exchange transactions by means of buying or
selling foreign currencies on a spot basis, entering into foreign currency
forward contracts, and buying and selling foreign currency options, foreign
currency futures, and options on foreign currency futures. Foreign currency
exchange transactions may be entered into for the purpose of hedging against
foreign currency exchange risk arising from the Portfolio's investment or
anticipated investment in securities denominated in foreign currencies. The
Portfolio also may enter into foreign currency forward contracts and buy or sell
foreign currencies or foreign currency options for purposes of increasing
exposure to a particular foreign currency or to shift exposure to foreign
currency fluctuations from one country to another.
The Portfolio may enter into swap agreements for purposes of attempting
to obtain a particular investment return at a lower cost to the Portfolio than
if the Portfolio had invested directly in an instrument that provided that
desired return. In addition, the Portfolio may purchase and sell securities on a
when-issued or delayed-delivery basis, sell securities short, and enter into
forward commitments to purchase securities; lend their securities to brokers,
dealers and other financial institutions to earn income; and borrow money for
investment purposes. See the Appendix to the Statement of Additional Information
for a description of Moody's and S&P ratings applicable to fixed income
securities.
The "total return" sought by the Portfolio will consist of interest and
dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities (realized by the
shareholder only upon selling shares) or realized from the purchase and sale of
securities, and use of futures and options, or gains from favorable changes in
foreign currency exchange rates. Generally, over the long term, the total return
obtained by a portfolio investing primarily in fixed income securities is not
expected to be as great as that obtained by a portfolio that invests primarily
in equity securities. At the same time, the market risk and price volatility of
a fixed income portfolio is expected to be less than that of an equity
portfolio, so that a fixed income portfolio is generally considered to be a more
conservative investment. The change in market value of fixed income securities
(and therefore their capital appreciation or depreciation) is largely a function
of changes in the current level of interest rates. When interest rates are
falling, a portfolio with a shorter duration generally will not generate as high
a level of total return as a portfolio with a longer duration. Conversely, when
interest rates are rising, a portfolio with a shorter duration will generally
outperform longer duration portfolios. When interest rates are flat, shorter
duration portfolios generally will not generate as high a level of total return
as longer duration portfolios (assuming that long-term interest rates are higher
than short-term rates, which is commonly the case). With respect to the
composition of any fixed income portfolio, the longer the duration of the
portfolio, the greater the anticipated potential for total return, with,
however, greater attendant market risk and price volatility than for a portfolio
with a shorter duration. The market value of securities denominated in
currencies other than the U.S. dollar also may be affected by movements in
foreign currency exchange rates.
The Portfolio's investments include, but are not limited to, the
following:
U.S. Government Securities. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Some U.S. Government securities, such as Treasury bills, notes and bonds, and
securities guaranteed by the Government National Mortgage Association ("GNMA"),
are supported by the full faith and credit of the United States; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Federal National
Mortgage Association ("FNMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality.
Corporate Debt Securities. Corporate debt securities include corporate
bonds, debentures, notes and other similar corporate debt instruments, including
convertible securities. Debt securities may be acquired with warrants attached.
Corporate income-producing securities may also include forms of preferred or
preference stock. The rate of return or return of principal on some debt
obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies.
Investments in corporate debt securities that are below investment
grade (rated below Baa (Moody's) or BBB (S&P)) are described as "speculative"
both by Moody's and S&P. Moody's also describes securities rated Baa as having
speculative characteristics. For a description of the special risks involved
with lower-rated high-yield bonds, see this Prospectus and the Trust's Statement
of Additional Information under "Certain Risk Factors and Investment Methods."
Mortgage-Related and Other Asset-Backed Securities. The Portfolio may
invest all of its assets in mortgage- or asset-backed securities. The value of
some mortgage- or asset-backed securities in which the Portfolio invests may be
particularly sensitive to changes in prevailing interest rates, and, like the
other investments of the Portfolio, the ability of the Portfolio to successfully
utilize these instruments may depend in part upon the ability of the Sub-advisor
to forecast interest rates and other economic factors correctly.
Mortgage-related securities include securities other than those
described above that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property, such as CMO
residuals or stripped mortgage-backed securities ("SMBS"), and may be structured
in classes with rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Portfolio's yield
to maturity from these securities. In addition, the Portfolio may invest in
other asset-backed securities that have been offered to investors.
Risks of Mortgage-related and Other Asset-Backed Securities. For a
discussion of the risks involved in mortgage-related and other asset-backed
securities, see this Prospectus and the Trust's Statement of Additional
information under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, for the purpose of achieving income, the Portfolio may
enter into repurchase agreements, which entail the purchase of a portfolio
eligible security from a bank or broker-dealer that agrees to repurchase the
security at the Portfolio's cost plus interest within a specified time (normally
one day). The Portfolio will not invest more than 15% of its net assets (taken
at current market value) in repurchase agreements maturing in more than seven
days. For a discussion of repurchase agreements and the risks involved therein,
see this Prospectus under "Certain Risk Factors and Investment Methods."
Reverse Repurchase Agreements and Other Borrowings. A reverse
repurchase agreement is a form of leverage that involves the sale of a security
by the Portfolio and its agreement to repurchase the instrument at a specified
time and price. The Portfolio will maintain a segregated account consisting of
cash, U.S. Government securities or high-grade debt obligations, maturing not
later than the expiration of the reverse repurchase agreement, to cover its
obligations under reverse repurchase agreements. The Portfolio also may borrow
money for investment purposes, subject to requirements imposed by the 1940 Act
that the Portfolio maintain a continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed. Such a practice will result in leveraging of the Portfolio's
assets. Leverage will tend to exaggerate the effect on net asset value of any
increase or decrease in the value of the Portfolio's portfolio and may cause the
Portfolio to liquidate portfolio positions when it would not be advantageous to
do so.
Lending Portfolio Securities. For the purpose of achieving income, the
Portfolio may lend its portfolio securities, provided: (i) the loan is secured
continuously by collateral consisting of U.S. Government securities or cash or
cash equivalents (cash, U.S. Government securities, negotiable certificates of
deposit, bankers' acceptances or letters of credit) maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned; (ii) the Portfolio may at any time call the loan and
obtain the return of the securities loaned; (iii) the Portfolio will receive any
interest or dividends paid on the loaned securities; and (iv) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of the Portfolio. For a discussion of risks involved in lending,
see this Prospectus under "Certain Risk Factors and Investment Methods."
When-Issued or Delayed Delivery Transactions. The Portfolio may
purchase or sell securities on a when-issued or delayed delivery basis. These
transactions involve a commitment by the Portfolio to purchase or sell
securities for a predetermined price or yield, with payment and delivery taking
place more than seven days in the future, or after a period longer than the
customary settlement period for that type of security. When delayed delivery
purchases are outstanding, the Portfolio will set aside and maintain until the
settlement date in a segregated account, cash, U.S. Government securities or
high grade debt obligations in an amount sufficient to meet the purchase price.
Typically, no income accrues on securities purchased on a delayed delivery basis
prior to the time delivery of the securities is made, although the Portfolio may
earn income on securities it has deposited in a segregated account. When
purchasing a security on a delayed delivery basis, the Portfolio assumes the
rights and risks of ownership of the security, including the risk of price and
yield fluctuations, and takes such fluctuations into account when determining
its net asset value. Because the Portfolio is not required to pay for the
security until the delivery date, these risks are in addition to the risks
associated with the Portfolio's other investments. If the Portfolio remains
substantially fully invested at a time when delayed delivery purchases are
outstanding, the delayed delivery purchases may result in a form of leverage.
When the Portfolio has sold a security on a delayed delivery basis, the
Portfolio does not participate in future gains or losses with respect to the
security. If the other party to a delayed delivery transaction fails to deliver
or pay for the securities, the Portfolio could miss a favorable price or yield
opportunity or could suffer a loss. The Portfolio may dispose of or renegotiate
a delayed delivery transaction after it is entered into, and may sell
when-issued securities before they are delivered, which may result in a capital
gain or loss. There is no percentage limitation on the extent to which the
Portfolios may purchase or sell securities on a delayed-delivery basis.
Short Sales. The Portfolio may from time to time effect short sales as
part of its overall portfolio management strategies, including the use of
derivative instruments, or to offset potential declines in value of long
positions in similar securities as those sold short. A short sale (other than a
short sale against the box) is a transaction in which the Portfolio sells a
security it does not own at the time of the sale in anticipation that the market
price of that security will decline. To the extent that the Portfolio engages in
short sales, it must (except in the case of short sales "against the box")
maintain asset coverage in the form of cash, U.S. Government securities or high
grade debt obligations in a segregated account. A short sale is "against the
box" to the extent that the Portfolio contemporaneously owns, or has the right
to obtain at no added cost, securities identical to those sold short.
Foreign Securities. The Portfolio may invest directly in U.S. dollar-
or foreign currency-denominated fixed income securities of non-U.S. issuers. The
Portfolio will limit its foreign investments to securities of issuers based in
developed countries (including Newly Industrialized Countries, "NICs", such as
Taiwan, South Korea and Mexico). Investing in the securities of issuers in any
foreign country involves special risks and considerations not typically
associated with investing in U.S. companies. For a discussion of the risks
involved in foreign investing, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Options on Securities, Securities Indexes, and Currencies. The
Portfolio may purchase put options on securities. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value. The Portfolio may also purchase call
options on securities. One purpose of purchasing call options is to protect
against substantial increases in prices of securities the Portfolio intends to
purchase pending its ability to invest in such securities in an orderly manner.
The Portfolio may sell put or call options it has previously purchased, which
could result in a net gain or loss depending on whether the amount realized on
the sale is more or less than the premium and other transaction costs paid on
the put or call option which is sold. The Portfolio may write a call or put
option only if the option is "covered" by the Portfolio holding a position in
the underlying securities or by other means which would permit immediate
satisfaction of the Portfolio's obligation as writer of the option. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase or
sale of an option of the same series.
Risks of Options. The purchase and writing of options involves certain
risks. The Portfolio may buy or sell put and call options on foreign currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Portfolio to reduce foreign currency
risk using such options. For a discussion of the risks involved in investing in
foreign currency, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods." For a
discussion of options and the risks involved therein, see this Prospectus and
the Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Swap Agreements. The Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded that desired return. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Commonly used swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Portfolio would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, the Portfolio's obligations (or rights) under a swap agreement
will generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The Portfolio's obligations under a swap
agreement will be accrued daily (offset against amounts owed to the Portfolio)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of segregated assets consisting of cash, U.S.
Government securities, or high grade debt obligations, to avoid any potential
leveraging of the Portfolio. A Portfolio will not enter into a swap agreement
with any single party if the net amount owed or to be received under existing
contracts with that party would exceed 5% of the Portfolio's assets.
Risks of Swaps. Whether the Portfolio's use of swap agreements will be
successful in furthering its investment objective will depend on the
Sub-advisor's ability to predict correctly whether certain types of investments
are likely to produce greater returns than other investments. Because they are
two-party contracts and because they may have terms of greater than seven days,
swap agreements may be considered to be illiquid. Moreover, the Portfolio bears
the risk of loss of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement counterparty. The
Sub-advisor will cause the Portfolio to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Portfolio's repurchase agreement guidelines. Certain
restrictions imposed on the Portfolio by the Internal Revenue Code may limit the
Portfolio's ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect the
Portfolio's ability to terminate existing swap agreements or to realize amounts
to be received under such agreements.
Futures Contracts and Options on Futures Contracts. The Portfolio may
invest in interest rate futures contracts, stock index futures contracts and
foreign currency futures contracts and options thereon ("futures options") that
are traded on a U.S. or foreign exchange or board of trade. The Portfolio will
only enter into futures contracts or futures options which are standardized and
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system. Each Portfolio will use financial
futures contracts and related options only for "bona fide hedging" purposes, as
such term is defined in applicable regulations of the CFTC, or, with respect to
positions in financial futures and related options that do not qualify as "bona
fide hedging" positions, will enter such non-hedging positions only to the
extent that aggregate initial margin deposits plus premiums paid by it for open
futures option positions, less the amount by which any such positions are
"in-the-money," would not exceed 5% of the Portfolio's total net assets.
Risks of Futures and Related Options. There are risks involved in
futures and options contracts. For a discussion of futures contracts and related
options, and the risks involved therein, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Risk of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Other Foreign Currency Transactions. The Portfolio may buy and sell
foreign currency futures contracts and options on foreign currencies and foreign
currency futures contracts, enter into forward foreign currency exchange
contracts to reduce the risks of adverse changes in foreign exchange rates. The
Portfolio may enter into these contracts for the purpose of hedging against
foreign exchange risk arising from the Portfolio's investment or anticipated
investment in securities denominated in foreign currencies. For a discussion of
foreign currency transactions and the risks involved therein, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
Berger Capital Growth Portfolio:
Investment Objective: The investment objective of the Berger Capital Growth
Portfolio is long-term capital appreciation. The Portfolio seeks to achieve this
objective by investing primarily in common stocks of established companies which
the Sub-advisor believes offer favorable growth prospects. Current income is not
an investment objective of the Portfolio, and any income produced will be a
by-product of the effort to achieve the Portfolio's objective.
Investment Policies:
In general, investment decisions for the Portfolio are based on an
approach which seeks out successful companies because they are believed to be
more apt to become profitable investments. To evaluate a prospective investment,
the Sub-advisor analyzes information from various sources, including industry
economic trends, earnings expectations and fundamental securities valuation
factors to identify companies which in the Sub-advisor's opinion are more likely
to have predictable, above average earnings growth, regardless of the company's
size and geographic location. The Sub-advisor also takes into account a
company's management and its innovations in products and services in evaluating
its prospects for continued or future earnings growth.
In selecting its portfolio securities, the Portfolio places primary
emphasis on established companies which it believes to have favorable growth
prospects. Common stocks usually constitute all or most of the Portfolio's
investment holdings, but the Portfolio remains free to invest in securities
other than common stocks, and may do so when deemed appropriate by the
Sub-advisor to achieve the objective of the Portfolio. The Portfolio may, from
time to time, take substantial positions in securities convertible into common
stocks, and it may also purchase government securities, preferred stocks and
other senior securities if its Sub-advisor believes these are likely to be the
best suited at that time to achieve the Portfolio's objective. The Portfolio's
policy of investing in securities believed to have a potential for capital
growth means that a Portfolio share may be subject to greater fluctuations in
value than if the Portfolio invested in other securities.
Short-Term. The Portfolio may increase its investment in government
securities and other short-term interest-bearing securities without limit when
the Sub-advisor believes market conditions warrant a temporary defensive
position, during which period it may be more difficult for the Portfolio to
achieve its investment objective.
Put and Call Options. The Portfolio may purchase put and call options
on stock indices for the purpose of hedging, which includes establishing a
position in an equity equivalent as a temporary substitute for the purchase of
individual stocks. To hedge the Portfolio to cushion against a decline in value,
the Portfolio may buy puts on stock indices; to hedge against increases in
prices of equities, pending investments in equities, the Portfolio may buy calls
on stock indices. No more than 1% of the market value of the Portfolio's net
assets at the time of purchase may be invested in put and call options. For a
discussion of the risks associated with options, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Foreign Securities. The Portfolio may invest in both domestic and foreign
securities. Investments in foreign securities involve some risks that are
different from the risks of investing in securities of U.S. issuers. For a
discussion of risks involved therein, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Risk of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Convertible Securities. The Portfolio may purchase securities which are
convertible into common stock when the Sub-advisor believes they offer the
potential for a higher total return than nonconvertible securities. While fixed
income securities generally have a priority claim on a corporation's assets over
that of common stock, some of the convertible securities which the Portfolio may
hold are high-yield/high-risk securities that are subject to special risks,
including the risk of default in interest or principal payments which could
result in a loss of income to the Portfolio or a decline in the market value of
the securities. Convertible securities often display a degree of market price
volatility that is comparable to common stocks. The credit risk associated with
convertible securities generally is reflected by their being rated below
investment grade by organizations such as Moody's Investors Service, Inc. and
Standard & Poor's Corporation. The Portfolio has no pre-established minimum
quality standards for convertible securities and may invest in convertible
securities of any quality, including lower rated or unrated securities. However,
the Portfolio will not invest in any security in default at the time of purchase
or in any nonconvertible debt securities rated below investment grade, and the
Portfolio will invest less than 20% of the market value of its assets at the
time of purchase in convertible securities rated below investment grade. For a
more detailed discussion of the risks associated with these securities and their
ratings, see the Appendix to the Trust's Statement of Additional Information.
Zero Coupon Bonds. The Portfolio may invest in zero coupon bonds or in
"strips." Zero coupon bonds do not make regular interest payments; rather, they
are sold at a discount from face value. Principal and accreted discount
(representing interest accrued but not paid) are paid at maturity. "Strips" are
debt securities that are stripped of their interest coupons after the securities
are issued, but otherwise are comparable to zero coupon bonds. The market values
of "strips" and zero coupon bonds generally fluctuate in response to changes in
interest rates to a greater degree than do interest-paying securities of
comparable term and quality. The Portfolio will not invest in mortgage-backed or
other asset-backed securities.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with a well-established securities dealer or a bank which is a member of the
Federal Reserve System. For a discussion of repurchase agreements and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest up to 15% of its net assets in
illiquid securities, including repurchase agreements maturing in more than seven
days. Securities eligible for resale under Rule 144A of the Securities Act of
1933 could be deemed "liquid" when saleable in a readily available market. For a
discussion of illiquid or restricted securities and the risks involved therein,
see this Prospectus under "Certain Risk Factors and Investment Methods."
Robertson Stephens Value + Growth Portfolio:
Investment Objective: The investment objective of the Robertson Stephens
Value + Growth Portfolio is to seek capital appreciation. This is a fundamental
objective of the Portfolio.
Investment Policies:
The Portfolio will invest primarily in growth companies believed by the
Sub-advisor to have favorable relationships between price/earnings ratios and
growth rates in sectors offering the potential for above-average returns.
In selecting investments for the Portfolio, the Sub-advisor's primary
emphasis is typically on evaluating a company's management, growth prospects,
business operations, revenues, earnings, cash flows, and balance sheet in
relationship to its share price. The Sub-advisor may select stocks which it
believes are undervalued relative to the current stock price. Undervaluation of
a stock can result from a variety of factors, such as a lack of investor
recognition of (1) the value of a business franchise and continuing growth
potential, (2) a new, improved or upgraded product, service or business
operation, (3) a positive change in either the economic or business condition
for a company, (4) expanding or changing markets that provide a company with
either new earnings direction or acceleration, or (5) a catalyst, such as an
impending or potential asset sale or change in management, that could draw
increased investor attention to a company. The Sub-advisor also may use similar
factors to identify stocks which it believes to be overvalued, and may engage in
short sales of such securities.
The Portfolio may also engage in the following investment practices,
each of which involves certain special risks.
Investments in Smaller Companies. The Portfolio may invest a
substantial portion of its assets in securities issued by small companies. Such
companies may offer greater opportunities for capital appreciation than larger
companies, but investments in such companies may involve certain special risks.
Such companies may have limited product lines, markets, or financial resources
and may be dependent on a limited management group. While the markets in
securities of such companies have grown rapidly in recent years, such securities
may trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more sharply than those
of other securities, and the Portfolio may experience some difficulty in
establishing or closing out positions in these securities at prevailing market
prices. There may be less publicly available information about the issuers of
these securities or less market interest in such securities than in the case of
larger companies, and it may take a longer period of time for the prices of such
securities to reflect the full value of their issuers' underlying earnings
potential or assets.
Some securities of smaller issuers may be restricted as to resale or
may otherwise be highly illiquid. The ability of the Portfolio to dispose of
such securities may be greatly limited, and the Portfolio may have to continue
to hold such securities during periods when the Sub-advisor would otherwise have
sold the security. It is possible that the Sub-advisor or its affiliates or
clients may hold securities issued by the same issuers, and may in some cases
have acquired the securities at different times, on more favorable terms, or at
more favorable prices, than the Portfolio. The Portfolio will not invest, in the
aggregate, more than 10% of its net assets in illiquid securities. For a
discussion of illiquid and restricted securities and the risks involved therein,
see this Prospectus under "Certain Risk Factors and Investment Methods."
Short Sales. When the Sub-advisor anticipates that the price of a
security will decline, it may sell the security short and borrow the same
security from a broker or other institution to complete the sale. The Portfolio
may make a profit or incur a loss depending upon whether the market price of the
security decreases or increases between the date of the short sale and the date
on which the Portfolio must replace the borrowed security. All short sales must
be fully collateralized, and the Portfolio will not sell securities short if,
immediately after and as a result of the sale, the value of all securities sold
short by the Portfolio exceeds 25% of its total assets. The Portfolio limits
short sales of any one issuer's securities to 2% of the Portfolio's total assets
and to 2% of any one class of the issuer's securities.
Foreign Securities. The Portfolio may invest up to 35% of its net
assets in securities principally traded in foreign markets. The Portfolio may
buy or sell foreign currencies and options and futures contracts on foreign
currencies for hedging purposes in connection with its foreign investments.
The Portfolio may also at times invest a substantial portion of its
assets in securities of issuers in developing countries. Although many of the
securities in which the Portfolio may invest are traded on securities exchanges,
the Portfolio may trade in limited volume, and the exchanges may not provide all
of the conveniences or protections provided by securities exchanges in more
developed markets. The Portfolio may also invest a substantial portion of its
assets in securities traded in the over-the-counter markets in such countries
and not on any exchange, which may affect the liquidity of the investment and
expose the Portfolio to the credit risk of their counterparties in trading those
investments. For a discussion of the risks involved in investing in developing
countries and investing in foreign securities, in general, see this Prospectus
and the Trust's Statement of Additional Information under "Certain Risk Factors
and Investment Methods."
Debt Securities. The Portfolio may invest in debt securities from time
to time, if the Sub-advisor believes that such investments might help achieve
the Portfolio's investment objective. The Sub-advisor expects that under normal
circumstances the Portfolio will not likely invest a substantial portion of its
assets in debt securities.
The Portfolio will invest only in securities rated "investment grade"
or considered by the Sub-advisor to be of comparable quality. Investment grade
securities are rated Baa or higher by Moody's Investors Service, Inc. ("Moody's)
or BBB or higher by Standard & Poor's Corporation ("S&P"). Securities rated Baa
or BBB lack outstanding investment characteristics, have speculative
characteristics, and are subject to greater credit and market risks than
higher-rated securities. For a description of Moody's and S&P's rating
categories, see the Appendix to the Trust's Statement of Additional Information.
The Portfolio will not necessarily dispose of a security when its debt
rating is reduced below its rating at the time of purchase, although the
Sub-advisor will monitor the investment to determine whether continued
investment in the security will assist in meeting the Portfolio's investment
objective.
Zero-Coupon Bonds and Payment-in-Kind Bonds. The Portfolio may also
invest in so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon
bonds are issued at a significant discount from face value and pay interest only
at maturity rather than at intervals during the life of the security.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. The values of
zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation
in response to changes in market interest rates than bonds which pay interest
currently, and may involve greater credit risk than such bonds.
Options and Futures. The Portfolio may buy and sell call and put
options to hedge against changes in net asset value or to attempt to realize a
greater current return. In addition, through the purchase and sale of futures
contracts and related options, the Portfolio may at times seek to hedge against
fluctuations in net asset value and to attempt to increase its investment
return.
The Portfolio's ability to engage in options and futures strategies
will depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that the
Portfolio will be able to utilize these instruments effectively for the purposes
stated above.
The Portfolio expects that its options and futures transactions
generally will be conducted on recognized exchanges. The Portfolio may in
certain instances purchase and sell options in the over-the-counter markets. The
Portfolio's ability to terminate options in the over-the-counter markets may be
more limited than for exchange-traded options, and such transactions also
involve the risk that securities dealers participating in such transactions
would be unable to meet their obligations to the Portfolio. The Portfolio will,
however, engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of the
Sub-advisor, the pricing mechanism and liquidity of the over-the-counter markets
are satisfactory and the participants are responsible parties likely to meet
their obligations.
The Portfolio will not purchase futures or options on futures or sell
futures if, as a result, the sum of the initial margin deposits on the
Portfolio's existing futures positions and premiums paid for outstanding options
on futures contracts would exceed 5% of the Portfolio's assets. (For options
that are "in-the-money" at the time of purchase, the amount by which the option
is "in-the-money" is excluded from this calculation.)
Index Futures and Options. The Portfolio may buy and sell
index futures contracts ("index futures") and options on index futures and on
indices for hedging purposes (or may purchase warrants whose value is based on
the value from time to time of one or more foreign securities indices). An index
future is a contract to buy or sell units of a particular bond or stock index at
an agreed price on a specified future date. Depending on the change in value of
the index between the time when the Portfolio enters into and terminates an
index futures or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also buy and sell index futures and options to increase its
investment return.
LEAPs and BOUNDs. The Portfolio may purchase long-term
exchange-traded equity options called Long-Term Equity Anticipation Securities
("LEAPs") and Buy-Write Options Unitary Derivatives ("BOUNDs"). LEAPs provide a
holder the opportunity to participate in the underlying securities' appreciation
in excess of a fixed dollar amount, and BOUNDs provide a holder the opportunity
to retain dividends on the underlying securities while potentially participating
in the underlying securities' capital appreciation up to a fixed dollar amount.
The Portfolio will not purchase these options with respect to more than 25% of
the value of its net assets and will limit the premiums paid for such options in
accordance with the most restrictive applicable state securities laws.
Risks of Options and Futures Transactions. There are risks
involved in options and futures transactions. For a discussion of options and
futures and the risks involved therein, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Sector Concentration. At times, the Portfolio may invest more than 25%
of its assets in securities of issuers in one or more market sectors such as,
for example, the technology sector. A market sector may be made up of companies
in a number of related industries. The Portfolio would only concentrate its
investments in a particular market sector if the Sub-advisor were to believe the
investment return available from concentration in that sector justifies any
additional risk associated with concentration in that sector. When the Portfolio
concentrates its investments in a market sector, financial, economic, business,
and other developments affecting issuers in that sector will have a greater
effect on the Portfolio than if it had not concentrated its assets in that
sector.
Lending Portfolio Securities. The Portfolio may lend it securities to
broker-dealers. These transactions must be fully collateralized at all times,
but involve some risk to the Portfolio if the other party should default on its
obligations and the Portfolio is delayed or prevented from recovering the
collateral.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements.
These transactions must be fully collateralized at all times, but involve some
risk to the Portfolio if the other party should default on its obligations and
the Portfolio is delayed or prevented from recovering the collateral. For a
discussion of repurchase agreements and the risks involved therein, see this
Prospectus under "Certain Risk Factors and Investment Methods."
Defensive Strategies. At times, the Sub-advisor may judge that market
conditions make pursuing the Portfolio's basic investment strategy inconsistent
with the best interests of its shareholders. At such times, the Sub-advisor may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the values of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio may invest in U.S. Government securities,
other high-quality debt instruments, and other securities the Sub-advisor
believes to be consistent with the Portfolio's best interests.
Twentieth Century International Growth Portfolio:
Investment Objective: The investment objective of the Twentieth Century
International Growth Portfolio is to seek capital growth. This is a fundamental
objective of the Portfolio.
Investment Policies:
The Portfolio will seek to achieve its investment objective by
investing primarily in securities of foreign issuers that meet certain
fundamental and technical standards of selection (relating primarily to
acceleration of earnings and revenues) and have, in the opinion of the
Sub-advisor, potential for appreciation. The Portfolio will invest primarily in
issuers in developed markets. The Portfolio will invest primarily in equity
securities (defined to include equity equivalents) of such issuers. The
Portfolio will attempt to stay fully invested in such securities, regardless of
the movement of stock prices generally.
Although the primary investment of the Portfolio will be equity
securities, the Portfolio may also invest in other types of securities
consistent with the accomplishment of the Portfolio's objectives. When the
Sub-advisor believes that the total return potential of other securities equals
or exceeds the potential return of equity securities, the Portfolio may invest
up to 35% in such other securities.
The other securities the Portfolio may invest in are bonds, notes and
debt securities of companies and obligations of domestic or foreign governments
and their agencies. The Portfolio will limit its purchases of debt securities to
investment grade obligations. For long-term debt obligations this includes
securities that are rated Baa or better by Moody's Investors Service, Inc.
("Moody's") or BBB or better by Standard & Poor's Corporation ("S&P"), or that
are not rated but considered by the Sub-advisor to be of equivalent quality.
According to Moody's, bonds rated Baa are medium-grade and possess some
speculative characteristics. A BBB rating by S&P indicates S&P's belief that a
security exhibits a satisfactory degree of safety and capacity for repayment,
but is more vulnerable to adverse economic conditions or changing circumstances
than is the case with higher quality debt securities. The rating services'
descriptions of securities in the various rating categories, including the
speculative characteristics of securities in the lower rating categories, are
set forth in the Appendix to the Trust's Statement of Additional Information.
For an additional discussion of lower-rated securities and certain risks
involved therein, see this Prospectus and the Trust's Statement of Additional
Information under "Certain Risk Factors and Investment Methods."
The Portfolio may make foreign investments either directly in foreign
securities, or indirectly by purchasing depositary receipts or depositary shares
or similar instruments ("DRs") for foreign securities. DRs are securities that
are listed on exchanges or quoted in over-the-counter markets in one country but
represent shares of issuers domiciled in another country. The Portfolio may also
purchase securities of such issuers in foreign markets, either on foreign
securities exchanges or in the over-the-counter markets.
The Portfolio may also invest in other equity securities and equity
equivalents. Other equity securities and equity equivalents include securities
that permit the Portfolio to receive an equity interest in an issuer, the
opportunity to acquire an equity interest in an issuer, or the opportunity to
receive a return on its investment that permits the Portfolio to benefit from
the growth over time in the equity of an issuer. Examples of other equity
securities and equity equivalents are preferred stock, convertible preferred
stock and convertible debt securities. Equity equivalents may also include
securities whose value or return is derived from the value or return of a
different security. An example of one type of derivative security in which the
Portfolio might invest is a depositary receipt.
In addition to other factors that will affect their value, the value of
the Portfolio's investments in fixed income securities will change as prevailing
interest rates change. In general, the prices of such securities vary inversely
with interest rates. As prevailing interest rates fall, the prices of bonds and
other securities that trade on a yield basis rise. When prevailing interest
rates rise, bond prices generally fall. These changes in value may, depending
upon the particular amount and type of fixed income securities holdings of the
Portfolio, impact the net asset value of the Portfolio's shares.
Under normal conditions, the Portfolio will invest at least 65% of its
assets in equity and equity equivalent securities of issuers from at least three
countries outside of the United States. While securities of U.S. issuers may be
included in the Portfolio from time to time, it is the primary intent of the
Sub-advisor to diversify investments across a broad range of foreign issuers.
The Sub-advisor defines "foreign issuer" as an issuer of securities that is
domiciled outside the United States, derives at least 50% of its total revenue
from production or sales outside the United States, and/or whose principal
trading market is outside the United States.
In order to achieve maximum investment flexibility, the Portfolio has
not established geographic limits on asset distribution, on either a
country-by-country or region-by-region basis. The Sub-advisor expects to invest
both in issuers in developed markets (such as Germany, the United Kingdom and
Japan) and in issuers in emerging market countries. The Sub-advisor considers
"emerging market countries" to include all countries that are generally
considered to be developing or emerging countries by the International Bank for
Reconstruction and Development (commonly referred to as the World Bank) and the
International Finance Corporation (IFC), as well as countries that are
classified by the United Nations as developing. Currently, the countries not
included in this category are the United States, Canada, Japan, the United
Kingdom, Germany, Austria, France, Italy, Ireland, Spain, Belgium, the
Netherlands, Switzerland, Sweden, Finland, Norway, Denmark, Australia, and New
Zealand. In addition, as used with respect to this Portfolio, "securities of
issuers in emerging market countries" means (i) securities of issuers the
principal securities trading market for which is an emerging market country,
(ii) securities, regardless of where traded, of issuers that derive 50% or more
of their total revenue from either goods or services produced in emerging market
countries or sales made in emerging market countries, or (iii) securities of
issuers having their principal place of business or principal office in emerging
market countries.
The principal criteria for inclusion of a security in the Portfolio is
its ability to meet the fundamental and technical standards of selection and, in
the opinion of the Sub-advisor, to achieve better-than-average appreciation. If,
in the opinion of the Sub-advisor, a particular security satisfies these
principal criteria, the security may be included in the Portfolio, regardless of
the location of the issuer or the percentage of the Portfolio's investments in
the issuer's country or region. At the same time, however, the Sub-advisor
recognizes that both the selection of the Portfolio's individual securities and
the allocation of the Portfolio's assets across different countries and regions
are important factors in managing an international portfolio. For this reason,
the Sub-advisor will also consider a number of other factors in making
investment selections including: the prospects for relative economic growth
among countries or regions, economic and political conditions, expected
inflation rates, currency exchange fluctuations and tax considerations.
Investing in securities of foreign issuers generally involves greater
risks than investing in the securities of domestic companies. As with any
investment in securities, the value of an investment in the Portfolio can
decrease as well as increase, depending upon a variety of factors which may
affect the values and income generated by the portfolio securities. Foreign
securities markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in clearance and settlement could result in
temporary periods when assets of the Portfolio are uninvested and no return is
earned thereon. The inability of the Portfolio to make intended security
purchases due to clearance and settlement problems could cause the Portfolio to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to clearance and settlement problems could result either in
losses to the Portfolio due to subsequent declines in value of the portfolio
security or, if the Portfolio has entered into a contract to sell the security,
liability to the purchaser.
Investments in the Portfolio should not be considered a complete
investment program and may not be appropriate for an individual with limited
investment resources or who is unable to tolerate fluctuations in the value of
the investment. For a discussion of certain risks involved in foreign investing,
see this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
Emerging Markets. The Portfolio may invest in securities of issuers in
emerging market countries. Investing in emerging market countries involves
exposure to significantly higher risk than investing in countries with developed
markets. Emerging market countries may have economic structures that are
generally less diverse and mature and political systems that can be expected to
be less stable than those of developed countries.
The economies of emerging market countries may be predominantly based
on only a few industries or dependent on revenues from particular commodities or
on international aid or development assistance, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. In addition, securities markets in
emerging market countries may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
resulting in a lack of liquidity and greater volatility in the price of
securities traded on those markets. For an additional discussion of the special
risks involved in investing in developing countries or "emerging markets," see
this Prospectus under "Certain Risk Factors and Investment Methods."
Forward Currency Exchange Contracts. Some of the securities held by the
Portfolio will be denominated in foreign currencies. Other securities, such as
DRs, may be denominated in U.S. dollars, but have a value that is dependent upon
the performance of a foreign security, as valued in the currency of its home
country. As a result, the value of the Portfolio will be affected by changes in
the exchange rates between foreign currencies and the dollar, as well as by
changes in the market values of the securities themselves. The performance of
foreign currencies relative to the dollar may be an important factor in the
overall performance of the Portfolio.
To protect against adverse movements in exchange rates between currencies,
the Portfolio may, for hedging purposes only, enter into forward currency
exchange contracts. A forward currency exchange contract obligates the Portfolio
to purchase or sell a specific currency at a future date at a specific price.
The Portfolio may elect to enter into a forward currency exchange contract with
respect to a specific purchase or sale of a security, or with respect to the
Portfolio's positions generally. By entering into a forward currency exchange
contract with respect to the specific purchase or sale of a security denominated
in a foreign currency, the Portfolio can "lock in" an exchange rate between the
trade and settlement dates for that purchase or sale. This practice is sometimes
referred to as "transaction hedging." The Portfolio may enter into transaction
hedging contracts with respect to all or a substantial portion of its trades.
When the Sub-advisor believes that a particular currency may decline in
value compared to the dollar, the Portfolio may enter into a foreign currency
exchange contract to sell an amount of foreign currency equal to the value of
some or all of the portfolio securities either denominated in, or whose value is
tied to, that currency. This practice is sometimes referred to as "portfolio
hedging." The Portfolio may not enter into a portfolio hedging transaction where
the Portfolio would be obligated to deliver an amount of foreign currency in
excess of the aggregate value of its portfolio securities or other assets
denominated in, or whose value is tied to, that currency. The Portfolio will
make use of portfolio hedging to the extent deemed appropriate by the
Sub-advisor. However, it is anticipated that the Portfolio will enter into
portfolio hedges much less frequently than transaction hedges.
If the Portfolio enters into a forward contract, the Portfolio, when
required, will instruct its custodian bank to segregate cash or liquid
high-grade securities in a separate account in an amount sufficient to cover its
obligation under the contract. Those assets will be valued at market daily, and
if the value of the segregated securities declines, additional cash or
securities will be added so that the value of the account is not less than the
amount of the Portfolio's commitment. At any given time, no more than 10% of the
Portfolio's assets will be committed to a segregated account in connection with
portfolio hedging transactions.
Predicting the relative future values of currencies is very difficult,
and there is no assurance that any attempt to reduce the risk of adverse
currency movements through the use of forward currency exchange contracts will
be successful. In addition, the use of forward currency exchange contracts tends
to limit the potential gains that might result from a positive change in the
relationship between the foreign currency and the U.S. dollar. For an additional
discussion of foreign currency exchange contracts and certain risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Risks of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Indirect Foreign Investments. Subject to certain restrictions contained
in the Investment Company Act, the Portfolio may invest up to 10% of its assets
in certain foreign countries indirectly through investment funds and registered
investment companies authorized to invest in those countries. If the Portfolio
invests in investment companies, the Portfolio will bear its proportionate
shares of the costs incurred by such companies, including investment advisory
fees, if any.
Sovereign Debt Obligations. The Portfolio may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of emerging market countries. Sovereign debt may be in the form
of conventional securities or other types of debt instruments such as loans or
loan participations. Sovereign debt of emerging market countries may involve a
high degree of risk and may present a risk of default or renegotiation or
rescheduling of debt payments.
Portfolio Turnover. Investment decisions to purchase and sell
securities are based on the anticipated contribution of the security in question
to the Portfolio's objectives. The rate of portfolio turnover is irrelevant when
the Sub-advisor believes a change is in order to achieve those objectives and
accordingly, the annual portfolio turnover rate cannot be anticipated.
The portfolio turnover may be higher than other mutual funds with
similar investment objectives. Higher turnover would generate correspondingly
greater brokerage commissions, which is a cost that the Portfolio pays directly.
It may also affect the character of capital gains, if any, realized and
distributed by the Portfolio since short-term capital gains are taxable as
ordinary income. For an additional discussion of portfolio turnover, see the
Trust's Statement of Additional Information under "Investment Objectives and
Policies" for the Twentieth Century International Growth Portfolio.
Temporary Investments. Notwithstanding the Portfolio's investment
objective of capital growth, under exceptional market or economic conditions,
the Portfolio may temporarily invest all or a substantial portion of its assets
in cash or investment-grade short-term securities (denominated in U.S. dollars
or foreign currencies). To the extent the Portfolio assumes a defensive
position, it will not be pursuing its investment objective of capital growth.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may invest in repurchase agreements when
such transactions present an attractive short-term return on cash that is not
otherwise committed to the purchase of securities pursuant to the investment
policies of the Portfolio.
The Portfolio will limit repurchase agreement transactions to
securities issued by the U.S. government, its agencies and instrumentalities,
and will enter into such transactions with those commercial banks and
broker-dealers who are deemed creditworthy pursuant to criteria adopted by the
Trust's Board of Trustees. The Portfolio will not invest more than 15% of its
assets in repurchase agreements maturing in more than seven days. For a
discussion of repurchase agreements and certain risks involved therein, see this
Prospectus under "Certain Risk Factors and Investment Methods."
When-Issued Transactions. The Portfolio may sometimes purchase new issues
of securities on a when-issued basis without limit when, in the opinion of the
Sub-advisor, such purchases will further the investment objectives of the
Portfolio. For a discussion of when-issued securities and certain risks involved
therein, see the Trust's Statement of Additional Information under "Certain Risk
Factors and Investment Methods."
Short Sales. The Portfolio may engage in short sales if, at the time of
the short sale, the Portfolio owns or has the right to acquire an equal amount
of the security being sold short at no additional cost. These transactions allow
the Portfolio to hedge against price fluctuations by locking in a sale price for
securities it does not wish to sell immediately.
The Portfolio may make a short sale when it wants to sell the security
it owns at a current attractive price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code.
Rule 144A Securities. The Portfolio may, from time to time, purchase
Rule 144A securities when they present attractive investment opportunities that
otherwise meet the Portfolio's criteria for selection. Rule 144A securities are
securities that are privately placed with and traded among qualified
institutional buyers rather than the general public. Although Rule 144A
securities are considered "restricted securities," they are not necessarily
illiquid.
With respect to securities eligible for resale under Rule 144A, the
staff of the Securities and Exchange Commission has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the board of trustees to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the Board
of Trustees of the Trust is responsible for developing and establishing the
guidelines and procedures for determining the liquidity of Rule 144A securities.
As allowed by Rule 144A, the Board of Trustees has delegated the day-to-day
function of determining the liquidity of Rule 144A securities to the
Sub-advisor. The Board retains the responsibility to monitor the implementation
of the guidelines and procedures it has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and the Portfolio may, from time to time, hold a Rule 144A
security that is illiquid. In such an event, the Sub-advisor will consider
appropriate remedies to minimize the effect on the Portfolio's liquidity. The
Portfolio may not invest more than 15% of its assets in illiquid securities
(securities that may not be sold within seven days at approximately the price
used in determining the net asset value of Portfolio shares). For an additional
discussion of Rule 144A securities and illiquid or restricted securities, and
certain risks involved therein, see this Prospectus under "Certain Risk Factors
and Investment Methods."
Borrowing. For a discussion of limitations on borrowing by the Portfolio
and certain risks involved in borrowing, see this Prospectus under "Certain Risk
Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."
Twentieth Century Strategic Balanced Portfolio:
Investment Objective: The investment objective of the Twentieth Century
Strategic Balanced Portfolio is to seek capital growth and current income. This
is a fundamental objective of the Portfolio.
Investment Policies:
It is the Sub-advisor's intention to maintain approximately 60% of the
Portfolio's assets in common stocks that are considered by the Sub-advisor to
have better-than-average prospects for appreciation and the remainder in bonds
and other fixed income securities.
Equity Investments. With the equity portion of the Portfolio, the
Sub-advisor seeks capital growth by investing in securities, primarily common
stocks, that meet certain fundamental and technical standards of selection
(relating primarily to earnings and revenue acceleration) and have, in the
opinion of the Sub-advisor, better-than-average potential for appreciation. So
long as a sufficient number of such securities are available, the Sub-advisor
intends to keep the equity portion of the Portfolio fully invested in these
securities regardless of the movement of stock prices generally. The Portfolio
may purchase securities only of companies that have a record of at least three
years continuous operation.
The Sub-advisor selects, for the equity portion of the Portfolio,
securities of companies whose earnings and revenue trends meet Sub-advisor's
standards of selection. The size of the companies in which the Portfolio invests
tends to give it its own characteristics of volatility and risk. These
differences come about because developments such as new or improved products or
methods, which would be relatively insignificant to a large company, may have a
substantial impact on the earnings and revenues of a small company and create a
greater demand and a higher value for its shares. However, a new product failure
which could readily be absorbed by a large company can cause a rapid decline in
the value of the shares of a smaller company. Hence, it could be expected that
the volatility of the Portfolio will be impacted by the size of companies in
which it invests.
Fixed Income Investments. The Sub-advisor intends to maintain approximately
40% of the Portfolio's assets in fixed income securities, approximately 80% of
which will be invested in domestic fixed income securities and approximately 20%
of which will be invested in foreign fixed income securities. This percentage
will fluctuate from time to time and may be higher or lower depending on the mix
the Sub-advisor believes will provide the most favorable outlook for achieving
the Portfolio's objectives. Of the approximately 40% of the Portfolio's assets
invested in fixed income securities, a minimum of 25% of the Portfolio's assets
will be invested in fixed income senior securities.
The fixed income portion of the Portfolio will include U.S. Treasury
securities, securities issued or guaranteed by the U.S. government or a foreign
government, or an agency or instrumentality of the U.S. or a foreign government,
and non-convertible debt obligations issued by U.S. or foreign corporations. The
Portfolio may also invest in mortgage-related and other asset-backed securities.
As with the equity portion of the Portfolio, the bond portion of the Portfolio
will be diversified among the various types of fixed income investment
categories described above. The Sub-advisor's strategy is to actively manage the
portfolio by investing the Portfolio's assets in sectors it believes are
undervalued (relative to the other sectors) and which represent better relative
long-term investment opportunities.
The value of fixed income securities fluctuates based on changes in
interest rates, currency values and the credit quality of the issuer. The
Sub-advisor will actively manage the Portfolio, adjusting the weighted average
portfolio maturity as necessary in response to expected changes in interest
rates. During periods of rising interest rates, the weighted average maturity of
the Portfolio may be moved to the shorter end of its maturity range in order to
reduce the effect of bond price declines on the Portfolio's net asset value.
When interest rates are falling and bond prices are rising, the weighted average
portfolio maturity may be moved toward the longer end of its maturity range.
Debt securities that comprise part of the Portfolio's fixed income
portfolio will primarily be limited to "investment grade" obligations. However,
the Portfolio may invest up to 10% of its fixed income assets in "high yield"
securities. "Investment grade" means that at the time of purchase, such
obligations are rated within the four highest categories by a nationally
recognized statistical rating organization for example, at least Baa by Moody's
Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Corporation
("S&P"), or, if not rated, are of equivalent investment quality as determined by
the Sub-advisor. According to Moody's, bonds rated Baa are medium-grade and
possess some speculative characteristics. A BBB rating by S&P indicates S&P's
belief that a security exhibits a satisfactory degree of safety and capacity for
repayment, but is more vulnerable to adverse economic conditions and changing
circumstances. "High yield" securities, sometimes referred to as "junk bonds,"
are higher risk, non-convertible debt obligations that are rated below
investment grade securities, or are unrated, but with similar credit quality.
The rating services' descriptions of securities in the various rating
categories, including the speculative characteristics of securities in the lower
rating categories, are set forth in the Appendix to the Trust's Statement of
Additional Information.
There are no credit or maturity restrictions on the fixed income
securities in which the high yield portion of the Portfolio may be invested.
Debt securities rated lower than Baa by Moody's or BBB by S&P or their
equivalent are considered by many to be predominantly speculative. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments on such securities than is the
case with higher quality debt securities. Regardless of rating levels, all debt
securities considered for purchase by the Portfolio are analyzed by the
Sub-advisor to determine, to the extent reasonably possible, that the planned
investment is sound, given the investment objective of the Portfolio. For an
additional discussion of lower-rated securities and certain risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Under normal market conditions, the maturities of fixed-income
securities in which the Portfolio invests will range from 2 to 30 years.
In determining the allocation of assets among U.S. and foreign capital
markets, the Sub-advisor considers the condition and growth potential of the
various economies; the relative valuations of the markets; and social,
political, and economic factors that may affect the markets. In selecting
securities in foreign currencies, the Sub-advisor considers, among other
factors, the impact of foreign exchange rates relative to the U.S. dollar value
of such securities. The Sub-advisor may seek to hedge all or a part of the
Portfolio's foreign currency exposure through the use of forward foreign
currency contracts or options thereon.
Foreign Securities. The Portfolio may invest up to 25% of its assets in the
securities of foreign issuers, including debt securities of foreign governments
and their agencies primarily from developed markets, when these securities meet
its standards of selection. The Portfolio may make such investments either
directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for
foreign securities. DRs are securities listed on exchanges or quoted in the
over-the-counter market in one country but represent the shares of issuers
domiciled in other countries. DRs may be sponsored or unsponsored. Direct
investments in foreign securities may be made either on foreign securities
exchanges or in the over-the-counter markets.
The Portfolio may invest in common stocks, convertible securities,
preferred stocks, bonds, notes and other debt securities of foreign issuers, and
debt securities of foreign governments and their agencies. The credit quality
standards applicable to domestic securities purchased by the Portfolio are also
applicable to its foreign securities investments. For a discussion of certain
risks involved in foreign investing, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
Forward Currency Exchange Contracts. Some of the foreign securities
held by the Portfolio may be denominated in foreign currencies. Other
securities, such as DRs, may be denominated in U.S. dollars, but have a value
that is dependent on the performance of a foreign security, as valued in the
currency of its home country. As a result, the value of the Portfolio may be
affected by changes in the exchange rates between foreign currencies and the
U.S. dollar, as well as by changes in the market values of the securities
themselves. The performance of foreign currencies relative to the U.S. dollar
may be a factor in the overall performance of the Portfolio.
To protect against adverse movements in exchange rates between currencies,
the Portfolio may, for hedging purposes only, enter into forward currency
exchange contracts and buy put and call options relating to currency futures
contracts. A forward currency exchange contract obligates the Portfolio to
purchase or sell a specific currency at a future date at a specific price. An
option is a contractual right to acquire a financial asset, such as a security,
the securities of a market index, a foreign currency or a foreign currency
exchange contract, at a specific price at the end of a specified term.
The Portfolio may elect to enter into a forward currency exchange
contract with respect to a specific purchase or sale of a security, or with
respect to the Portfolio's positions generally. By entering into a forward
currency exchange contract with respect to the specific purchase or sale of a
security denominated in a foreign currency, the Portfolio can "lock in" an
exchange rate between the trade and settlement dates for that purchase or sale.
This practice is sometimes referred to as "transaction hedging." The Portfolio
may enter into transaction hedging contracts with respect to all or a
substantial portion of its foreign securities trades.
When the Sub-advisor believes that a particular currency may decline in
value compared to the U.S. dollar, the Portfolio may enter into forward currency
exchange contracts to sell the value of some or all of the Portfolio's
securities either denominated in, or whose value is tied to, that currency. This
practice is sometimes referred to as "portfolio hedging." The Portfolio may not
enter into a portfolio hedging transaction where it would be obligated to
deliver an amount of foreign currency in excess of the aggregate value of its
portfolio securities or other assets denominated in, or whose value is tied to,
that currency. The Portfolio will make use of the portfolio hedging to the
extent deemed appropriate by the Sub-advisor. However, it is anticipated that
the Portfolio will enter into portfolio hedges much less frequently than
transaction hedges.
If the Portfolio enters into a forward contract, the Portfolio, when
required, will instruct its custodian bank to segregate cash or liquid
high-grade securities in a separate account in an amount sufficient to cover its
obligation under the contract. Those assets will be valued at market daily, and
if the value of the segregated securities declines, additional cash or
securities will be added so that the value of the account is not less than the
amount of the Portfolio's commitment. At any given time, no more than 10% of the
Portfolio's assets will be committed to a segregated account in connection with
portfolio hedging transactions.
Predicting the relative future values of currencies is very difficult,
and there is no assurance that any attempt to protect the Portfolio against
adverse currency movements through the use of forward currency exchange
contracts will be successful. In addition, the use of forward currency exchange
contracts tends to limit the potential gains that might result from a positive
change in the relationships between the foreign currency and the U.S. dollar.
For an additional discussion of foreign currency exchange contracts and certain
risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Risks of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Mortgage-Related and Other Asset-Backed Securities. The Portfolio may
purchase mortgage-related and other asset-backed securities. Mortgage
pass-through securities are securities representing interests in "pools" of
mortgages in which payments of both interest and principal on the securities are
generally made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans that underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. government in the case of
securities guaranteed by the Government National Mortgage Association (GNMA), or
guaranteed by agencies or instrumentalities of the U.S. government in the case
of securities guaranteed by the Federal National Mortgage Association (FNMA) or
the Federal Home Loan Mortgage Corporation (FHLMC), which are supported only by
the discretionary authority of the U.S. government to purchase the agency's
obligations.
Mortgage pass-through securities created by nongovernmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers, or the mortgage poolers.
The Portfolio may also invest in collateralized mortgage obligations
(CMOs). CMOs are mortgage-backed securities issued by government agencies;
single-purpose, stand-alone financial subsidiaries; trusts established by
financial institutions; or similar institutions. The Portfolio may buy CMOs that
meet the following criteria: (i) are collateralized by pools of mortgages in
which payment of principal and interest of each mortgage is guaranteed by an
agency or instrumentality of the U.S. government; (ii) are collateralized by
pools of mortgages in which payment of principal and interest are guaranteed by
the issuer, and the guarantee is collateralized by U.S. government securities;
and (iii) are securities in which the proceeds of the issue are invested in
mortgage securities and payments of principal and interest are supported by the
credit of an agency or instrumentality of the U.S. government. For a discussion
of certain risks involved in mortgage related and other asset-back securities,
see this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
Portfolio Turnover. Investment decisions to purchase and sell
securities are based on the anticipated contribution of the security in question
to the Portfolio's objectives. The rate of portfolio turnover is irrelevant when
the Sub-advisor believes a change is in order to achieve those objectives and
accordingly, the annual portfolio turnover rate cannot be anticipated.
The portfolio turnover of the Portfolio may be higher than other mutual
funds with similar investment objectives. Higher turnover would generate
correspondingly greater brokerage commissions, which is a cost that the
Portfolio pays directly. Portfolio turnover may also affect the character of
capital gains, if any, realized and distributed by the Portfolio since
short-term capital gains are taxable as ordinary income. For an additional
discussion of portfolio turnover, see the Trust's Statement of Additional
Information under "Investment Objectives and Policies" for the Twentieth Century
Strategic Balanced Portfolio.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may invest in repurchase agreements when
such transactions present an attractive short-term return on cash that is not
otherwise committed to the purchase of securities pursuant to the investment
policies of the Portfolio.
The Portfolio will limit repurchase agreement transactions to
securities issued by the United States government, its agencies and
instrumentalities, and will enter into such transactions with those banks and
securities dealers who are deemed creditworthy pursuant to criteria adopted by
the Trust's Board of Trustees. The Portfolio will invest no more than 15% of its
assets in repurchase agreements maturing in more than seven days. For a
discussion of repurchase agreements and certain risks involved therein, see this
Prospectus under "Certain Risk Factors and Investment Methods."
Derivative Securities. To the extent permitted by its investment
objectives and policies, the Portfolio may invest in securities that are
commonly referred to as "derivative" securities. Generally, a derivative is a
financial arrangement the value of which is based on, or "derived" from, a
traditional security, asset, or market index. Certain derivative securities are
more accurately described as "index/structured" securities. Index/structured
securities are derivative securities whose value or performance is linked to
other equity securities (such as depositary receipts), currencies, interest
rates, indices or other financial indicators ("reference indices").
Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways
to use them. Futures and options are commonly used for traditional hedging
purposes to attempt to protect a fund from exposure to changing interest rates,
securities prices, or currency exchange rates and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.
The Portfolio may not invest in a derivative security unless the
reference index or the instrument to which it relates is an eligible investment
for the Portfolio. For example, a security whose underlying value is linked to
the price of oil would not be a permissible investment since the Portfolio may
not invest in oil and gas leases or futures. The return on a derivative security
may increase or decrease, depending upon changes in the reference index or
instrument to which it relates.
There are a range of risks associated with derivative investments,
including: the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio manager
anticipates; the possibility that there may be no liquid secondary market, or
the possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position when
desired; the risk that adverse price movements in an instrument can result in a
loss substantially greater than the Portfolio's initial investment; and the risk
that the counterparty will fail to perform its obligations.
Risks of Futures and Options Contracts. For a discussion of certain
risks involved in futures and options contracts, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Portfolio Securities Lending. In order to realize additional income,
the Portfolio may lend its portfolio securities to persons not affiliated with
it and who are deemed to be creditworthy. Such loans must be secured
continuously by cash collateral maintained on a current basis in an amount at
least equal to the market value of the securities loaned, or by irrevocable
letters of credit. During the existence of the loan, the Portfolio must continue
to receive the equivalent of the interest and dividends paid by the issuer on
the securities loaned and interest on the investment of the collateral. The
Portfolio must have the right to call the loan and obtain the securities loaned
at any time on five days' notice, including the right to call the loan to enable
the Portfolio to vote the securities. Such loans may not exceed one-third of the
Portfolio's net assets taken at market. Interest on loaned securities may not
exceed 10% of the annual gross income of the Portfolio (without offset for
realized capital gains).
When-Issued Tranactions. The Portfolio may sometimes purchase new issues of
securities on a when-issued basis without limit when, in the opinion of the
Sub-advisor, such purchases will further the investment objectives of the
Portfolio. For a discussion of when-issued securities and certain risks involved
therein, see the Trust's Statement of Additional Information under "Certain Risk
Factors and Investment Methods."
Short Sales. The Portfolio may engage in short sales if, at the time of
the short sale, the Portfolio owns or has the right to acquire an equal amount
of the security being sold short at no additional cost. These transactions allow
the Portfolio to hedge against price fluctuations by locking in a sale price for
securities it does not wish to sell immediately.
The Portfolio may make a short sale when it wants to sell the security
it owns at a current attractive price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code and Regulations.
Rule 144A Securities. The Portfolio may, from time to time, purchase
Rule 144A securities when they present attractive investment opportunities that
otherwise meet the Portfolio's criteria for selection. Rule 144A securities are
securities that are privately placed with and traded among qualified
institutional buyers rather than the general public. Although Rule 144A
securities are considered "restricted securities," they are not necessarily
illiquid.
With respect to securities eligible for resale under Rule 144A, the
staff of the Securities and Exchange Commission has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the board of trustees to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the Board
of Trustees of the Trust is responsible for developing and establishing the
guidelines and procedures for determining the liquidity of Rule 144A securities.
As allowed by Rule 144A, the Board of Trustees has delegated the day-to-day
function of determining the liquidity of Rule 144A securities to the
Sub-advisor. The Board retains the responsibility to monitor the implementation
of the guidelines and procedures it has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and the Portfolio may, from time to time, hold a Rule 144A
security that is illiquid. In such an event, the Sub-advisor will consider
appropriate remedies to minimize the effect on the Portfolio's liquidity. The
Portfolio may not invest more than 15% of its assets in illiquid securities
(securities that may not be sold within seven days at approximately the price
used in determining the net asset value of Portfolio shares). For an additional
discussion of Rule 144A securities and illiquid or restricted securities, and
the risks involved therein, see this Prospectus under "Certain Risk Factors and
Investment Methods."
Borrowing. For a discussion of limitations on borrowing by the Portfolio
and certain risks involved in borrowing, see this Prospectus under "Certain Risk
Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."
AST Putnam Value Growth & Income Portfolio:
Investment Objective: The primary investment objective of the AST Putnam
Value Growth & Income Portfolio is to seek capital growth. Current income is a
secondary investment objective. These are fundamental objectives of the
Portfolio.
Investment Policies:
The Portfolio invests primarily in common stocks that offer potential
for capital growth, and may, consistent with its investment objectives, invest
in stocks that offer potential for current income. The Portfolio may also
purchase corporate bonds, notes and debentures, preferred stocks, or convertible
securities (both debt securities and preferred stocks) or U.S. government
securities, if the Sub-advisor determines that their purchase would help further
the Portfolio's investment objectives. The types of securities held by the
Portfolio may vary from time to time in light of the Portfolio's investment
objectives, changes in interest rates, and economic and other factors. When
selecting securities for the Portfolio that have the potential for capital
growth, the Sub-advisor will seek to identify securities that are significantly
undervalued in relation to underlying asset values or earnings potential. The
Portfolio may also hold a portion of its assets in cash or money market
instruments.
Defensive Strategies. At times, the Sub-advisor may judge that
conditions in the securities markets make pursuing the Portfolio's basic
investment strategy inconsistent with the best interests of its shareholders. At
such times, the Sub-advisor may temporarily use alternative strategies primarily
designed to reduce fluctuations in the value of the Portfolio's assets. In
implementing these defensive strategies, the Portfolio may invest without limit
in debt securities or preferred stocks, or invest in any other securities the
Sub-advisor considers consistent with such defensive strategies. It is
impossible to predict when, or for how long, the Portfolio will use these
alternative strategies.
Foreign Securities. The Portfolio may invest up to 20% of its assets in
securities denominated in foreign currency. The Portfolio may also purchase
Eurodollar certificates of deposit, without regard to the 20% limit. The
Portfolio may invest in securities principally traded in, or issued by issuers
located in, underdeveloped and developing nations, which are sometimes referred
to as "emerging markets." For a discussion of the special risks involved in
investing in developing countries and certain risks involved in foreign
investing, in general, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Risks of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Foreign Currency Transactions. The Portfolio may buy or sell foreign
currencies, foreign currency futures contracts and foreign currency forward
contracts for hedging purposes in connection with its foreign investments. For a
discussion of foreign currency transactions and certain risks involved therein,
see this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
Lower-Rated Fixed-Income Securities. The Portfolio may invest a portion
of its assets in fixed-income securities, including lower-rated fixed-income
securities, which are commonly known as "junk bonds," without limitation as to
credit rating. The values of lower-rated fixed-income securities fluctuate in
response to changes in interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of such securities. Conversely,
during periods of rising interest rates, the value of the Portfolio's assets
will generally decline. The values of lower-rated securities generally fluctuate
more than those of higher-rated securities. Securities in the lower rating
categories may, depending on their rating, have large uncertainties or major
exposure to adverse conditions, and may be of poor standing and predominantly
speculative. Certain lower-rated securities may be in default. Securities rated
Baa or BBB, while considered investment grade, are more vulnerable to adverse
economic conditions than securities in the higher-rated categories and have
speculative elements. The rating services' descriptions of securities in the
various rating categories, including the speculative characteristics of
securities in the lower rating categories, are set forth in the Appendix to the
Trust's Statement of Additional Information. For an additional discussion of
lower-rated securities and certain risks involved therein, see this Prospectus
and the Trust's Statement of Additional Information under "Certain Risk Factors
and Investment Methods."
Zero Coupon Bonds and Payment-in-Kind Bonds. The Portfolio may invest
in zero coupon bonds and payment-in-kind bonds. Zero coupon bonds are issued at
a significant discount from their principal amount and pay interest only at
maturity rather than at intervals during the life of the security.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. The values of
zero-coupon bonds and payment-in-kind bonds are subject to greater fluctuation
in response to changes in market interest rates than bonds which pay interest in
cash currently. Both zero coupon bonds and payment-in-kind bonds allow an issuer
to avoid the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current interest in cash,
the Portfolio is nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders.
For an additional discussion of zero coupon bonds and certain risks involved
therein, see the Trust's Statement of Additional Information under "Certain Risk
Factors and Investment Methods."
Stock Index Futures and Options. The Portfolio may buy and sell stock
index futures contracts. An "index future" is a contract to buy or sell units of
a particular stock index at an agreed price on a specified future date.
Depending on the change in value of the index between the time when the
Portfolio enters into and terminates an index futures transaction, the Portfolio
realizes a gain or loss. The Portfolio may buy and sell call and put options on
index futures or on stock indices in addition to or as an alternative to
purchasing or selling index futures or, to the extent permitted by applicable
law, to earn additional income.
Risks of Index Futures and Related Options. The use of index futures
and related options involves certain special risks. For an additional discussion
of index futures and related options and certain risks involved therein, see
this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
Options. The Portfolio may seek to increase its current return by
writing covered call and put options on securities it owns or in which it may
invest. The Portfolio receives a premium from writing a call or put option,
which increases the return if the option expires unexercised or is closed out at
a net profit.
When the Portfolio writes a call option, it gives up the opportunity to
profit from any increase in the price of a security above the exercise price of
the option; when it writes a put option, the Portfolio takes the risk that it
will be required to purchase a security from the option holder at a price above
the current market price of the security. The Portfolio may terminate an option
that it has written prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms as the option
written.
The Portfolio may also buy and sell put and call options for hedging
purposes. From time to time, the Portfolio may also buy and sell combinations of
put and call options on the same underlying security to earn additional income.
The aggregate value of the securities underlying the options may not exceed 25%
of Portfolio assets. The use of these strategies may be limited by applicable
law.
Risks of Options Transactions. The use of options transactions involves
certain special risks. For an additional discussion of options transactions and
certain risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Lending Portfolio Securities. The Portfolio may lend its securities to
broker-dealers. Such transactions must be fully collateralized at all times.
These transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction. For a discussion of
securities lending and certain risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements.
Such transactions must be fully collateralized at all times. These transactions
involve some risk to the Portfolio if the other party should default on its
obligation and the Portfolio is delayed or prevented from recovering the
collateral or completing the transaction. For a discussion of repurchase
agreements and certain risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Forward Commitments. The Portfolio may purchase securities for future
delivery, which may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the settlement date.
These transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction. For a discussion of
forward commitments and certain risks involved therein, see the Trust's
Statement of Additional Information under "Investment Objectives and Policies."
Borrowing. For a discussion of limitations on borrowing by the Portfolio
and certain risks involved in borrowing, see this Prospectus under "Certain Risk
Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."
Portfolio Turnover. The length of time the Portfolio has held a
particular security is not generally a consideration in investment decisions. A
change in the securities held by the Portfolio is known as "portfolio turnover."
As a result of the Portfolio's investment policies, under certain market
conditions the Portfolio's turnover rate may be higher than that of other mutual
funds. Portfolio turnover generally involves some expense to the Portfolio,
including brokerage commissions or dealer markups and other transaction costs on
the sale of securities and reinvestment in other securities.
AST Putnam International Equity Portfolio:
Investment Objective: The investment objective of the AST Putnam
International Equity Portfolio is to seek capital appreciation. This is a
fundamental objective of the Portfolio.
Investment Policies:
The Portfolio seeks its objective by investing primarily in equity
securities of companies located in a country other than the United States. The
Portfolio's investments will normally include common stocks, preferred stocks,
securities convertible into common or preferred stocks, and warrants to purchase
common or preferred stocks. The Portfolio may also invest to a lesser extent in
debt securities and other types of investments if the Sub-advisor believes
purchasing them would help achieve the Portfolio's objective. The Portfolio
will, under normal circumstances, invest at least 65% of its total assets in
issuers located in at least three different countries other than the United
States. The Portfolio may hold a portion of its assets in cash or money market
instruments.
The Portfolio will consider an issuer of securities to be "located in a
country other than the United States" if it is organized under the laws of a
country other than the United States and has a principal office outside the
United States, or if it derives 50% or more of its total revenues from business
outside the United States. The Portfolio may invest in securities of issuers in
emerging markets, as well as more developed markets. Investing in emerging
markets generally involves more risks then in investing in developed markets.
See "Risks of Foreign Investments" below.
The Portfolio will not limit its investments to any particular type of
company. The Portfolio may invest in companies, large or small, whose earnings
are believed to be in a relatively strong growth trend, or in companies in which
significant further growth is not anticipated but whose market value per share
is thought to be undervalued. It may invest in small and relatively less
well-known companies which meet these characteristics.
The Sub-advisor believes that the securities markets of many nations
move relatively independently of one another, because business cycles and other
economic or political events that influence one country's securities markets may
have little effect on securities markets in other countries. By investing in a
diversified portfolio of foreign securities, the Sub-advisor attempts to reduce
the risks associated with being invested in the economy of only one country. The
countries which the Sub-advisor believes offer attractive opportunities for
investment may change from time to time.
The Portfolio may seek investment opportunities among securities of
large, widely-traded companies as well as securities of smaller, less well known
companies. Smaller companies may present greater opportunities for capital
appreciation, but may also involve greater risks. They may have limited product
lines, markets or financial resources, or may depend on a limited management
group. Their securities may trade less frequently and in limited volume. As a
result, the prices of these securities may fluctuate more than prices of
securities of larger, more established companies.
Defensive Strategies. At times, the Sub-advisor may judge that
conditions in the international securities markets make pursuing the Portfolio's
basic investment strategy inconsistent with the best interests of its
shareholders. At such times, the Sub-advisor may temporarily use alternative
strategies, primarily designed to reduce fluctuations in the value of portfolio
assets. In implementing these defensive strategies, the Portfolio may invest
without limit in cash and money market instruments, securities primarily traded
in the U.S. markets, or in any other securities the Sub-advisor considers
consistent with such defensive strategies.
Risks of Foreign Investments. Since foreign securities are normally
denominated and traded in foreign currencies, the values of portfolio assets may
be affected favorably or unfavorably by currency exchange rates relative to the
U.S. dollar. There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers may not be subject to
accounting standards comparable to those in the United States. The securities of
some foreign companies are less liquid and at times more volatile than
securities of comparable U.S. companies. Foreign brokerage commissions and other
fees are also generally higher than those in the United States. Foreign
settlement procedures and trade regulations may involve certain risks (such as
delay in payment or delivery of securities or in the recovery of portfolio
assets held abroad) and expenses not present in the settlement of domestic
investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability and diplomatic developments that
could affect the value of investments in certain foreign countries. Legal
remedies available to investors in certain foreign countries may be limited. The
laws of some foreign countries may limit investments in securities of certain
issuers located in those foreign countries. Special tax considerations apply to
foreign securities.
The risks described above are typically greater in less developed
nations, sometimes referred to as "emerging markets." For instance, political
and economic structures in these countries may be in their infancy and
developing rapidly, causing instability. High rates of inflation may adversely
affect the economies and securities markets of such countries. In addition, the
small size, limited trading volume and relative inexperience of the securities
markets in these countries may make investments in such countries less liquid
and more volatile than investments in more developed countries. Investments in
emerging markets are regarded as speculative. For an additional discussion of
the special risks involved in investing in developing countries and certain
risks involved in foreign investing, in general, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Options and Futures Transactions. The Portfolio may engage in a variety
of transactions involving the use of options and futures contracts and in
foreign currency exchange transactions for purposes of increasing its investment
return or hedging against market changes. The Portfolio may seek to increase its
current return by writing covered call options and covered put options on its
portfolio securities or other securities in which it may invest. The Portfolio
receives a premium from writing a call or put option, which increases the
Portfolio's return if the option expires unexercised or is closed out at a net
profit. The Portfolio may also buy and sell put and call options on such
securities for hedging purposes. When the Portfolio writes a call option on a
portfolio security, it gives up the opportunity to profit from any increase in
the price of the security above the exercise price of the option; when it writes
a put option, the Portfolio takes the risk that it will be required to purchase
a security from the option holder at a price above the current market price of
the security. The Portfolio may terminate an option that it has written prior to
its expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Portfolio
may also from time to time buy and sell combinations of put and call options on
the same underlying security to earn additional income.
The Portfolio may buy and sell index futures contracts for hedging
purposes. An "index future" is a contract to buy or sell units of a particular
index at an agreed price on a specified future date. Depending on the change in
value of the index between the time when the Portfolio enters into and
terminates an index future transaction, the Portfolio realizes a gain or loss.
The Portfolio may also purchase and sell call and put options on index futures
or on indices in addition or as an alternative to purchasing or selling index
futures or, to the extent permitted by applicable law, to earn additional
income. The Portfolio may also purchase warrants, issued by banks and other
financial institutions, whose values are based on the values from time to time
of one or more securities indices.
Risks of Options and Futures Transactions. Options and futures
transactions involve costs and may result in losses. Options and futures
transactions involve certain special risks, including the risks that the
Portfolio may be unable at times to close out such positions, that transactions
may not accomplish their purposes because of imperfect market correlations, or
that the Sub-advisor may not forecast market movements correctly.
The effective use of options and futures strategies depends on the
Portfolio's ability to terminate options and futures positions at times when the
Sub-advisor deems it desirable to do so. Although the Portfolio will enter into
an option or futures contract position only if the Sub-advisor believes that a
liquid secondary market exists for such option or futures contract, there is no
assurance that the Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price.
The Portfolio generally expects that its options and futures contract
transactions will be conducted on recognized exchanges. In certain instances,
however, the Portfolio may purchase and sell options in the over-the-counter
markets. The Portfolio's ability to terminate options in over-the-counter
markets may be more limited than for exchange-traded options and may also
involve the risk that securities dealers participating in such transactions
would be unable to meet their obligations to the Portfolio.
The use of options and futures strategies also involves the risk of
imperfect correlation between movements in the prices of options and futures
contracts and movements in the value of the underlying securities, securities
index or foreign currency, or in the prices of the securities or currency that
are the subject of a hedge. Cross hedging transactions by the Portfolio involve
the risk of imperfect correlation between changes in the values of the
currencies to which such transactions relate and changes in the value of the
currency or other asset or liability which is the subject of the hedge. The
successful use of these strategies further depends on the ability of the
Sub-advisor to forecast market movements correctly.
Because the markets for certain options and futures contracts in which
the Portfolio will invest (including markets located in foreign countries) are
relatively new and still developing and may be subject to regulatory restraints,
the Portfolio's ability to engage in transactions using such investments may be
limited. The Portfolio's ability to engage in hedging transactions may be
limited by certain regulatory requirements and tax considerations. The
Portfolio's hedging transactions may affect the character or amount of the
Portfolio's distributions. For an additional discussion of options and futures
transactions and certain risks involved therein, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Foreign Currency Exchange Transactions. The Portfolio may engage in
foreign currency exchange transactions to protect against uncertainty in the
level of future exchange rates. The Sub-advisor may engage in foreign currency
exchange transactions in connection with the purchase and sale of portfolio
securities ("transaction hedging") and to protect against changes in the value
of specific portfolio positions ("position hedging").
The Portfolio may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which the
Portfolio contracts to purchase or sell a security and the settlement date, or
to "lock in" the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. The Portfolio may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in that foreign
currency.
If conditions warrant, for transaction hedging purposes the Portfolio
may also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts. A foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be higher or
lower than the spot rate. Foreign currency futures contracts are standardized
exchange-traded contracts and have margin requirements. In addition, for
transaction hedging purposes the Portfolio may also purchase or sell
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies.
The Portfolio may engage in position hedging to protect against a
decline in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in value of a
currency in which securities the Portfolio intends to buy are denominated). For
position hedging purposes, the Portfolio may purchase or sell foreign currency
futures contacts, foreign currency forward contracts, and options on foreign
currency futures contracts and on foreign currencies. In connection with
position hedging, the Portfolio may also purchase or sell foreign currency on a
spot basis.
The Portfolio's currency hedging transactions may call for the delivery
of one foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. The Sub-advisor will engage in such "cross hedging" activities when
it believes that such transactions provide significant hedging opportunities for
the Portfolio. Cross hedging transactions by the Portfolio involve the risk of
imperfect correlation between changes in the values of the currencies to which
such transactions relate and changes in the value of the currency or other asset
or liability which is the subject of the hedge.
The decision as to whether and to what extent the Portfolio will engage
in foreign currency exchange transactions will depend on a number of factors,
including prevailing market conditions, the composition of the Portfolio's
portfolio and the availability of suitable transactions. Accordingly, there can
be no assurance that the Portfolio will engage in foreign currency exchange
transactions at any given time or from time to time.
Lending Portfolio Securities. The Portfolio may lend its securities to
broker-dealers. Such transactions must be fully collateralized at all times.
These transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction. For a discussion of
securities lending and certain risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements.
Such transactions must be fully collateralized at all times. These transactions
involve some risk to the Portfolio if the other party should default on its
obligation and the Portfolio is delayed or prevented from recovering the
collateral or completing the transaction. For a discussion of repurchase
agreements and certain risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Forward Commitments. The Portfolio may purchase securities for future
delivery, which may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the settlement date.
These transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction. For a discussion of
forward commitments and certain risks involved therein, see the Trust's
Statement of Additional Information under "Investment Objectives and Policies."
Borrowing. For a discussion of limitations on borrowing by the Portfolio
and certain risks involved in borrowing, see this Prospectus under "Certain Risk
Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."
Portfolio Turnover. The length of time the Portfolio has held a
particular security is not generally a consideration in investment decisions. A
change in the securities held by the Portfolio is known as "portfolio turnover."
As a result of the Portfolio's investment policies, under certain market
conditions the Portfolio's portfolio turnover rate may be higher than that of
other mutual funds. Portfolio turnover generally involves some expense to the
Portfolio, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in other
securities.
AST Putnam Balanced Portfolio:
Investment Objective: The investment objective of the AST Putnam Balanced
Portfolio is to provide a balanced investment composed of a well-diversified
portfolio of stocks and bonds which will produce both capital growth and current
income. This is a fundamental objective of the Portfolio.
Investment Policies:
In seeking its objective the Portfolio may invest in almost any type of
security or negotiable instrument, including cash or money market instruments.
The Portfolio's portfolio will include some securities selected primarily to
provide for capital protection, others selected for dependable income and still
others for growth in value. The portion of the Portfolio's assets invested in
equity securities and fixed income securities will vary from time to time in
light of the Portfolio's investment objective, changes in interest rates and
economic and other factors. However, under normal market conditions, it is
expected that at least 25% of the Portfolio's total assets will be invested in
fixed income securities, which for this purpose includes debt securities,
preferred stocks and that portion of the value of convertible securities
attributable to the fixed income characteristics of those securities.
Defensive Strategies. At times, the Sub-advisor may judge that
conditions in the securities markets make pursuing the Portfolio's basic
investment strategy inconsistent with the best interests of its shareholders. At
such times, the Sub-advisor may temporarily use alternative strategies primarily
designed to reduce fluctuations in the value of the Portfolio's assets. In
implementing these defensive strategies, the Portfolio may concentrate its
investments in debt securities, preferred stocks, cash or money market
instruments or invest in any other securities the Sub-advisor considers
consistent with such defensive strategies. It is impossible to predict when, or
for how long, the Portfolio will use these alternative strategies.
Foreign Securities. The Portfolio may invest up to 20% of its assets in
securities denominated in foreign currency. The Portfolio may also purchase
Eurodollar certificates of deposit without regard to the 20% limit. The
Portfolio may invest in securities principally traded in, or issued by issuers
located in, underdeveloped and developing nations, which are sometimes referred
to as "emerging markets." For a discussion of the special risks involved in
investing in developing countries and certain risks involved in foreign
investing, in general, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Risks of Currency Fluctuations. The value of Portfolio investments
denominated in foreign currencies may be affected, favorably or unfavorably, by
the relative strength of the U.S. dollar, changes in foreign currency and U.S.
dollar exchange rates and exchange control regulations. The Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets and in some cases, exchange controls. For an additional
discussion of the risks of currency fluctuations, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Foreign Currency Transactions. The Portfolio may buy or sell foreign
currencies and foreign currency forward contracts for hedging purposes in
connection with its foreign investments. For a discussion of foreign currency
transactions and certain risks involved therein, see this Prospectus and the
Trust's Statement of Additional Information under "Certain Risk Factors and
Investment Methods."
Fixed-Income Securities. The Portfolio may invest in both higher-rated
and lower-rated fixed-income securities. The values of fixed-income securities
fluctuate in response to changes in interest rates. Thus, a decrease in interest
rates will generally result in an increase in the value of the Portfolio's
fixed-income securities. Conversely, during periods of rising interest rates,
the value of the Portfolio's fixed-income securities will generally decline. In
addition, the values of such securities are affected by changes in general
economic conditions and business conditions affecting the specific industries of
their issuers. Changes by recognized rating services in their ratings of any
fixed-income security and in the ability of an issuer to make payments of
interest and principal may also affect the value of these investments. Changes
in the value of portfolio securities generally will not affect income derived
from such securities, but will affect the Portfolio's net asset value. The
values of lower-rated securities generally fluctuate more than those of
higher-rated securities.
The Portfolio will not invest in securities rated at the time of
purchase lower than B by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's ("S&P"), or in unrated securities which the Sub-advisor
determines are of comparable quality. Securities rated B are predominantly
speculative and have large uncertainties or major risk exposures to adverse
conditions. Securities rated lower than Baa by Moody's or BBB by S&P and unrated
securities of comparable quality are sometimes referred to as "junk bonds." The
rating services' descriptions of securities in the various rating categories,
including the speculative characteristics of securities in the lower rating
categories, are set forth in the Appendix to the Trust's Statement of Additional
Information. The Portfolio will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase, although the
Sub-advisor will monitor the investment to determine whether continued
investment in the security will assist in meeting the Portfolio's investment
objective.
The Sub-advisor seeks to minimize the risks of investing in lower-rated
securities through careful investment analysis. When the Portfolio invests in
securities in the lower rating categories, the achievement of the Portfolio's
goals is more dependent on the Sub-advisor's ability than would be the case if
the Portfolio were investing in securities in the higher rating categories. For
an additional discussion of lower-rated securities and certain risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
At times, a substantial portion of portfolio assets may be invested in
securities as to which the Portfolio, by itself or together with other funds and
accounts managed by the Sub-advisor and its affiliates, holds all or a major
portion. Under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the Portfolio could find it
more difficult to sell these securities when the Sub-advisor believes it
advisable to do so or may be able to sell the securities only at prices lower
than if they were more widely held. Under these circumstances, it may also be
more difficult to determine the fair value of such securities for purposes of
computing the Portfolio's net asset value. In order to enforce its rights in the
event of a default of these securities, the Portfolio may be required to
participate in various legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could increase the
Portfolio's operating expenses and adversely affect the Portfolio's net asset
value.
Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates, the
Portfolio may not be able to reinvest the proceeds in securities providing the
same investment return as the securities redeemed.
Zero Coupon Bonds. The Portfolio may invest in so-called zero coupon
bonds whose values are subject to greater fluctuation in response to changes in
market interest rates than bonds that pay interest currently. Zero coupon bonds
are issued at a significant discount from face value and pay interest only at
maturity rather than at intervals during the life of the security. Zero coupon
bonds allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit risks than
bonds paying interest currently. The Portfolio is required to accrue and
distribute income from zero coupon bonds on a current basis, even though it does
not receive that income currently in cash. Thus the Portfolio may have to sell
other investments to obtain cash needed to make income distributions. For an
additional discussion of zero coupon bonds and certain risks involved therein,
see the Trust's Statement of Additional Information under "Certain Risk Factors
and Investment Methods."
Financial Futures, Index Futures and Options. The Portfolio may buy and
sell financial futures contracts on stock indexes, U.S. government securities,
fixed income securities and currencies. A futures contract is a contract to buy
or sell units of a particular stock index, or a certain amount of a U.S.
government security, foreign fixed income security or foreign currency, at an
agreed price on a specified future date. Depending on the change in value of the
index, security or currency between the time a fund enters into and terminates a
futures contract, that fund realizes a gain or loss. The Portfolio may purchase
and sell futures contracts for hedging purposes and for non-hedging purposes,
such as to adjust its exposure to the relevant stock or bond markets. For
example, when the Sub-advisor wants to increase the Portfolio's exposure to
equity securities, it may do so by taking long positions in futures contracts on
equity indices such as futures contracts on the Standard & Poor's 500 Composite
Stock Price Index. Similarly, when the Sub-advisor wants to increase the
Portfolio's exposure to fixed income securities, it may do so by taking long
positions in futures contracts relating to fixed income securities such as
futures contracts on U.S. Treasury securities.
The Portfolio may buy and sell call and put options on futures
contracts or on stock indices in addition to or as an alternative to purchasing
or selling futures contracts or to earn additional income.
Risks of Options and Futures Transactions. The effective use of options
and futures strategies depends on the Portfolio's ability to terminate options
and futures positions at times when the Sub-advisor deems it desirable to do so.
Although the Portfolio will enter into an option or futures contract position
only if the Sub-advisor believes that a liquid secondary market exists for such
option or futures contract, there is no assurance that the Portfolio will be
able to effect closing transactions at any particular time or at an acceptable
price. Options on certain U.S. government securities are traded in significant
volume on securities exchanges. However, other options which the Portfolio may
purchase or sell are traded in the "over-the-counter" market rather than on an
exchange. This means that the Portfolio will enter into such option contracts
with particular securities dealers who make markets in these options. The
Portfolio's ability to terminate options positions in the over-the-counter
market may be more limited than for exchange-traded options and may also involve
the risk that securities dealers participating in such transactions might fail
to meet their obligations to the Portfolio. For an additional discussion of
options and futures transactions and certain risks involved therein, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
Options. The Portfolio may seek to increase its current return by
writing covered call and put options on securities it owns or in which it may
invest. The Portfolio receives a premium from writing a call or put option,
which increases the return if the option expires unexercised or is closed out at
a net profit.
When the Portfolio writes a call option, it gives up the opportunity to
profit from any increase in the price of a security above the exercise price of
the option; when it writes a put option, the Portfolio takes the risk that it
will be required to purchase a security from the option holder at a price above
the current market price of the security. The Portfolio may terminate an option
that it has written prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms as the option
written.
The Portfolio may also buy and sell put and call options for hedging
purposes. From time to time, the Portfolio may also buy and sell combinations of
put and call options on the same underlying security to earn additional income.
The aggregate value of the securities underlying the options may not exceed 25%
of portfolio assets. The use of these strategies may be limited by applicable
law.
Risks of Options Transactions. The use of options transactions involves
certain special risks. For an additional discussion of option transactions and
certain risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Lending Portfolio Securities. The Portfolio may lend its securities to
broker-dealers. Such transactions must be fully collateralized at all times.
These transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction. For a discussion of
securities lending and certain risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements.
Such transactions must be fully collateralized at all times. These transactions
involve some risk to the Portfolio if the other party should default on its
obligation and the Portfolio is delayed or prevented from recovering the
collateral or completing the transaction. For a discussion of repurchase
agreements and certain risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods" and the Trust's Statement of
Additional Information under "Investment Objectives and Policies."
Forward Commitments. The Portfolio may purchase securities for future
delivery, which may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the settlement date.
These transactions involve some risk to the Portfolio if the other party should
default on its obligation and the Portfolio is delayed or prevented from
recovering the collateral or completing the transaction. For a discussion of
forward commitments and certain risks involved therein, see the Trust's
Statement of Additional Information under "Investment Objectives and Policies."
Borrowing. For a discussion of limitations on borrowing by the Portfolio
and certain risks involved in borrowing, see this Prospectus under "Certain Risk
Factors and Investment Methods" and the Trust's Statement of Additional
Information under "Investment Restrictions."
Portfolio Turnover. The length of time the Portfolio has held a
particular security is not generally a consideration in investment decisions. A
change in the securities held by the Portfolio is known as "portfolio turnover."
As a result of the Portfolio's investment policies, under certain market
conditions the Portfolio's turnover rate may be higher than that of other mutual
funds. Portfolio turnover generally involves some expense to the Portfolio,
including brokerage commissions or dealer markups and other transaction costs on
the sale of securities and reinvestment in other securities.
CERTAIN RISK FACTORS AND INVESTMENT METHODS:
Some of the risk factors related to certain securities, instruments and
techniques that may be used by one or more of the Portfolios are described in
the "Investment Objectives and Policies" section of this Prospectus and in the
"Investment Objectives and Policies" and "Certain Risk Factors and Investment
Methods" section of the Trust's Statement of Additional Information. The
following is a description of certain additional risk factors related to various
securities, instruments and techniques. The risks so described only apply to
those Portfolios which may invest in such securities and instruments or use such
techniques. Also included is a general description of some of the investment
instruments, techniques and methods which may be used by one or more of the
Portfolios. The methods described only apply to those Portfolios which may use
such methods.
Derivative Instruments:
To the extent permitted by the investment objectives and policies of a
Portfolio, a Portfolio may purchase and write call and put options on
securities, securities indexes and foreign currencies, and enter into futures
contracts and use options on futures contracts. A Portfolio also may enter into
swap agreements with respect to foreign currencies, interest rates, and
securities indexes. A Portfolio may use these techniques to hedge against
changes in interest rates, foreign currency exchange rates or securities prices
or as part of their overall investment strategies. A Portfolio may also purchase
and sell options relating to foreign currencies for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another.
Derivative instruments may consist of securities or other instruments
whose value is derived from or related to the value of some other instrument or
asset, and does not include those securities whose payment of principal and/or
interest depend upon cash flows from underlying assets, such as mortgage or
asset-backed securities. The value of some derivative instruments in which a
Portfolio invests may be particularly sensitive to changes in prevailing
interest rates, and, like the other investments of a Portfolio, the ability of
the Portfolio to successfully utilize these instruments may depend in part upon
the ability of the Sub-advisor to forecast interest rates and other economic
factors correctly. If the Sub-advisor incorrectly forecasts such factors and has
taken positions in derivative instruments contrary to prevailing market trends,
the Portfolio could be exposed to the risk of a loss.
A Portfolio might not employ any of the strategies described below, and
no assurance can be given that any strategy used will succeed. If a Sub-advisor
incorrectly forecasts interest rates, market values or other economic factors in
utilizing a derivatives strategy for a Portfolio, the Portfolio might have been
in a better position if it had not entered into the transaction at all. The use
of these strategies involves certain special risks, including a possible
imperfect correlation, or even no correlation, between price movements of
derivative instruments and price movements of related investments; the fact
that, while some strategies involving derivative instruments can reduce the risk
of loss, they can also reduce the opportunity for gain, or even result in
losses, by offsetting favorable price movements in related investments; and the
possible inability of the Portfolio to purchase or sell a portfolio security at
a time that otherwise would be favorable for it to do so, or the possible need
for the Portfolio to sell a portfolio security at a disadvantageous time, due to
the need for the Portfolio to maintain asset coverage or offsetting positions in
connection with transactions in derivative instruments and the possible
inability of the Portfolio to close out or to liquidate its derivatives
positions.
Asset-Backed Securities:
Asset-backed securities represent a participation in, or are secured by
and payable from, a stream of payments generated by particular assets, for
example, credit card, automobile or trade receivables. Asset-backed commercial
paper, one type of asset-backed security, is issued by a special purpose entity,
organized solely to issue the commercial paper and to purchase interests in the
assets. The credit quality of these securities depends primarily upon the
quality of the underlying assets and the level of credit support and/or
enhancement provided.
The underlying assets (e.g., loans) are subject to prepayments which
shorten the securities' weighted average life and may lower their return. If the
credit support or enhancement is exhausted, losses or delays in payment may
result if the required payments of principal and interest are not made. The
value of these securities also may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the pool, the
originator of the pool, or the financial institution providing the credit
support or enhancement.
Mortgage Pass-Through Securities:
Mortgage pass-through securities are securities representing interests
in "pools" of mortgage loans secured by residential or commercial real property
in which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on some mortgage-related securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) expose a Portfolio to a lower rate
of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment the value
of the premium would be lost. Like other fixed-income securities, when interest
rates rise, the value of a mortgage-related security will generally decline;
however, when interest rates are declining, the value of mortgage-related
securities with prepayment features may not increase as much as other
fixed-income securities. The value of these securities also may change because
of changes in the market's perception of the creditworthiness of the federal
agency or private institution that issued them. In addition, the mortgage
securities market in general may be adversely affected by changes in
governmental regulation or tax policies.
Collateralized Mortgage Obligations (CMOs):
CMOs are obligations fully collateralized by a portfolio of mortgages
or mortgage-related securities. Payments of principal and interest on the
mortgages are passed through to the holders of the CMOs on the same schedule as
they are received, although certain classes of CMOs have priority over others
with respect to the receipt of prepayments on the mortgages. Therefore,
depending on the type of CMOs in which a Portfolio invests, the investment may
be subject to a greater or lesser risk of prepayment than other types of
mortgage-related securities. CMOs may also be less marketable than other
securities.
Stripped Agency Mortgage-Backed Securities:
Stripped Agency Mortgage-Backed securities represent interests in a
pool of mortgages, the cash flow of which has been separated into its interest
and principal components. "IOs" (interest only securities) receive the interest
portion of the cash flow while "POs" (principal only securities) receive the
principal portion. Stripped Agency Mortgage-Backed Securities may be issued by
U.S. Government Agencies or by private issuers similar to those described above
with respect to CMOs and privately-issued mortgage-backed certificates. As
interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. The value of the other mortgage-backed securities
described herein, like other debt instruments, will tend to move in the opposite
direction compared to interest rates.
The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to recoup fully its
initial investment in an IO class of a stripped mortgage-backed security, even
if the IO class is rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the price on a PO class will be affected
more severely than would be the case with a traditional mortgage-backed
security.
Options:
Call Options. A call option on a security gives the purchaser of the
option, in return for a premium paid to the writer (seller), the right to buy
the underlying security at the exercise price at any time during the option
period. Upon exercise by the purchaser, the writer (seller) of a call option has
the obligation to sell the underlying security at the exercise price. When a
Portfolio purchases a call option, it will pay a premium to the party writing
the option and a commission to the broker selling the option. If the option is
exercised by such Portfolio, the amount of the premium and the commission paid
may be greater than the amount of the brokerage commission that would be charged
if the security were to be purchased directly. By writing a call option, a
Portfolio assumes the risk that it may be required to deliver the security
having a market value higher than its market value at the time the option was
written. The Portfolio will write call options in order to obtain a return on
its investments from the premiums received and will retain the premiums whether
or not the options are exercised. Any decline in the market value of Portfolio
securities will be offset to the extent of the premiums received (net of
transaction costs). If an option is exercised, the premium received on the
option will effectively increase the exercise price.
During the option period the writer of a call option has given up the
opportunity for capital appreciation above the exercise price should market
price of the underlying security increase, but has retained the risk of loss
should the price of the underlying security decline. Writing call options also
involves the risk relating to a Portfolio's ability to close out options it has
written.
A call option on a securities index is similar to a call option on an
individual security, except that the value of the option depends on the weighted
value of the group of securities comprising the index and all settlements are
made in cash. A call option may be terminated by the writer (seller) by entering
into a closing purchase transaction in which it purchases an option of the same
series as the option previously written.
Put Options. A put option on a security gives the purchaser of the
option, in return for premium paid to the writer (seller), the right to sell the
underlying security at the exercise price at any time during the option period.
Upon exercise by the purchaser, the writer of a put option has the obligation to
purchase the underlying security at the exercise price. By writing a put option,
a Portfolio assumes the risk that it may be required to purchase the underlying
security at a price in excess of its current market value.
A put option on a securities index is similar to a put option on an
individual security, except that the value of the option depends on the weighted
value of the group of securities comprising the index and all settlements are
made in cash.
A Portfolio may sell a call option or a put option which it has
previously purchased prior to purchase (in the case of a call) or the sale (in
the case of a put) of the underlying security. Any such sale would result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the call or put which
is sold.
Futures Contracts and Related Options:
A financial futures contract calls for delivery of a particular
security at a certain time in the future. The seller of the contract agrees to
make delivery of the type of security called for in the contract and the buyer
agrees to take delivery at a specified future time. A Portfolio may also write
call options and purchase put options on financial futures contracts as a hedge
to attempt to protect the Portfolio's securities from a decrease in value. When
a Portfolio writes a call option on a futures contract, it is undertaking the
obligation of selling a futures contract at a fixed price at any time during a
specified period if the option is exercised. Conversely, the purchaser of a put
option on a futures contract is entitled (but not obligated) to sell a futures
contract at a fixed price during the life of the option.
Financial futures contracts consist of interest rate futures contracts
and securities index futures contracts. An interest rate futures contract
obligates the seller of the contract to deliver, and the purchaser to take
delivery of, interest rate securities called for in a contract at a specified
future time at a specified price. A stock index assigns relative values to
common stocks included in the index and the index fluctuates with changes in the
market values of the common stocks included. A stock index futures contract is a
bilateral contract pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. An
option on a financial futures contract gives the purchaser the right to assume a
position in the contract (a long position if the option is a call and a short
position if the option is a put) at a specified exercise price at any time
during the period of the option.
Futures contracts and options can be highly volatile and could result
in reduction of a Portfolio's total return, and a Portfolio's attempt to use
such investments for hedging purposes may not be successful. Successful futures
strategies require the ability to predict future movements in securities prices,
interest rates and other economic factors. A Portfolio's potential losses from
the use of futures extends beyond its initial investment in such contracts.
Also, losses from options and futures could be significant if a Portfolio is
unable to close out its position due to distortions in the market or lack of
liquidity.
The use of futures, options and forward contracts involves investment
risks and transaction costs to which a Portfolio would not be subject absent the
use of these strategies. If a Sub-advisor seeks to protect a Portfolio against
potential adverse movements in the securities, foreign currency or interest rate
markets using these instruments, and such markets do not move in a direction
adverse to such Portfolio, such Portfolio could be left in a less favorable
position than if such strategies had not been used. Risks inherent in the use of
futures, options, forward contracts and swaps include: (a) the risk that
interest rates, securities prices and currency markets will not move in the
directions anticipated; (b) imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; (c) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (d) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (e) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. A Portfolio's ability to terminate option positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to such
Portfolio.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of securities which are the subject of a hedge. Such correlation,
particularly with respect to options on stock indices and stock index futures,
is imperfect, and such risk increases as the composition of the Portfolio
diverges from the composition of the relevant index. The successful use of these
strategies also depends on the ability of the Sub-advisor to correctly forecast
interest rate movements and general stock market price movements.
Foreign Securities:
Investments in securities of foreign issuers may involve risks that are
not present with domestic investments. While investments in foreign securities
are intended to reduce risk by providing further diversification, such
investments involve sovereign risk in addition to credit and market risks.
Sovereign risk includes local political or economic developments, potential
nationalization, withholding taxes on dividend or interest payments, and
currency blockage (which would prevent cash from being brought back to the
United States). Compared to United States issuers, there is generally less
publicly available information about foreign issuers and there may be less
governmental regulation and supervision of foreign stock exchanges, brokers and
listed companies. Fixed brokerage commissions on foreign securities exchanges
are generally higher than in the United States. Foreign issuers are not
generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
issuers. Securities of some foreign issuers are less liquid and their prices are
more volatile than securities of comparable domestic issuers. In some countries,
there may also be the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, difficulty in enforcing
contractual and other obligations, political or social instability or
revolution, or diplomatic developments which could affect investments in those
countries. Settlement of transactions in some foreign markets may be delayed or
less frequent than in the United States, which could affect the liquidity of
investments. For example, securities which are listed on foreign exchanges or
traded in foreign markets may trade on days (such as Saturday or Holidays) when
a Portfolio does not compute its price or accept orders for the purchase,
redemption or exchange of its shares. As a result, the net asset value of a
Portfolio may be significantly affected by trading on days when shareholders
cannot make transactions. Further, it may be more difficult for the Trust's
agents to keep currently informed about corporate actions which may affect the
price of portfolio securities. Communications between the U.S. and foreign
countries may be less reliable than within the U.S., increasing the risk of
delayed settlements or loss of certificates for portfolio securities.
Investments by a Portfolio in foreign companies may require such
Portfolio to hold securities and funds denominated in a foreign currency.
Foreign investments may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations. Thus, such a Portfolio's net
asset value per share will be affected by changes in currency exchange rates.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders of such a Portfolio. Foreign currency exchange rates generally are
determined by the forces of supply and demand in foreign exchange markets and
the relative merits of investment in different countries, actual or perceived
changes in interest rates or other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks or
the failure to intervene, or by currency controls or political developments in
the U.S. or abroad. In addition, a Portfolio may incur costs in connection with
conversions between various currencies. Investors should understand and consider
carefully the special risks involved in foreign investing. These risks are often
heightened for investments in emerging or developing countries.
Developing Countries. Investing in developing countries involves
certain risks not typically associated with investing in U.S. securities, and
imposes risks greater than, or in addition to, risks of investing in foreign,
developed countries. These risks include: the risk of nationalization or
expropriation of assets or confiscatory taxation; currency devaluations and
other currency exchange rate fluctuations; social, economic and political
uncertainty and instability (including the risk of war); more substantial
government involvement in the economy; higher rates of inflation; less
government supervision and regulation of the securities markets and participants
in those markets; controls on foreign investment and limitations on repatriation
of invested capital and on a Portfolio's ability to exchange local currencies
for U.S. dollars; unavailability of currency hedging techniques in certain
developing countries; the fact that companies in developing countries may be
smaller, less seasoned and newly organized companies; the difference in, or lack
of, auditing and financial reporting standards, which may result in
unavailability of material information about issuers; the risk that it may be
more difficult to obtain and/or enforce a judgment in a court outside the United
States; and greater price volatility, substantially less liquidity and
significantly smaller market capitalization of securities markets.
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs"):
ADRs are dollar-denominated receipts generally issued by a domestic
bank that represents the deposit of a security of a foreign issuer. ADRs may be
publicly traded on exchanges or over-the-counter in the United States. EDRs are
receipts similar to ADRs and are issued and traded in Europe. GDRs may be
offered privately in the United States and also trade in public or private
markets in other countries. Depositary Receipts may be issued as sponsored or
unsponsored programs. In sponsored programs, the issuer makes arrangements to
have its securities traded in the form of a Depositary Receipt. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, the issuers of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, the import of such information may not be
reflected in the market value of such securities.
Currency Fluctuations:
Investments in foreign securities may be denominated in foreign
currencies. The value of Portfolio investments denominated in foreign currencies
may be affected, favorably or unfavorably, by the relative strength of the U.S.
dollar, changes in foreign currency and U.S. dollar exchange rates and exchange
control regulations. A Portfolio's net asset value per share may, therefore, be
affected by changes in currency exchange rates. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by a Portfolio. The rate of
exchange between the U.S. dollar and other currencies is determined by the
forces of supply and demand in the foreign exchange markets and in some cases,
exchange controls. For an additional discussion, see "Foreign Securities" above.
Forward Foreign Currency Exchange Contracts:
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specified currency at a future date, which may be any fixed
number of days from the date the contract is agreed upon by the parties, at a
price set at the time of the contract. By entering into a forward foreign
currency contract, a Portfolio "locks in" the exchange rate between the currency
it will deliver and the currency it will receive for the duration of the
contract. As a result, a Portfolio reduces its exposure to changes in the value
of the currency it will deliver and increases its exposure to changes in the
value of the currency into which it will exchange. The effect on the value of a
Portfolio is similar to selling securities denominated in one currency and
purchasing securities denominated in another. The Portfolios may enter into
these contracts for the purposes of hedging against foreign exchange risk
arising from such Portfolio's investment or anticipated investment in securities
denominated in or exposed to foreign currencies. Although a Sub-advisor may,
from time to time, seek to protect a Portfolio by using forward contracts,
anticipated currency movements may not be accurately predicted and the Portfolio
may incur a gain or a loss on a forward contract. A forward contract may reduce
a Portfolio's losses on securities denominated in foreign currency, but it may
also reduce the potential gain on the securities depending on changes in the
currency's value relative to the U.S. dollar or other currencies.
Lower-Rated High-Yield Bonds:
In general the market for lower-rated high-yield-bonds (commonly known
as "junk bonds") is more limited than the market for higher-rated bonds, and
because their markets may be thinner and less active, the market prices of
lower-rated high-yield bonds may fluctuate more than the prices of higher-rated
bonds, particularly in times of market stress. In addition, while the market for
high-yield corporate debt securities has been in existence for many years, the
market in recent years has experienced a dramatic increase in the large-scale
use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Accordingly, past experience may not provide an accurate
indication of future performance of the high-yield bond market, especially
during periods of economic recession. Other risks which may be associated with
lower-rated high-yield bonds include their relative insensitivity to interest
rate changes; the exercise of any of their redemption or call provisions in a
declining market may result in their replacement by lower yielding bonds; and
legislation, from time to time, may adversely affect their market. Since the
risk of default is higher among lower-rated high-yield bonds, a Sub-advisor's
research and analysis are an important ingredient in the selection of
lower-rated high-yield bonds. Through portfolio diversification, good credit
analysis and attention to current developments and trends in interest rates and
economic conditions, investment risk may be reduced, although there is no
assurance that losses will not occur.
Illiquid or Restricted Securities:
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities. Illiquid securities are deemed as such because
they are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, they are not
readily marketable. Restricted securities are acquired through private placement
transactions, directly from the issuer or from security holders, generally at
higher yields or on terms more favorable to investors than comparable publicly
traded securities. However, the restrictions on resale may make it difficult for
a Portfolio to dispose of such securities at the time considered most
advantageous by its Sub-advisor, and/or may involve expenses that would not be
incurred in the sale of securities that were freely marketable. A Portfolio that
may purchase restricted securities may qualify for and trade restricted
securities in the "institutional trading market" pursuant to Rule 144A of the
Securities Act of 1933. Trading in the institutional trading market may enable a
Sub-advisor to dispose of restricted securities at a time the Sub-advisor
considers advantageous and/or at a more favorable price than would be available
if such securities were not traded in such market. However, the institutional
trading market is relatively new and liquidity of a Portfolio's investments in
such market could be impaired if trading does not develop or declines. Risks
associated with restricted securities include the potential obligation to pay
all or part of the registration expenses in order to sell certain restricted
securities. A considerable period of time may elapse between the time of the
decision to sell a security and the time a Portfolio may be permitted to sell it
under an effective registration statement. If, during such a period, adverse
conditions were to develop, a Portfolio might obtain a less favorable price than
prevailing when it decided to sell.
Repurchase Agreements:
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements. Repurchase agreements are agreements by which
a Portfolio purchases a security and obtains a simultaneous commitment from the
seller to repurchase the security at an agreed upon price and date. The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. A repurchase transaction
is usually accomplished either by crediting the amount of securities purchased
to the account of a Portfolio's custodian maintained in a central depository or
book-entry system or by physical delivery of the securities to a Portfolio's
custodian in return for delivery of the purchase price to the seller. Repurchase
transactions are intended to be short-term transactions with the seller
repurchasing the securities, usually within seven days.
A Portfolio which enters into a repurchase agreement bears a risk of
loss in the event that the other party to such an agreement defaults on its
obligation and such Portfolio is delayed or prevented from exercising its rights
to dispose of the collateral securities, including the risk of a possible
decline in value of the underlying securities during the period such Portfolio
seeks to assert these rights, as well as the risk of incurring expenses in
asserting these rights and the risk of losing all or part of the income from
such an agreement. If the seller institution defaults, a Portfolio might incur a
loss or delay in the realization of proceeds if the value of the collateral
securing the repurchase agreement declines and it might incur disposition costs
in liquidating the collateral. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a
Portfolio might be delayed pending court action.
Reverse Repurchase Agreements:
In a reverse repurchase agreement, a Portfolio transfers possession of
a portfolio instrument to another person, such as a broker-dealer or financial
institution in return for a percentage of the instrument's market value in cash
and agrees that on a stipulated date in the future such Portfolio will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. When effecting reverse repurchase agreements,
assets of a Portfolio, in a dollar amount sufficient to make payment for the
obligations to be repurchased, are segregated on such Portfolio's records at the
trade date and are maintained until the transaction is settled. Reverse
repurchase agreements involve the risk that the market value of the securities
retained by the Portfolio may decline below the repurchase price of the
securities sold by the Portfolio which it is obligated to repurchase.
Borrowing:
Each Portfolio's borrowings are limited so that immediately after such
borrowing the value of the Portfolio's assets (including borrowings) less its
liabilities (not including borrowings) is at least three times the amount of the
borrowings. Should a Portfolio, for any reason, have borrowings that do not meet
the above test then, within three business days, such Portfolio must reduce such
borrowings so as to meet the necessary test. Under such a circumstance, such
Portfolio may have to liquidate securities at a time when it is disadvantageous
to do so. Gains made with additional funds borrowed will generally cause the net
asset value of such Portfolio's shares to rise faster than could be the case
without borrowings. Conversely, if investment results fail to cover the cost of
borrowings, the net asset value of such Portfolio could decrease faster than if
there had been no borrowings.
Convertible Securities and Warrants:
Convertible securities generally participate in the appreciation or
depreciation of the underlying stock into which they are convertible, but to a
lesser degree. Warrants are options to buy a stated number of shares of common
stock at a specified price any time during the life of the warrants. The value
of warrants may fluctuate more than the value of the securities underlying such
warrants. The value of a warrant detached from its underlying security will
expire without value if the rights under such warrant are not exercised prior to
its expiration date.
Lending:
With respect to the lending of securities, there is the risk of delays
in receiving additional collateral or in the recovery of securities and possible
loss of rights in collateral in the event that a borrower fails financially.
REGULATORY MATTERS:
In connection with its proposed futures and options transactions, the
Trust filed with the CFTC a notice of eligibility for exemption from the
definition of (and therefore from CFTC regulation as) a "commodity pool
operator" under the Commodity Exchange Act for the Portfolios. The Trust
represents in its notice of eligibility that:
(i) the Trust will not purchase or sell futures or options on futures
contracts or stock indices for purposes other than bona fide hedging
transactions (as defined by the CFTC) if as a result the sum of the initial
margin deposits and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions would exceed 5% of the fair market value of each
Portfolio's net assets; and
(ii) a Portfolio will not enter into any futures contracts if the
aggregate amount of that Portfolio's commitments under outstanding futures
contracts positions would exceed the market value of its total assets.
Currently, the Trust either has or will make a commitment regarding
each Portfolio to the State of California Department of Insurance to limit its
borrowings to 10% of the Portfolio's net asset value when borrowing for any
general purpose and to an additional 15% (for a total of 25%) when borrowing as
a temporary measure to facilitate redemptions. For purposes of the foregoing
commitment, net asset value is the market value of all investments or assets
owned by a Portfolio, less its outstanding liabilities, at the time that any new
or additional borrowing is undertaken.
Additionally, the Trust either has made or will make a commitment
regarding each Portfolio to the State of California Department of Insurance with
respect to diversification of its foreign investments. Such commitment generally
requires that a Portfolio: (i) (consistent with the Portfolio's investment
policies) invest in a minimum of five different foreign countries; except that
this minimum may be reduced to four when foreign country investments comprise
less than 80% of the Portfolio's net asset value, to three when less than 60% of
such assets, to two when less than 40% of such assets, or to one when less than
20% of such assets; and (ii) have no more than 20% of its net asset value
invested in securities of issuers located in any one foreign country; except
that, a Portfolio may have an additional 15% of its net asset value invested in
securities of issuers located in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom or Germany. (Investments in U.S.
issuers are not subject to any of the foregoing.)
The Trust currently does not foresee any disadvantages to the holders
of variable annuity contracts and variable life insurance policies of affiliated
or unaffiliated Participating Insurance Companies or participants of Qualified
Plans (see page 2) arising from the fact that the interests of the holders of
variable annuity contracts and variable life insurance policies and participants
of Qualified Plans may differ due to differences of tax treatment or other
considerations or due to conflicts between the affiliated or unaffiliated
Participating Insurance Companies or Qualified Plans. Nevertheless, the Trustees
intend to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response to such conflicts. The variable annuity contracts and
variable life insurance policies are described in the separate prospectuses
issued by the Participating Insurance Companies. The Trust assumes no
responsibility for such prospectuses.
PORTFOLIO TURNOVER:
Each Portfolio may generally change its investments at any time in
accordance with its Sub-advisor's appraisal of factors affecting any particular
issuer or the market or economy in general. The frequency of the Portfolio's
transactions -- the Portfolio's turnover rate -- will vary from year to year
depending upon market conditions. High turnover involves correspondingly greater
brokerage commissions, other transaction costs and a possible increase in
short-term capital gains or losses. The anticipated annual rate of turnover for
each Portfolio of the Trust is as follows:
Lord Abbett Growth and Income Portfolio: not to exceed 100%.
JanCap Growth Portfolio: not to exceed 200% under normal market conditions.
AST Janus Overseas Growth Portfolio: not to exceed 200% under normal market
conditions.
AST Money Market Portfolio: The policy of this Portfolio of investing only
in securities maturing 397 days or less from the date of acquisition or
purchased pursuant to repurchase agreements that provide for repurchase by the
seller within 397 days from the date of acquisition will result in a high
portfolio turnover rate.
Federated Utility Income Portfolio: not to exceed 75% under normal market
conditions.
Federated High Yield Portfolio: not to exceed 100% under normal market
conditions.
T. Rowe Price Asset Allocation Portfolio: not to exceed 100% under normal
market conditions.
T. Rowe Price International Equity Portfolio: not to exceed 100% under
normal market conditions.
T. Rowe Price Natural Resources Portfolio: not to exceed 100% under normal
market conditions
T. Rowe Price International Bond Portfolio: not to exceed 350%.
T. Rowe Price Small Company Value Portfolio: not to exceed 100% under
normal market conditions.
Founders Capital Appreciation Portfolio: not to exceed 200% under normal
market conditions.
Founders Passport Portfolio: not to exceed 150% under normal market
conditions.
INVESCO Equity Income Portfolio: not to exceed 200% under normal market
conditions.
PIMCO Total Return Bond Portfolio: not to exceed 150% under normal market
conditions.
PIMCO Limited Maturity Bond Portfolio: not to exceed 150% under normal
market conditions.
Berger Capital Growth Portfolio: not to exceed 100% under normal market
conditions.
Robertson Stephens Value + Growth Portfolio: not to exceed 250% under
normal market conditions.
Twentieth Century International Growth Portfolio: not to exceed 150% under
normal market conditions.
Twentieth Century Strategic Balanced Portfolio: not to exceed 150% under
normal market conditions.
AST Putnam Value Growth & Income Portfolio: not to exceed 100% under normal
market conditions.
AST Putnam International Equity Portfolio: not to exceed 100% under normal
market conditions.
AST Putnam Balanced Portfolio: not to exceed 200% under normal market
conditions.
For further details regarding the portfolio turnover rates, see "Portfolio
Turnover" in the Trust's Statement of Additional Information.
BROKERAGE ALLOCATION:
Generally, the primary consideration in placing Portfolio securities
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the best net price available and in the most
effective manner possible. The Trust's brokerage allocation policy may permit a
Portfolio to pay a broker-dealer which furnishes research services a higher
commission than that which might be charged by another broker-dealer which does
not furnish research services, provided that such commission is deemed
reasonable in relation to the value of the services provided by such
broker-dealer. In addition, each Portfolio's Sub-advisor may consider the use of
broker-dealers which might be deemed to be their affiliates, and may consider
sale of shares of the Portfolio, as well as the recommendations of the
Investment Manager, as a factor in selection of broker-dealers to execute
transactions, subject to the requirements of best net price and most favorable
execution. For a complete discussion of portfolio transactions and brokerage
allocation, see "Brokerage Allocation" in the Statement of Additional
Information.
INVESTMENT RESTRICTIONS:
For each Portfolio the Trust has adopted a number of investment
restrictions which are fundamental policies and may not be changed without the
approval of the holders of a majority of the affected Portfolio's outstanding
voting securities as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). The Statement of Additional Information describes all the
restrictions on each Portfolio's investment activities.
NET ASSET VALUES:
The net asset value per share of each Portfolio, other than the AST
Money Market Portfolio, is determined by dividing the market value of that
Portfolio's securities as of the close of trading plus any cash or other assets
(including dividends and accrued interest) less all liabilities (including
accrued expenses) by the number of shares outstanding in that Portfolio. Each
Portfolio will determine the net asset value of its shares on each "business"
day, which is each day that the New York Stock Exchange (the "NYSE") is open for
business, exclusive of national holidays. The Trust's Board of Trustees has
established procedures for valuing the Portfolios' securities. In general, these
valuations are based on market value with special provisions for: securities not
listed on an exchange or securities market; securities for which recent market
quotations are not readily available; short-term obligations; and open short
positions and options written on securities. In addition, the AST Money Market
Portfolio values all securities by the amortized cost method. This method
attempts to maintain a constant net asset value per share of $1.00. No assurance
can be given that this goal can be attained. See "Computation of Net Asset
Values" in the Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES:
Purchases of shares of the Portfolios may be made only by separate
accounts of Participating Insurance Companies for the purpose of funding
variable annuity contracts and variable life insurance policies or by Qualified
Plans. The separate accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of the Trust based on, among other things,
the amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable annuity
contracts and variable life insurance policies issued by the Participating
Insurance Companies) to be effected on that day pursuant to variable annuity
contracts and variable life insurance policies. Orders received by the Trust or
the Trust's transfer agent are effected on days on which the NYSE is open for
trading. For orders received before 4:00 P.M. Eastern time, purchases and
redemptions of the shares of the Trust are effected at the net asset values per
share determined as of 4:00 P.M. Eastern time on that same day. Orders received
after 4:00 P.M. Eastern time, are effected at the next calculated net asset
values. Payment for redemptions will be made by the Trust's transfer agent on
behalf of the Trust within seven days after the request is received. The Trust
does not assess any fees, either when it sells or when it redeems its
securities. Surrender charges, mortality and expense risk fees and other charges
may be assessed by Participating Insurance Companies under the variable annuity
contracts or variable life insurance policies. These fees should be described in
the Participating Insurance Companies' prospectuses.
As of the date of this Prospectus, American Skandia Life Assurance
Corporation and Kemper Investors Life Insurance Company are the only
Participating Insurance Companies. In the future, shares of the Trust may be
sold to and held by separate accounts that fund variable annuity and variable
life insurance contracts issued by other affiliated and unaffiliated
Participating Insurance Companies and also directly to Qualified Plans. While it
is not anticipated, should any conflict arise between the holders of variable
annuity contracts and variable life insurance policies of affiliated or
unaffiliated Participating Insurance Companies and participants in Qualified
Plans which would require that a substantial amount of net assets be withdrawn
from the Trust, orderly Portfolio management could be disrupted to the potential
detriment of such holders (see "Other Information" for more details).
MANAGEMENT OF THE TRUST:
As of the date of this Prospectus, twenty-three Portfolios are
available. The Trust may offer additional Portfolios with a range of investment
objectives that Participating Insurance Companies may consider suitable for
variable annuities and variable life insurance policies or that may be
considered suitable for Qualified Plans. The Trust's current approach to
achieving this goal is to seek to have multiple organizations unaffiliated with
each other be responsible for conducting the investment programs for the
Portfolios. Each such organization would be responsible for the Portfolio or
Portfolios to which such organization's expertise is best suited.
Formerly, the Trust was known as the Henderson International Growth
Fund, which consisted of only one Portfolio. The Investment Manager was
Henderson International, Inc. Shareholders of what was, at the time, the
Henderson International Growth Fund, approved certain changes in a meeting held
April 17, 1992. These changes included engagement of a new Investment Manager,
engagement of a Sub-advisor and election of new Trustees. Subsequent to that
meeting, the new Trustees adopted a number of resolutions, including, but not
limited to, resolutions renaming the Trust. Since that time the Trustees have
adopted a number of resolutions, including, but not limited to, making new
Portfolios available and adopting the form of Management Agreements and
Sub-advisory Agreements between the Investment Manager and the Trust and the
Investment Manager and each Sub-advisor, respectively.
The Trustees are David E.A. Carson, Julian A. Lerner, Thomas M. O'Brien, F.
Don Schwartz, Jan R. Carendi and Gordon C. Boronow. Additional information about
the Trustees and the Trust's executive officers may be found in the Statement of
Additional Information under the section "Management."
Investment Manager: American Skandia Investment Services, Incorporated
("ASISI"), One Corporate Drive, Shelton, Connecticut, acts as Investment Manager
to the Trust. ASISI, a Connecticut corporation organized in 1991, is registered
as an investment adviser with the Securities and Exchange Commission, as well as
with the securities commissions of thirty-eight state jurisdictions. Prior to
April 7, 1995, ASISI was known as American Skandia Life Investment Management,
Inc. ASISI is a wholly-owned subsidiary of American Skandia Investment Holding
Corporation, whose indirect parent is Skandia Insurance Company Ltd.
("Skandia"). Skandia is a Swedish company that owns, directly or indirectly, a
number of insurance companies in many countries. The predecessor to Skandia
commenced operations in 1855.
The only Participating Insurance Companies as of the date of this
Prospectus are American Skandia Life Assurance Corporation, which is also a
wholly-owned subsidiary of American Skandia Investment Holding Corporation, and
Kemper Investors Life Insurance Company. Certain officers of the Trust are
officers and/or directors of one or more of the following companies: ASISI,
American Skandia Life Assurance Corporation, American Skandia Marketing,
Incorporated (the principal underwriter for various annuities deemed to be
securities for American Skandia Life Assurance Corporation) and American Skandia
Investment Holding Corporation.
Sub-advisors:
Lord Abbett Growth and Income Portfolio: Lord Abbett & Co. ("Lord
Abbett"), The General Motors Building, 767 Fifth Avenue, New York, New York
10153-0203, which acts as the Sub-advisor for the Lord Abbett Growth and Income
Portfolio, has been an investment manager for over 65 years. As of June 30,
1996, Lord Abbett managed approximately $19 billion in a family of mutual funds
and other advisory accounts.
The portfolio manager responsible for management of the Portfolio is W.
Thomas Hudson, Jr., Executive Vice President. Mr. Hudson has served in this
capacity since the Portfolio's inception and has held a certain position in the
equity research department of Lord Abbett since 1982.
JanCap Growth Portfolio and AST Janus Overseas Growth Portfolio: Janus
Capital Corporation ("Janus"), 100 Fillmore Street, Denver, Colorado 80206-4923,
acts as the Sub-advisor for the JanCap Growth Portfolio and the AST Janus
Overseas Growth Portfolio. Janus serves as the investment advisor to the Janus
Funds, as well as advisor or sub-advisor to several other mutual funds and
individual, corporate, charitable and retirement accounts. As of June 30, 1996,
Janus managed assets worth over $39 billion. Kansas City Southern Industries,
Inc. ("KCSI") owns approximately 83% of the outstanding voting stock of Janus,
most of which it acquired in 1984. KCSI is a publicly-traded holding company
whose primary subsidiaries are engaged in transportation and financial services.
The portfolio manager responsible for management of the JanCap Growth
Portfolio is Thomas F. Marsico. Mr. Marsico has managed Janus Growth and Income
Fund since its inception in May 1991 and Janus Twenty Fund since April 1985.
The portfolio manager responsible for management of the AST Janus Overseas
Growth Portfolio is Helen Young Hayes, Executive Vice President and portfolio
manager of the Janus Worldwide Fund and Janus Overseas Fund. Ms. Hayes joined
Janus in 1987. She has managed or co-managed Janus Worldwide Fund and Janus
Overseas Fund since their inception. Ms. Hayes holds a Bachelor of Arts in
Economics from Yale University and is a Chartered Financial Analyst.
AST Money Market Portfolio: J.P. Morgan Investment Management, Inc. ("J.P.
Morgan"), 522 Fifth Avenue, New York, New York, 10036, acts as the Sub-advisor
for the AST Money Market Portfolio, and manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including other investment companies. J.P. Morgan
is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated, which, as of
June 30, 1996, managed approximately $151 billion in assets. As of the date of
this Prospectus, J.P. Morgan was also engaged to manage a portion of the assets
of a separate account of American Skandia Life Assurance Corporation, an
affiliate of the Investment Manager and, as of the date of this Prospectus, one
of two Participating Insurance Companies.
Federated Utility Income Portfolio and Federated High Yield Portfolio:
Federated Investment Counseling ("Federated Investment"), Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, acts as the Sub-advisor for the
Federated Utility Income Portfolio and Federated High Yield Portfolio. Federated
Investment, organized as a Delaware business trust in 1989, is a registered
investment advisor under the Investment Advisers Act of 1940. It is a wholly
owned subsidiary of Federated Investors. Federated Investment and other
subsidiaries of Federated Investors serve as investment advisors to a number of
investment companies and private accounts. Total assets under management or
administration by these and other subsidiaries of Federated Investors as of June
30, 1996, was approximately $87 billion.
The Co-portfolio managers responsible for management of the Federated
Utility Income Portfolio are Christopher H. Wiles, a Vice President of Federated
Research Corp., and Linda A. Duessel. Mr. Wiles joined Federated Investors in
1990 and has been a Vice President of an affiliate of the Sub-advisor since
1992. Mr. Wiles served as Assistant Vice President of an affiliate of the
Sub-advisor in 1991. Mr. Wiles is a Chartered Financial Analyst and received his
M.B.A. in Finance from Cleveland State University. Linda A. Duessel joined
Federated Investors in 1991 and has been a Vice President of an affiliate of the
Sub-advisor since 1995. Ms. Duessel was an Assistant Vice President of an
affiliate of the Sub-advisor from 1991 until 1995. Ms. Duessel is a Chartered
Financial Analyst and received her M.S. in Industrial Administration from
Carnegie Mellon University.
The portfolio manager responsible for management of the Federated High
Yield Portfolio is Mark E. Durbiano. Mr. Durbiano joined Federated Investors in
1982 and has been a Senior Vice President of an affiliate of the Sub-advisor
since January, 1996. From 1988 through 1995, Mr. Durbiano was a Vice President
of an affiliate of the Sub-advisor. Mr. Durbiano is a Chartered Financial
Analyst and received his M.B.A. in Finance from the University of Pittsburgh.
T. Rowe Price Asset Allocation Portfolio, T. Rowe Price Natural Resources
Portfolio and T. Rowe Price Small Company Value Portfolio: T. Rowe Price
Associates, Inc., ("T. Rowe Price") was founded in 1937 by the late Thomas Rowe
Price, Jr. As of June 30, 1996, the firm and its affiliates managed
approximately $85 billion for approximately four million individual and
institutional accounts.
The T. Rowe Price Asset Allocations Portfolio is managed by an Investment
Advisory Committee composed of the following members: Edmund M. Notzon,
Chairman, Heather R. Landon, James M. McDonald, Jerome Clark, Peter Van Dyke, M.
David Testa and Richard T. Whitney. The Committee Chairman has day-to-day
responsibility for managing the Portfolio and works with the Committee in
developing and executing the Portfolio's investment program. Mr. Notzon joined
T. Rowe Price in 1989 and has been managing investments since 1991. Prior to
joining T. Rowe Price, Mr. Notzon was Director of the Analysis and Evaluation
Division at the U.S. Environmental Protection Agency.
The T. Rowe Price Natural Resources Portfolio is managed by an Investment
Advisory Committee composed of the following members: George A. Roche,
Co-Chairman, Charles M. Ober, Co-Chairman, Stephen W. Boesel, Hugh M. Evans,
Richard P. Howard, James A.C. Kennedy and David J. Wallack. The Committee
Co-Chairmen have day-to-day responsibility for managing the Portfolio and work
with the Committee in developing and executing the Portfolio's investment
program. Mr. Roche joined T. Rowe Price in 1968 and has been managing
investments since 1979. Mr. Ober joined T. Rowe Price in 1980 as an investment
analyst, and has served as an Investment Advisory Committee member for the past
six years.
The T. Rowe Price Small Company Value Portfolio is managed by an Investment
Advisory Committee composed of the following members: Preston G. Athey,
Chairman, Hugh M. Evans III and Gregory A. McCrickard. The Committee Chairman
has day-to-day responsibility for managing the Portfolio and works with the
Committee in developing and executing the Portfolio's investment program. Mr.
Athey joined T. Rowe Price in 1978 and has been managing investments since 1982.
T. Rowe Price International Equity Portfolio and T. Rowe Price
International Bond Portfolio: Rowe Price-Fleming International, Inc.
("Price-Fleming") was founded in 1979 as a joint venture between T. Rowe Price
Associates, Inc. and Robert Fleming Holdings Limited. Price-Fleming is one of
the world's largest international mutual fund asset managers with approximately
$25 billion under management as of June 30, 1996 in its offices in Baltimore,
London, Tokyo and Hong Kong. The Portfolio has an investment advisory group that
has day-to-day responsibility for managing the Portfolio and developing and
executing the Portfolio's investment program.
The advisory group for the T. Rowe Price International Equity Portfolio
consists of Martin G. Wade, Christopher Alderson, Peter Askew, Richard J. Bruce,
Mark J.T. Edwards, John R. Ford, Robert C. Howe, James B.M. Seddon, Benedict
R.F. Thomas, and David J.L. Warren. Martin Wade joined Price-Fleming in 1979 and
has 27 years of experience with Fleming Group (Fleming Group includes Robert
Fleming Holdings Ltd. and/or Jardine Fleming International Holdings Ltd.) in
research, client service and investment management, including assignments in the
Far East and the United States. Christopher Alderson joined Price-Fleming in
1988, and has 9 years of experience with the Fleming Group in research and
portfolio management, including an assignment in Hong Kong. Peter Askew joined
Price-Fleming in 1988 and has 21 years of experience managing multicurrency
fixed income portfolios. Richard J. Bruce joined Price-Fleming in 1991 and has 7
years of experience in investment management with the Fleming Group in Tokyo.
Mark J.T. Edwards joined Price-Fleming in 1986 and has 15 years of experience in
financial analysis, including 4 years in Fleming European research. John R. Ford
joined Price-Fleming in 1982 and has 16 years of experience with Fleming Group
in research and portfolio management, including assignments in the Far East and
the United States. Robert C. Howe joined Price-Fleming in 1986 and has 16 years
of experience in economic research in Japan. James B.M. Seddon joined
Price-Fleming in 1987 and has 9 years of experience in investment management.
Benedict R.F. Thomas joined Price-Fleming in 1988 and has 7 years of portfolio
management experience, including assignments in London and Baltimore. David J.L.
Warren joined Price-Fleming in 1984 and has 16 years experience in equity
research, fixed income research and portfolio management, including an
assignment in Japan.
The advisory group for the T. Rowe Price International Bond Portfolio
consists of Peter Askew, Christopher Rothery and Michael Conelius. Peter Askew
joined Price-Fleming in 1988 and has 21 years of experience managing
multi-currency fixed-income portfolios. Christopher Rothery joined Price-Fleming
in 1994 and has 8 years of experience managing multi-currency fixed-income
portfolios. Prior to joining Price-Fleming, he worked with Fleming International
Fixed Income Management Limited. Michael Conelius joined Price-Fleming in 1995.
Prior to that, he had been with T. Rowe Price since 1988.
Founders Capital Appreciation Portfolio and Founders Passport
Portfolio: Founders Asset Management, Inc. ("Founders"), Founders Financial
Center, 2930 East Third Avenue, Denver, Colorado 80206, has acted as an
investment advisor since 1938 and serves as investment advisor to Founders
Discovery, Frontier, Passport, Special, International Equity, Worldwide Growth,
Growth, Blue Chip, Balanced, Government Securities, and Money Market Funds.
Founders, which is also the investment advisor for a number of private accounts,
managed assets aggregating approximately $4 billion as of June 30, 1996.
The portfolio manager responsible for management of the Founders
Capital Appreciation Portfolio is Michael K. Haines, a Senior Vice President of
investments of Founders. Mr. Haines has been associated with Founders since
1985, serving as assistant portfolio manager and as a lead portfolio manager.
The portfolio manager responsible for management of the Founders Passport
Portfolio is Michael W. Gerding, a Vice President of Investments of Founders.
Mr. Gerding is a chartered financial analyst who has been part of Founders'
investment department since 1990. Prior to joining Founders, Mr. Gerding served
as a portfolio manager and research analyst with NCNB Texas for several years.
INVESCO Equity Income Portfolio: INVESCO Trust Company, a trust company
founded in 1969, is a wholly-owned subsidiary of INVESCO Funds Group, Inc., P.O.
Box 173706, Denver, Colorado 80217-3706, which was established in 1932. INVESCO
Trust Company serves as sub-advisor to INVESCO Growth Fund, Inc., INVESCO
Dynamics Fund, Inc.; INVESCO Money Market Funds, Inc.; INVESCO Income Funds,
Inc.; INVESCO Tax-Free Income Funds, Inc.; INVESCO Strategic Portfolios, Inc.;
INVESCO Emerging Opportunity Funds, Inc.; INVESCO Industrial Income Fund, Inc.;
INVESCO Multiple Asset Funds, Inc.; INVESCO Specialty Funds, Inc.; and INVESCO
Variable Investment Funds, Inc. INVESCO Funds Group, Inc. and INVESCO Trust
Company are part of a global financial services firm that managed approximately
$90 billion of assets as of June 30, 1996. The parent company, INVESCO PLC, was
organized in 1935 and is based in London, with money managers located in Europe,
North America and the Far East.
INVESCO PLC has recently announced its agreement to merge with AIM
Management Group, a large United States mutual fund manager. This merger is
expected to be completed in February 1997, subject to certain conditions
including approval by the shareholders of both INVESCO and AIM as well as
INVESCO and AIM institutional clients and the holders of INVESCO and AIM mutual
funds. It is not currently anticipated that the merger would result in any
change in the operations of INVESCO PLC or INVESCO Trust Company. Nonetheless,
the merger may result in an "assignment," as defined in the 1940 Act, of the
sub-advisory agreement between INVESCO Trust Company and the Investment Manager
with respect to the INVESCO Equity Income Portfolio, which, in turn, would
result in the automatic termination of the sub-advisory agreement and require
the approval of a new sub-advisory agreement by the shareholders of the
Portfolio.
The portfolio managers responsible for management of the INVESCO Equity
Income Portfolio are Charles P. Mayer, Portfolio Co-Manager; and Donovan J.
(Jerry) Paul, Portfolio Co-Manager. Mr. Mayer has served as Co-Portfolio Manager
of the INVESCO Industrial Income Fund since 1993 and also has served as
Portfolio Manager and Senior Vice President of INVESCO Trust Company since 1993.
Mr. Paul has served as Co-Portfolio Manager of the INVESCO Industrial Income
Fund since 1994 and has served as Senior Vice President (1994 to present) of
INVESCO Trust Company.
PIMCO Total Return Bond Portfolio and PIMCO Limited Maturity Bond
Portfolio: Pacific Investment Management Company ("PIMCO") serves as Sub-advisor
to the PIMCO Total Return Bond Portfolio and PIMCO Limited Maturity Bond
Portfolio. It is an investment counseling firm founded in 1971 and, as of June
30, 1996, has over $79 billion of assets under management. PIMCO is a subsidiary
general partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). A majority
interest in PIMCO Advisors is held by PIMCO Partners, G.P., a general
partnership between Pacific Financial Asset Management Corporation, an indirect
wholly owned subsidiary of Pacific Mutual Life Insurance Company, and PIMCO
Partners, LLC, a California limited liability company controlled by the managing
directors of PIMCO. PIMCO's address is 840 Newport Center Drive, Suite 360,
Newport Beach, California 92660. PIMCO is a registered investment advisor with
the Securities and Exchange Commission and a commodity trader advisor with the
CFTC.
The portfolio manager responsible for management of the PIMCO Total Return
Bond Portfolio and the PIMCO Limited Maturity Bond Portfolio is William H.
Gross. Mr. Gross is managing director of PIMCO Investment Management Company and
has been associated with the firm for 24 years.
Berger Capital Growth Portfolio: Berger Associates, Inc. ("Berger
Associates"), 210 University Blvd., Suite 900, Denver, Colorado, 80206, has
acted as an investment advisor since 1973. Berger Associates serves as the
investment advisor to the Berger Capital Growth Portfolio and other mutual
funds, as well as for retirement plans and institutional and private investors.
As of June 30, 1996, Berger Associates managed assets worth approximately $3.6
billion. Kansas City Southern Industries, Inc. ("KCSI") owns approximately 84%
of the outstanding voting stock of Berger Associates, most of which it acquired
in 1994. KCSI is a publicly-traded holding company with principal operations in
rail transportation, through its subsidiary the Kansas City Southern Railway
Company, and financial asset management businesses.
The portfolio manager responsible for the management of the Portfolio
is Rodney L. Linafelter. Mr. Linafelter, owner of approximately 8% of the
outstanding voting stock of Berger Associates, is Vice President, Chief
Investment Officer and a Director of Berger Associates. Mr. Linafelter joined
Berger Associates in January 1990, where he has served as portfolio manager of
the Berger One Hundred Fund and the Berger Growth and Income Fund, as well as
for retirement plans and institutional and private investors. From April 1986 to
December 1989, Mr. Linafelter was employed as a Financial Consultant (registered
representative) with Merrill Lynch, Pierce, Fenner & Smith, Inc., providing
investment advice to institutions and individuals.
Robertson Stephens Value + Growth Portfolio: Robertson, Stephens &
Company Investment Management, L.P. ("Robertson Stephens"), 555 California
Street, San Francisco, CA 94104, serves as Sub-advisor to the Portfolio.
Robertson Stephens, a California limited partnership, was formed in 1993 and is
registered as an investment advisor with the Securities and Exchange Commission.
The sole limited partner of Robertson Stephens is Robertson, Stephens & Company,
L.L.C., a major investment banking firm specializing in emerging growth
companies that has developed substantial investment research, underwriting, and
venture capital expertise. Since 1978, Robertson, Stephens & Company, L.L.C. has
managed underwritten public offerings for over $15.23 billion of securities of
emerging growth companies. As of June 30, 1996, Robertson Stephens and its
affiliates have in excess of $3.3 billion under management in public and private
investment funds. Robertson, Stephens & Company, L.L.C., its parent, Robertson,
Stephens & Company Group, L.L.C. and Sanford R. Robertson may be deemed to be
control persons of Robertson Stephens.
The portfolio manager responsible for management of the Portfolio is Mr.
Ronald E. Elijah. From August 1985 to January 1990, Mr. Elijah was a securities
analyst for Robertson, Stephens & Company, L.P. From January 1990 to January
1992, Mr. Elijah was an analyst and portfolio manager for Water Street Capital,
which managed short selling investment funds. Mr. Elijah joined Robertson
Stephens as a portfolio manager in 1992.
Twentieth Century International Growth Portfolio and Twentieth Century
Strategic Balanced Portfolio: Investors Research Corporation ("Investors
Research") (name changed to "American Century Investment Management, Inc." as of
January 1, 1997), Twentieth Century Tower, 4500 Main Street, Kansas City,
Missouri 64111, serves as Sub-advisor to the Twentieth Century International
Growth Portfolio and the Twentieth Century Strategic Balanced Portfolio.
Investors Research has been providing investment advisory services to investment
companies and institutional clients since 1958. In June 1995, Twentieth Century
Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham
Management International, Inc. In the acquisition, Benham Management Corporation
("BMC"), the investment adviser to The Benham Group of mutual funds, became a
wholly owned subsidiary of TCC. Certain employees of BMC will be providing
investment management services to Twentieth Century funds, while certain
Twentieth Century employees will be providing investment management services to
Benham funds. As of June 30, 1996, Investors Research and its affiliates managed
assets totaling approximately $51 billion.
Investors Research utilizes a team of portfolio managers, assistant
portfolio managers and analysts acting together to manage the assets of the
Portfolio. The team meets regularly to review portfolio holdings and to discuss
purchase and sale activity. The team adjusts holdings in the Portfolio as they
deem appropriate in pursuit of the Portfolio's investment objectives. Individual
portfolio managers may also adjust portfolio holdings of the Portfolio as
necessary between meetings.
The portfolio manager members of the portfolio team responsible for
management of the Twentieth Century International Growth Portfolio are Theodore
Tyson and Henrik Strabo. Theodore Tyson joined Investors Research in 1988 and
has been a member of the International Equity and Twentieth Century
International Small Cap Fund team since its inception in 1991. Henrik Strabo
joined Investors Research in 1993 as an investment analyst member of the
Twentieth Century International Equity and International Small Company Fund team
and has been a portfolio manager member of the team since 1994. Prior to joining
Investors Research, Mr. Strabo was Vice President, International Equity Sales
with Barclays de Zoete Wedd (1991 to 1993) and obtained international equity
sales experience at Cresvale International (1990 to 1991).
The portfolio manager members of the portfolio team responsible for
management of the Twentieth Century Strategic Balanced Portfolio are Casey
Colton, Norman E. Hoops, Brian Howell, Jeffrey L. Houston, David Schroeder and
Jeffrey R. Tyler. Casey Colton joined BMC in 1990 as a Municipal Analyst and has
co-managed the Benham GNMA Income Fund since January, 1994, and the Treasury
Note Fund, the Long-Term Fund and the Target Maturities Trust's Funds since
January, 1996. Norman Hoops joined Investors Research in November 1989 as Vice
President and Portfolio Manager and became Senior Vice President and Fixed
Income Portfolio Manager in April 1993. Brian Howell has been primarily
responsible for the management of the Capital Preservation Fund and the Agency
Fund since May, 1995. He joined BMC in 1987 as a research analyst and was
promoted to his current position in January 1994. Jeffrey Houston has worked for
Investors Research as a Portfolio Manager since November, 1990. David Schroeder
joined BMC in 1990 and has been primarily responsible for the day-to-day
operations of the Treasury Note Fund since January, 1992, the Long-Term Fund
since September, 1992 and Benham Target Maturities Trust since July, 1990, and
has co-managed the Benham GNMA Income Fund since January, 1996. Jeffrey Tyler,
Senior Vice President and Portfolio Manager, joined BMC in January, 1988 as a
Portfolio Manager. Mr. Tyler supervises the team of other portfolio managers who
assist in the management of the various investment categories of the funds,
co-manages the Benham GNMA Income Fund, has primary responsibility for the
day-to-day operations of the Benham Capital Manager Fund and oversees the
portfolio manager's operation of the Benham European Government Bond Fund.
AST Putnam Value Growth & Income Portfolio, AST Putnam International Equity
Portfolio and AST Putnam Balanced Portfolio: Putnam Investment Management, Inc.
("Putnam Management"), One Post Office Square, Boston, Massachusetts 02109, acts
as Sub-advisor to the AST Putnam Value Growth & Income Portfolio, the AST Putnam
International Equity Portfolio, and the AST Putnam Balanced Portfolio. Putnam
Management is a subsidiary of Putnam Investments, Inc., a holding company which
in turn is wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned
holding company whose principal businesses are international insurance and
reinsurance brokerage, employee benefit consulting and investment management.
Putnam Management is one of America's oldest and largest money management firms,
managing mutual funds since 1937. As of June 30, 1996, Putnam Management and its
affiliates managed over $146 billion in assets.
Anthony I. Kreisel, Managing Director of Putnam Management, has primary
responsibility for the day-to-day management of the AST Putnam Value Growth &
Income Portfolio. Mr. Kreisel has been employed as an investment professional by
Putnam Management since 1986.
Justin Scott, Managing Director of Putnam Management, and Omid Kamshad,
Senior Vice President of Putnam Management, have primary responsibility for the
day-to-day management of the AST Putnam International Equity Portfolio. Mr.
Scott has been employed as an investment professional by Putnam Management since
1988. Mr. Kamshad has been employed as an investment professional by Putnam
Management since January, 1996. Prior to January, 1996, Mr. Kamshad was Director
of Investments at Lombard Odier International. Prior to April, 1995, he was
Director at Baring Asset Management Company. Prior to December, 1991, Mr.
Kamshad was Senior Portfolio Manager at Enskilda Asset Management.
Putnam Management's Global Asset Allocation Committee has primary
responsibility for the day-to-day management of the AST Putnam Balanced
Portfolio. No person is primarily responsible for making recommendations to the
Committee in respect of the Portfolio.
Investment Management Agreements: The Trust has entered into Investment
Management Agreements with the Investment Manager (the "Management Agreements")
which provide that the Investment Manager will furnish each applicable Portfolio
with investment advice and investment management and administrative services
with respect to the applicable Portfolio subject to the supervision of the Board
of Trustees and in conformity with the stated policies of the applicable
Portfolio. The Investment Manager has engaged the Sub-advisors noted above to
conduct the investment programs of each Portfolio, including the purchase,
retention, disposition and lending of securities. Such Sub-advisors are required
to provide research and statistical analysis and to keep books and records of
securities transactions. The Investment Manager is responsible for monitoring
the activities of the Sub-advisors and reporting on the activities of the
Sub-advisors to the Trustees. The Investment Manager must also provide or obtain
for the Trust, and thereafter supervise, such executive, administrative,
accounting, custody, transfer agent and shareholder servicing services as are
deemed advisable by the Board of Trustees.
Under the terms of the Management Agreements, each Portfolio pays all
of its expenses, including, but not limited to, the costs incurred in connection
with the maintenance of its registration under the Securities Act of 1933, as
amended, and the 1940 Act, printing and mailing prospectuses and statements of
additional information to shareholders, certain office and financial accounting
services, taxes or governmental fees, brokerage commissions, Portfolio pricing,
custodial, transfer and shareholder servicing agent costs, expenses of outside
counsel and independent accountants, preparation of shareholder reports and
expenses of trustee and shareholder meetings. Expenses incurred by the Trust not
directly attributable to any specific Portfolio or Portfolios are allocated on
the basis of the net assets of the respective Portfolios.
The Investment Manager receives a fee, payable each month, for the
performance of its services. The Investment Manager pays each Sub-advisor a
portion of such fee for the performance of the Sub-advisory services. The
Investment Management fee payable may differ from Portfolio to Portfolio,
reflecting the objective, policies and restrictions of each Portfolio and the
nature of each Sub-advisory Agreement. Each Portfolio's fee is accrued daily for
the purposes of determining the offering and redemption price of the Portfolio's
shares. The fees payable to the Investment Manager are as follows:
Lord Abbett Growth and Income Portfolio: An annual rate of .75% of the
average daily net assets of the Portfolio. For the year ended December 31, 1995,
the amount of the fee paid by the Trust to the Investment Manager was
$1,059,567.
JanCap Growth Portfolio: An annual rate of .90% of the average daily
net assets of the Portfolio. For the year ended December 31, 1995, the amount of
the fee paid by the Trust to the Investment Manager was $2,977,217.
AST Janus Overseas Growth Portfolio: An annual rate of 1.00% of the average
daily net assets of the Portfolio.
AST Money Market Portfolio: An annual rate of .50% of the average daily net
assets of the Portfolio. The Investment Manager has also voluntarily agreed to
waive a portion of its fee equal to .05% of the average daily net assets of the
Portfolio. The Investment Manager may terminate this voluntary agreement at any
time. For the year ended December 31, 1995, the amount of the fee paid by the
Trust to the Investment Manager was $1,503,661.
Federated Utility Income Portfolio: An annual rate equal to .75% of the
first $50 million of the average daily net assets of the Portfolio; plus .60% of
the Portfolio's average daily net assets in excess of $50 million. For the year
ended December 31, 1995, the amount of the fee paid by the Trust to the
Investment Manager was $601,598.
Federated High Yield Portfolio: An annual rate of .75% of the average
daily net assets of the Portfolio. For the year ended December 31, 1995, the
amount of the fee paid by the Trust to the Investment Manager was $346,448.
T. Rowe Price Asset Allocation Portfolio: An annual rate of .85% of the
average daily net assets of the Portfolio. For the year ended December 31, 1995,
the amount of the fee paid by the Trust to the Investment Manager was $314,161.
T. Rowe Price International Equity Portfolio: An annual rate of 1.00% of
the average daily net assets of the Portfolio. For the year ended December 31,
1995, the amount of the fee paid by the Trust to the Investment Manager was
$1,412,350.
T. Rowe Price Natural Resources Portfolio: An annual rate of .90% of the
average daily net assets of the Portfolio. For the period May 2, 1995
(commencement of operations) to December 31, 1995, the amount of the fee paid by
the Trust to the Investment Manager was $20,950.
T. Rowe Price International Bond Portfolio: An annual rate of .80% of the
average daily net assets of the Portfolio. Prior to May 1, 1996, the Investment
Manager had engaged Scudder, Stevens & Clark, Inc. as Sub-advisor for the
Portfolio (formerly, the AST Scudder International Bond Portfolio), for a total
Investment Management fee of 1.00% of the average daily net assets of the
Portfolio. For the year ended December 31, 1995, the amount of the fee paid by
the Trust to the Investment Manager was $276,299.
T. Rowe Price Small Company Value Portfolio: An annual rate of .90% of the
average daily net assets of the Portfolio.
Founders Capital Appreciation Portfolio: An annual rate of .90% of the
average daily net assets of the Portfolio. For the year ended December 31, 1995,
the amount of the fee paid by the Trust to the Investment Manager was $486,749.
Founders Passport Portfolio: An annual rate of 1.0% of the average
daily net assets of the Portfolio. Prior to October 15, 1996, the Investment
Manager had engaged Seligman Henderson Co. as Sub-advisor for the Portfolio
(formerly, the Seligman Henderson International Small Cap Portfolio), for a
total Investment Management fee of 1.0% of the average daily nets assets of the
Portfolio. For the period May 2, 1995 (commencement of operations) to December
31, 1995, the amount of the fee paid by the Trust to the Investment Manager was
$76,285.
INVESCO Equity Income Portfolio: An annual rate of .75% of the average
daily net assets of the Portfolio. For the year ended December 31, 1995, the
amount of the fee paid by the Trust to the Investment Manager was $821,220.
PIMCO Total Return Bond Portfolio: An annual rate of .65% of the
average daily net assets of the Portfolio. For the year ended December 31, 1995,
the amount of the fee paid by the Trust to the Investment Manager was $652,311.
PIMCO Limited Maturity Bond Portfolio: An annual rate of .65% of the
average daily net assets of the Portfolio. For the period May 2, 1995
(commencement of operations) to December 31, 1995, the amount of the fee paid by
the Trust to the Investment Manager was $100,949.
Berger Capital Growth Portfolio: An annual rate of .75% of the average
daily net assets of the Portfolio. For the year ended December 31, 1995, the
amount of the fee paid by the Trust to the Investment Manager was $160,794.
Robertson Stephens Value + Growth Portfolio: An annual rate of 1.00% of the
average daily net assets of the Portfolio.
Twentieth Century International Growth Portfolio: An annual rate of 1.00%
of the average daily net assets of the Portfolio.
Twentieth Century Strategic Balanced Portfolio: An annual rate of .85% of
the average daily net assets of the Portfolio.
AST Putnam Value Growth & Income Portfolio: An annual rate of .75% of the
average daily net assets of the Portfolio.
AST Putnam International Equity Portfolio: 1.0% of the average daily
net assets of the Portfolio not in excess of $75 million; plus .85% of the
Portfolio's average daily net assets over $75 million. Prior to October 15,
1996, the Investment Manager had engaged Seligman Henderson Co. as Sub-advisor
for the Portfolio (formerly, the Seligman Henderson International Equity
Portfolio), for a total Investment Management fee of 1.0% of the average daily
nets assets of the Portfolio. The Investment Manager had also voluntarily agreed
to waive a portion of its fee equal to .15% on assets in excess of $75 million.
Such agreement was terminated as of the opening of business on October 15, 1996.
For the year ended December 31, 1995, the amount of the fee paid by the Trust to
the Investment Manager was $2,198,484.
AST Putnam Balanced Portfolio: .75% of the average daily net assets of
the Portfolio not in excess of $300 million; plus .70% of the Portfolio's
average daily net assets in excess of $300 million. Prior to October 15, 1996,
the Investment Manager had engaged Phoenix Investment Counsel, Inc. as
Sub-advisor for the Portfolio (formerly, the AST Phoenix Balanced Asset
Portfolio), for a total Investment Management fee of .75% of the average daily
net assets of the Portfolio not in excess of $75 million; plus .65% of the
Portfolio's average daily net assets in excess of $75 million. For the year
ended December 31, 1995, the amount of the fee paid by the Trust to the
Investment Manager was $1,107,736.
The Investment Manager has agreed, by the terms of the Management
Agreements for certain Portfolios of the Trust, and voluntarily for the other
Portfolios of the Trust, to reimburse the Portfolio for certain operating
expenses so that total expenses of the Portfolio do not exceed a specified
percentage of the Portfolio's average daily net assets. Such specified
percentage may differ between the Portfolios, reflecting the objective, policies
and restrictions of each Portfolio and the expenses involved in conducting an
investment program for each Portfolio. For an additional discussion of Portfolio
expense limitations, see "Management of the Trust: Investment Management
Agreements" in the Trust's Statement of Additional Information.
Sub-Advisory Agreements: The Investment Manager pays each Sub-advisor for the
performance of sub-advisory services. The fee to Sub-advisors may differ from
Portfolio to Portfolio, reflecting the objectives, policies and restrictions of
each Portfolio and the nature of each Sub-advisory Agreement. Each Sub-advisor's
fee is accrued daily for purposes of determining the amount payable to the
Sub-advisor. The fees payable to the present Sub-advisors are as follows:
Lord, Abbett & Co. for the Lord Abbett Growth and Income Portfolio: An
annual rate of .50% of the portion of the average daily net assets of the
Portfolio not in excess of $200 million; plus .40% of the portion over $200
million but not in excess of $500 million; plus .375% of the portion over $500
million but not in excess of $700 million; plus .35% of the portion over $700
million but not in excess of $900 million; plus .30% of the portion in excess of
$900 million. For the year ended December 31, 1995, the amount paid by the
Investment Manager to the Sub-advisor was $705,288.
Janus Capital Corporation for the JanCap Growth Portfolio: An annual
rate of .60% of the portion of the average daily net assets of the Portfolio not
in excess of $100 million; plus .55% of the portion over $100 million but not in
excess of $1 billion; plus .50% of the portion over $1 billion. Commencing
September 4, 1996, the Sub-advisor has voluntarily agreed to waive a portion of
its fee equal to .10% of the Portfolio's average daily net assets over $500
million but not in excess of $1 billion; and .05% of the portion of the
Portfolio's average daily net assets over $1 billion. The Sub-advisor may
terminate this voluntary agreement at any time. For the year ended December 31,
1995, the amount paid by the Investment Manager to the Sub-advisor was
$1,869,411.
Janus Capital Corporation for the AST Janus Overseas Growth Portfolio: An
annual rate of .65 of 1% of the portion of the average daily net assets of the
Portfolio not in excess of $100 million; plus .60 of 1% of the portion of the
net assets over $100 million but not in excess of $500 million; and .50 of 1% of
the portion of the net assets over $500 million.
J.P. Morgan Investment Management, Inc. for the AST Money Market Portfolio:
An annual rate of .25% of the portion of the average daily net assets of the
Portfolio not in excess of $100 million; plus .20% of the portion over $100
million but not in excess of $200 million; plus .15% of the portion over $200
million but not in excess of $1 billion; and .10% of the portion in excess of $1
billion. Commencing December 30, 1996, the Sub-advisor has voluntarily agreed to
waive a portion of its fee equal to .10% of the portion of the Portfolio's
average daily net assets not in excess of $100 million; and .05% of the portion
of the Portfolio's average daily net assets over $100 million but not in excess
of $200 million; and .06% of the portion of the Portfolio's average daily net
assets over $500 million but not in excess of $1 billion; and .04% of the
portion of the Portfolio's average daily net assets over $1 billion. The
Sub-advisor may terminate this voluntary agreement at any time. For the year
ended December 31, 1995, the amount paid by the Investment Manager to the
Sub-advisor was $501,220.
Federated Investment Counseling for the Federated Utility Income
Portfolio: An annual rate of 0.50% of the portion of the average daily net
assets of the Portfolio not in excess $25 million; plus 0.35% of the portion in
excess of $25 million but not in excess of $50 million; plus 0.25% of the
portion in excess of $50 million. For the year ended December 31, 1995, the
amount paid by the Investment Manager to the Sub-advisor was $306,916.
Federated Investment Counseling for the Federated High Yield Portfolio:
An annual rate of .50 of 1% of the portion of the average daily net assets of
the Portfolio under $30 million; plus .40 of 1% of the portion of the net assets
equal to or in excess of $30 million but under $50 million; plus .30 of 1% of
the portion equal to or in excess of $50 million but under $75 million; and .25
of 1% of the portion equal to or in excess of $75 million. For the year ended
December 31, 1995, the amount paid by the Investment Manager to the Sub-advisor
was $210,529.
T. Rowe Price Associates, Inc. for the T. Rowe Price Asset Allocation
Portfolio: An annual rate of .50 of 1% of the portion of the average daily net
assets of the Portfolio not in excess of $25 million; plus .35 of 1% of the
portion in excess of $25 million but not in excess of $50 million; and .25 of 1%
of the portion in excess of $50 million. For the year ended December 31, 1995,
the amount paid by the Investment Manager to the Sub-advisor was $166,105.
Rowe Price-Fleming International, Inc. for the T. Rowe Price
International Equity Portfolio: An annual rate of .75 of 1% of the portion of
the average daily net assets of the Portfolio not in excess of $20 million; plus
.60 of 1% of the portion of the net assets over $20 million but not in excess of
$50 million; and .50 of 1% of the portion in excess of $50 million. Commencing
May 1, 1996, the Sub-advisor has voluntarily agreed to waive a portion of its
fee equal to .25 of 1% of the portion of the Portfolio's average daily net
assets not in excess of $20 million and .10 of 1% of the portion of the net
assets over $20 million but not in excess of $50 million, so long as the average
daily net assets of the Portfolio equal or exceed $200 million. The Sub-advisor
may terminate this voluntary agreement at any time. For the year ended December
31, 1995, the amount paid by the Investment Manager to the Sub-advisor was
$786,175.
T. Rowe Price Associates, Inc. for the T. Rowe Price Natural Resources
Portfolio: An annual rate of .60 of 1% of the portion of the average daily net
assets of the Portfolio not in excess of $20 million; plus .50 of 1% of the
portion of the net assets over $20 million but not in excess of $50 million.
When the net assets of the Portfolio exceed $50 million, the fee is an annual
rate of .50 of 1% of the average daily net assets of the Portfolio. For the
period May 2, 1995 (commencement of operations) to December 31, 1995, the amount
paid by the Investment Manager to the Sub-advisor was $13,967.
Rowe Price-Fleming International, Inc. for the T. Rowe Price International
Bond Portfolio: An annual rate of .40 of 1% of the average daily net assets of
the Portfolio. Prior to May 1, 1996, the Investment Manager had engaged Scudder,
Stevens & Clark, Inc. (the "Former Sub-advisor") as Sub-advisor for the
Portfolio (formerly, the AST Scudder International Bond Portfolio), for a
Sub-advisory fee of .60 of 1% of the average daily net assets of the Portfolio.
For the year ended December 31, 1995, the amount paid by the Investment Manager
to the Former Sub-advisor was $165,779.
T. Rowe Price Associates, Inc. for the T. Rowe Price Small Company Value
Portfolio: An annual rate of .60 of 1% of the portion of the average daily net
assets of the Portfolio not in excess of $20 million; plus .50 of 1% of the
portion of the net assets over $20 million but not in excess of $50 million.
When the net assets of the Portfolio exceed $50 million, the fee is an annual
rate of .50 of 1% of the average daily net assets of the Portfolio.
Founders Asset Management, Inc. for the Founders Capital Appreciation
Portfolio: An annual rate of .65 of 1% of the portion of the average daily net
assets of the Portfolio not in excess of $75 million; plus .60 of 1% of the
portion of the net assets over $75 million but not in excess of $150 million;
and .55 of 1% of the net assets in excess of $150 million. For the year ended
December 31, 1995, the amount paid by the Investment Manager to the Sub-advisor
was $350,949.
Founders Asset Management, Inc. for the Founders Passport Portfolio: An
annual rate of .60 of 1% of the portion of the average net assets of the
Portfolio not in excess of $100 million; plus .50 of 1% of the portion of the
average net assets of the Portfolio in excess of $100 million. Prior to October
15, 1996, the Investment Manager had engaged Seligman Henderson Co. (the "Former
Sub-advisor") as Sub-advisor for the Portfolio (formerly, the Seligman Henderson
International Small Cap Portfolio), for a Sub-advisory fee of .60 of 1% of the
average daily net assets of the Portfolio not in excess of $100 million; plus
.50 of 1% of the average daily net assets of the Portfolio in excess of $100
million. For the period May 2, 1995 (commencement of operations) to December 31,
1995, the amount paid by the Investment Manager to the Former Sub-advisor was
$45,904.
INVESCO Trust Company for the INVESCO Equity Income Portfolio: An
annual rate of .50 of 1% of the portion of the average daily net assets of the
Portfolio not in excess of $25 million; plus .45 of 1% of the portion of the net
assets over $25 million but not in excess of $75 million; plus .40 of 1% of the
portion of the net assets in excess of $75 million but not in excess of $100
million; and .35 of 1% of the portion of the net assets over $100 million. For
the year ended December 31, 1995, the amount paid by the Investment Manager to
the Sub-advisor was $482,833.
Pacific Investment Management Company for the PIMCO Total Return Bond
Portfolio: An annual rate of .30 of 1% of the average daily net assets of the
Portfolio not in excess of $150 million; and .25 of 1% on the portion of the net
assets over $150 million. For the year ended December 31, 1995, the amount paid
by the Investment Manager to the Sub-advisor was $299,969.
Pacific Investment Management Company for the PIMCO Limited Maturity
Bond Portfolio: An annual rate of .30 of 1% of the average daily net assets of
the Portfolio not in excess of $150 million; and .25 of 1% on the portion of the
net assets over $150 million. For the period May 2, 1995 (commencement of
operations) to December 31, 1995, the amount paid by the Investment Manager to
the Sub-advisor was $47,155.
Berger Associates, Inc. for the Berger Capital Growth Portfolio: An
annual rate of .55% of the average daily net assets of the Portfolio not in
excess of $25 million; plus .50% of the portion of average daily net assets over
$25 million but not in excess of $50 million; plus .40% of the portion of the
average daily net assets over $50 million. For the year ended December 31, 1995,
the amount paid by the Investment Manager to the Sub-advisor was $116,002.
Robertson, Stephens & Company Investment Management, L.P. for the
Robertson Stephens Value + Growth Portfolio: An annual rate of .60 of 1% of the
average daily net assets of the Portfolio not in excess of $200 million; and .50
of 1% of the portion of the net assets over $200 million.
Investors Research Corporation for the Twentieth Century International
Growth Portfolio: An annual rate of .70 of 1% of the portion of the average
daily net assets of the Portfolio not in excess of $100 million; plus .60 of 1%
of the portion of the net assets over $100 million.
Investors Research Corporation for the Twentieth Century Strategic Balanced
Portfolio: An annual rate of .50 of 1% of the portion of the of the average
daily net assets of the Portfolio not in excess of $50 million; plus .45 of 1%
of the portion of the net assets over $50 million.
Putnam Investment Management, Inc. for the AST Putnam Value Growth &
Income Portfolio: An annual rate of .45 of 1% of the portion of the average
daily net assets of the Portfolio not in excess of $150 million; plus .40 of 1%
of the portion of the net assets over $150 million but not in excess of $300
million; plus .35 of 1% of the portion of the net assets over $300 million.
Putnam Investment Management, Inc. for the AST Putnam International Equity
Portfolio: An annual of .65 of 1% of the portion of the average daily net assets
of the Portfolio not in excess of $150 million; plus .55 of 1% of the portion of
the average daily net assets of the Portfolio over $150 million but not in
excess of $300 million; plus .45 of 1% of the portion of the average daily net
assets of the Portfolio in excess of $300 million. Prior to October 15, 1996,
the Investment Manager had engaged Seligman Henderson Co. (the "Former
Sub-advisor") as Sub-advisor for the Portfolio (formerly, the Seligman Henderson
International Equity Portfolio), for a Sub-advisory fee of 1.0% of the average
daily nets assets of the Portfolio not in excess of $100 million; plus .75 of 1%
of the portion of the average daily net assets of the Portfolio over $100
million. The Former Sub-advisor had also voluntarily agreed to waive a portion
of its fee equal to .25% on assets not in excess of $50 million; plus .35% on
assets over $50 million but not in excess of $75 million; plus .50% on assets
over $75 million but not in excess of $100 million; plus .25% on assets over
$100 million. Such agreement was terminated as of the opening of business on
October 15, 1996. For the year ended December 31, 1995, the amount paid by the
Investment Manager to the Former Sub-advisor was $1,389,549.
Putnam Investment Management, Inc. for the AST Putnam Balanced Portfolio:
An annual rate of .45 of 1% of the portion of the average daily net assets of
the Portfolio not in excess of $150 million; plus .40 of 1% of the portion of
the average daily net assets of the Portfolio over $150 million but not in
excess of $300 million; plus .35 of 1% of the portion of the average daily net
assets of the Portfolio in excess of $300 million. Prior to October 15, 1996,
the Investment Manager had engaged Phoenix Investment Counsel, Inc. (the "Former
Sub-advisor") as Sub-advisor for the Portfolio (formerly, the AST Phoenix
Balanced Asset Portfolio), for a total Sub-advisory fee of .50 of 1% of the
average daily net assets of the Portfolio not in excess of $25 million; plus .40
of 1% of the portion of the average daily net assets of the Portfolio over $25
million but not in excess of $75 million; plus .30 of 1% of the portion of the
average daily net assets of the Portfolio in excess of $75 million. For the year
ended December 31, 1995, the amount paid by the Investment Manager to the
Former Sub-advisor was $576,648.
The Annual Report of the Trust for the year ended December 31, 1995
contains a discussion by the Trust's management of the performance of each
Portfolio. The Annual Report is available free of charge upon request.
Administrator: PFPC Inc., a Delaware corporation which is an indirect
wholly-owned subsidiary of PNC Financial Corp. and has its principal offices at
103 Bellevue Parkway, Wilmington, Delaware 19809, is the administrator for the
Trust (the "Administrator"). The Administrator provides administrative services
to investment companies and other accounts.
The Administration Agreement: The Trust has entered into a Fund Accounting and
Administration Agreement with the Administrator (the "Administration Agreement")
dated May 1, 1992, under which the Administrator has agreed to provide certain
fund accounting and administrative services to the Trust, including, among other
services, accounting relating to the Trust and investment transactions of the
Trust; computation of daily net asset values; maintaining the Trust's books of
account; assisting in monitoring, in conjunction with the Investment Manager,
compliance with the Trust's investment objectives, policies and restrictions;
providing office space and equipment necessary for the proper administration and
accounting functions of the Trust; monitoring investment activity and income of
the Trust for compliance with applicable tax laws; preparing and filing Trust
tax returns; preparing financial information in connection with the preparation
of the Trust's annual and semi-annual reports and making requisite filings
thereof; preparing schedules of Trust share activity for footnotes to financial
statements; furnishing financial information necessary for the completion of
certain items to the Trust's registration statement, and necessary to prepare
and file Rule 24f-2 notices; providing an administrative interface between the
Investment Manager and the Trust's custodian; creating and maintaining all
necessary records in accordance with applicable laws, rules and regulations,
including, but not limited to, those records required to be kept pursuant to the
1940 Act; and performing such other duties related to the administration of the
Trust as may be requested by the Board of Trustees. The Administrator does not
have any responsibility or authority for the management of the assets of the
Trust, the determination of its investment policies, or for any matter
pertaining to the distribution of securities issued by the Trust.
As compensation for the services and facilities provided by the
Administrator under the Administration Agreement, the Trust has agreed to pay to
the Administrator its out-of pocket expenses plus the greater of certain maximum
percentages of the average daily net assets of the Trust or certain specified
minimums calculated for each Portfolio. The maximum percentages of the average
daily net assets are: (a) 0.10% of the first $200 million; (b) 0.075% of the
next $200 million; (c) 0.050% of the next $200 million; and (d) 0.03% of average
daily net assets over $600 million. The initial year of this Administration
Agreement commenced on May 1, 1992. The minimum amount for the fifth year of
this Administration Agreement is $75,000 for each of the Lord Abbett Growth and
Income Portfolio, the JanCap Growth Portfolio, the AST Money Market Portfolio,
the Federated High Yield Portfolio, the Federated Utility Income Portfolio, the
AST Putnam Balanced Portfolio, the T. Rowe Price Asset Allocation Portfolio, the
Founders Capital Appreciation Portfolio, the INVESCO Equity Income Portfolio,
the PIMCO Total Return Bond Portfolio and the Berger Capital Growth Portfolio.
The minimum for the fifth year of this Administration Agreement is $100,000 for
the T. Rowe Price International Bond Portfolio, the T. Rowe Price International
Equity Portfolio and the AST Putnam International Equity Portfolio. The minimum
amount for each of the T. Rowe Price Natural Resources Portfolio and the PIMCO
Limited Maturity Bond Portfolio is $75,000 per year. The minimum amount for the
Founders Passport Portfolio is $90,000 per year. The minimum amount for the
Robertson Stephens Value + Growth Portfolio is $34,375 per year. The minimum
amounts for the AST Janus Overseas Growth Portfolio, the T. Rowe Price Small
Company Value Portfolio, the Twentieth Century International Growth Portfolio,
the Twentieth Century Strategic Balanced Portfolio and the AST Putnam Value
Growth & Income Portfolio are $36,667, $34,375, $36,667, $34,375 and $34,375,
respectively, per year. For a description of the "out-of-pocket" expenses the
Trust is to pay the Administrator, see "The Administration and Accounting
Services Agreement" in the Trust's Statement of Additional Information.
Sale of Shares: Shares are sold at net asset value to Participating
Insurance Companies and Qualified Plans. Owners of variable annuity contracts
and variable insurance policies and plan participants will receive annual and
semi-annual reports including the financial statement of the Portfolios that
they have authorized for investment. The Trust has entered into separate
agreements for the sale of shares with American Skandia Life Assurance
Corporation ("ASLAC") and Kemper Investors Life Insurance Company ("Kemper"),
respectively. Pursuant to these agreements, the Trust will pay ASLAC and Kemper
for printing and delivery of certain documents to the beneficial owners of Trust
shares who are holders of variable annuity and variable life insurance policies
issued by ASLAC and Kemper. Such documents include prospectuses, semi-annual and
annual reports and any proxy materials. The Trust will pay ASLAC 0.1%, on an
annualized basis, of the net asset value of the shares legally owned by any
separate account of ASLAC, and will pay Kemper 0.1%, on an annualized basis, of
the net asset value of the shares legally owned by the separate accounts of
Kemper named in the sales agreement. The Trust may enter into Sales Agreements
with other Participating Insurance Companies or certain Qualified Plans in the
future.
TAX MATTERS:
This discussion of federal income tax consequences applies to the
Participating Insurance Companies, Qualified Plans and plan participants in
certain types of Qualified Plans since the separate accounts of the
Participating Insurance Companies, the Qualified Plans and plan participants in
certain Qualified Plans will be the shareholders of the Trust. Holders of
variable annuity contracts or variable life insurance policies must consult the
prospectuses of their respective contracts or policies for information on the
federal income tax consequences to such holders, and plan participants must
consult with any applicable plan documents for information on the federal income
tax consequences to such holders. The Trust intends to qualify as a regulated
investment company by satisfying the requirements under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), including requirements
with respect to diversification of assets, distribution of income and sources of
income. It is the Trust's policy to distribute to shareholders all of its
investment income (net of expenses) and any capital gains (net of capital
losses) in accordance with the timing requirements imposed by the Code so that
the Trust will satisfy the distribution requirement of Subchapter M and not be
subject to federal income taxes or the 4% excise tax.
Distributions by the Trust of its net investment income and the excess,
if any, of its net short-term capital gain over its net long-term capital loss
are taxable to shareholders as ordinary income. These distributions are treated
as dividends for federal income tax purposes, but will not qualify for the 70%
dividends-received deduction for corporate shareholders. Distributions by the
Trust of the excess, if any, of its net long-term capital gain over its net
short-term capital loss are designated as capital gain dividends and are taxable
to shareholders as long-term capital gains, regardless of the length of time the
shareholder held his shares.
Portions of certain Portfolio's investment income may be subject to
foreign income taxes withheld at source. The Trust may elect to "pass-through"
to the shareholders of such Portfolios these foreign taxes, in which event each
shareholder will be required to include his pro rata portion thereof in his
gross income, but will be able to deduct or (subject to various limitations)
claim a foreign tax credit for such amount.
Distributions to shareholders will be treated in the same manner for
federal income tax purposes whether received in cash or reinvested in additional
shares of the Trust. In general, distributions by the Trust are taken into
account by the shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by the
Trust and received by the shareholders on December 31 of the preceding year. A
statement setting forth the federal income tax status of all distributions made
or deemed made during the year, including any amount of foreign taxes "passed
through," will be sent to shareholders promptly after the end of each year.
Notwithstanding the foregoing, distributions by the Trust to certain Qualified
Plans may be exempt from federal income tax.
Under Code Section 817(h), a segregated asset account upon which a
variable annuity contract or variable life insurance policy is based must be
"adequately diversified." A segregated asset account will be adequately
diversified if it satisfies one of two alternative tests set forth in Treasury
regulations. For purposes of these alternative diversification tests, a
segregated asset account investing in shares of a regulated investment company
will be entitled to "look-through" the regulated investment company to its pro
rata portion of the regulated investment company's assets, provided the
regulated investment company satisfies certain conditions relating to the
ownership of its shares. The Trust intends to satisfy these ownership
conditions. Further, the Trust intends that each Portfolio separately will be
adequately diversified. Accordingly, a segregated asset account investing solely
in shares of a Portfolio will be adequately diversified, and a segregated asset
account investing in shares of one or more Trust Portfolios and shares of other
adequately diversified funds generally will be adequately diversified.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, a prospective shareholder should
also review the more detailed discussion of federal income tax considerations
relevant to the Trust that is contained in the Statement of Additional
Information. In addition, each prospective shareholder should consult with his
own tax advisor as to the tax consequences of investments in the Trust,
including the application of state and local taxes which may differ from the
federal income tax consequences described above.
ORGANIZATION AND DESCRIPTION OF SHARES OF THE TRUST: The Trust is a managed,
open-end investment company organized as a Massachusetts business trust, whose
separate Portfolios are diversified, unless otherwise indicated. The Trust's
Declaration of Trust dated October 31, 1988, which governs certain Trust
matters, permits the Trust's Board of Trustees to issue multiple classes of
shares, and within each class, an unlimited number of shares of beneficial
interest with a par value of $.001 per share. Each share entitles the holder to
one vote for the election of Trustees and on all other matters that are not
specific to one class of shares, and to participate equally in dividends,
distributions of capital gains and net assets of each applicable Portfolio. Only
shareholders of shares of a specific Portfolio may vote on matters specific to
that Portfolio. Shares of one class may not bear the same economic relationship
to the Trust as shares of another class. In the event of dissolution or
liquidation, holders of shares of a Portfolio will receive pro rata, subject to
the rights of creditors, the proceeds of the sale of the assets held in such
Portfolio less the liabilities attributable to such Portfolio. Shareholders of a
Portfolio will not be liable for the expenses, obligations or debts of another
Portfolio.
There are no preemptive or conversion rights applicable to any of the
Trust's shares. The Trust's shares, when issued, will be fully paid,
non-assessable and transferable. The Trustees may at any time create additional
series of shares without shareholder approval.
Generally, there will not be annual meetings of shareholders. A Trustee
may, in accordance with certain rules of the Securities and Exchange Commission,
be removed from office when the holders of record of not less than two-thirds of
the outstanding shares either present a written declaration to the Trust's
custodian or vote in person or by proxy at a meeting called for this purpose. In
addition, the Trustees will promptly call a meeting of shareholders to remove a
Trustee(s) when requested to do so in writing by record holders of not less than
10% of the outstanding shares. Finally, the Trustees shall, in certain
circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request.
Under Massachusetts law, shareholders could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees to all parties, and each party thereto must expressly waive all rights
of action directly against shareholders. The Declaration of Trust provides for
indemnification out of the Trust's property for all loss and expense of any
shareholder of the Trust held liable on account of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Trust would be
unable to meet its obligations wherein the complaining party was held not to be
bound by the disclaimer.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by the Trust
of the Trustees and officers of the Trust except with respect to any matter as
to which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or the Trust's
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust also authorizes
the purchase of liability insurance on behalf of Trustees and officers.
PORTFOLIO ANNUAL EXPENSES (as a percentage of average net assets): Unless
otherwise indicated, the expenses shown on the following page are for the year
ending December 31, 1995. "N/A" indicates that no entity has agreed to reimburse
the particular expense indicated. The expenses of the portfolios either are
currently being partially reimbursed or may be partially reimbursed in the
future. Management Fees, Other Expenses and Total Annual Expenses are provided
on both a reimbursed and not reimbursed basis, if applicable.
* Because shares of the Portfolios may be purchased through variable insurance
contacts, the prospectus of the Participating Insurance Company sponsoring such
contract should be carefully reviewed for information on relevant charges and
expenses. The table on the following page does not reflect any such charges.
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
NONE* Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) NONE* Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable) NONE* Redemption Fees (as a
percentage of amount redeemed, if applicable) NONE* Exchange Fee NONE*
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (as a percentage of average net assets)
Total Total
Annual Annual
Management Management Other Other Expenses Expenses
Fee Fee Expenses Expenses after any without any
after any without any after any without any applicable applicable
Portfolio: voluntary voluntary any applicable applicable waiver or waiver or
waiver waiver reimbursement reimbursement reimbursementreimbursement
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lord Abbett Growth and Income N/A 0.75% 0.24% 0.24% 0.99% 0.99%
JanCap Growth N/A 0.90% 0.22% 0.22% 1.12% 1.12%
AST Janus Overseas Growth(1) N/A 1.00% 0.42% 0.42% 1.42% 1.42%
AST Money Market 0.45% 0.50% 0.15% 0.22% 0.60% 0.72%
Federated Utility Income N/A 0.69% 0.24% 0.24% 0.93% 0.93%
Federated High Yield N/A 0.75% 0.36% 0.36% 1.11% 1.11%
T. Rowe Price Asset Allocation N/A 0.85% 0.40% 0.44% 1.25% 1.29%
T. Rowe Price Int'l Equity N/A 1.00% 0.33% 0.33% 1.33% 1.33%
T. Rowe Price Natural Resources(2) N/A 0.90% 0.45% 0.90% 1.35% 1.80%
T. Rowe Price Int'l Bond(3) N/A 0.80% 0.53% 0.53% 1.33% 1.33%
T. Rowe Price Small Company(1) N/A 0.90% 0.37% 0.37% 1.27% 1.27%
Founders Capital Appreciation N/A 0.90% 0.32% 0.32% 1.22% 1.22%
Founders Passport(2)(4) N/A 1.00% 0.46% 0.46% 1.46% 1.46%
INVESCO Equity Income N/A 0.75% 0.23% 0.23% 0.98% 0.98%
PIMCO Total Return Bond N/A 0.65% 0.24% 0.24% 0.89% 0.89%
PIMCO Limited Maturity Bond(2) N/A 0.65% 0.24% 0.24% 0.89% 0.89%
Berger Capital Growth N/A 0.75% 0.42% 0.42% 1.17% 1.17%
Robertson Stephens Value + Growth(5) N/A 1.00% 0.45% 0.61% 1.45% 1.61%
Twentieth Century Int'l Growth(1) N/A 1.00% 0.42% 0.42% 1.42% 1.42%
Twentieth Century
Strategic Balanced(1) N/A 0.85% 0.33% 0.33% 1.18% 1.18%
AST Putnam Value Growth & Income(1) N/A 0.75% 0.33% 0.33% 1.08% 1.08%
AST Putnam Int'l Equity(6) N/A 0.90% 0.27% 0.27% 1.17% 1.17%
AST Putnam Balanced(7) N/A 0.75% 0.24% 0.24% 0.99% 0.99%
</TABLE>
(1) These Portfolios are first being offered as of the date of this
Prospectus. Expenses shown are estimated and annualized.
(2) These Portfolios commenced operation in May, 1995. Expenses shown are
annualized.
(3) Prior to May 1, 1996, the Investment Manager had engaged Scudder,
Stevens & Clark, Inc. as Sub-advisor for the Portfolio (formerly, the AST
Scudder International Bond Portfolio), for a total Investment Management fee
payable at the annual rate of 1.00% of the average daily net assets of the
Portfolio. As of May 1, 1996, the Investment Manager has engaged Rowe
Price-Fleming International, Inc. as Sub-advisor for the Portfolio, for a total
Investment Management fee payable at the annual rate of .80% of the average
daily net assets of the Portfolio. The Management Fee in the above chart has
been stated to reflect the current Investment Management fee payable to the
Investment Manager.
(4) Prior to October 15, 1996, the Investment Manager had engaged Seligman
Henderson Co. as Sub-advisor for the Portfolio (formerly, the Seligman Henderson
International Small Cap Portfolio), for a total Investment Management fee
payable at the annual rate of 1.0% of the average daily nets assets of the
Portfolio. As of October 15, 1996, the Investment Manager has engaged Founders
Asset Management, Inc. as Sub-advisor for the Portfolio, for a total Investment
Management fee payable at the annual rate of 1.0% of the average daily net
assets of the Portfolio. The Management Fee in the above chart has been stated
to reflect the current Investment Management fee payable to the Investment
Manager.
(5) This Portfolio commenced operation in May, 1996. Expenses shown are
estimated and annualized.
(6) Prior to October 15, 1996, the Investment Manager had engaged Seligman
Henderson Co. as Sub-advisor for the Portfolio (formerly, the Seligman Henderson
International Equity Portfolio), for a total Investment Management fee payable
at the annual rate of 1.0% of the average daily nets assets of the Portfolio.
The Investment Manager had also voluntarily agreed to waive a portion of its fee
equal to .15% on assets in excess of $75 million. As of October 15, 1996, the
Investment Manager has engaged Putnam Investment Management, Inc. as Sub-advisor
for the Portfolio, for a total Investment Management fee payable at the annual
rate of 1.0% of the average daily net assets of the Portfolio not in excess of
$75 million; plus .85% of the Portfolio's average daily net assets over $75
million. The Management Fee in the above chart has been stated to reflect the
current Investment Management fee payable to the Investment Manager.
(7) Prior to October 15, 1996, the Investment Manager had engaged Phoenix
Investment Counsel, Inc. as Sub-advisor for the Portfolio (formerly, the AST
Phoenix Balanced Asset Portfolio), for a total Investment Management fee payable
at the annual rate of .75% of the average daily net assets of the Portfolio not
in excess of $75 million; plus .65% of the Portfolio's average daily net assets
in excess of $75 million. As of October 15, 1996, the Investment Manager has
engaged Putnam Investment Management, Inc. as Sub-advisor for the Portfolio, for
a total Investment Management fee payable at the annual rate of .75% of the
average daily net assets of the Portfolio not in excess of $300 million; plus
.70% of the Portfolio's average daily net assets in excess of $300 million. The
Management Fee in the above chart has been stated to reflect the current
Investment Management fee payable to the Investment Manager.
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Portfolio(s).
EXPENSE EXAMPLES: The examples reflect expenses of the Portfolio.
The examples shown assume that the total annual expenses for the Portfolios
throughout the period specified will be the lower of the total annual expenses
without any applicable reimbursement or expenses after any applicable
reimbursement.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE PORTFOLIOS - ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
You would pay the following expenses rounded to the nearest dollar on a $1,000 investment assuming 5% annual return at
the end of each time period.
After:
Portfolio: 1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Lord Abbett Growth and Income 10 32 55 121
JanCap Growth 11 35 61 135
AST Janus Overseas Growth 15 46 N/A N/A
AST Money Market 6 19 33 75
Federated Utility Income 10 30 52 116
Federated High Yield 11 35 61 135
T. Rowe Price Asset Allocation 13 40 69 152
T. Rowe Price International Equity 14 43 74 161
T. Rowe Price Natural Resources 14 43 74 162
T. Rowe Price International Bond 14 43 74 161
T. Rowe Price Small Company 13 40 N/A N/A
Founders Capital Appreciation 13 39 67 148
Founders Passport 15 46 80 175
INVESCO Equity Income 10 31 54 120
PIMCO Total Return Bond 9 28 49 110
PIMCO Limited Maturity Bond 9 28 49 110
Berger Capital Growth 12 37 64 142
Robertson Stephens Value + Growth 15 46 N/A N/A
Twentieth Century International Growth 15 46 N/A N/A
Twentieth Century Strategic Balanced 12 38 N/A N/A
AST Putnam Value Growth & Income 11 34 N/A N/A
AST Putnam International Equity 12 37 64 142
AST Putnam Balanced 10 32 55 121
</TABLE>
PERFORMANCE: The Portfolios may measure performance in terms of total return,
which is calculated for any specified period of time by assuming the purchase of
shares of the Portfolio at the net asset value at the beginning of the period.
Each dividend or other distribution paid by each Portfolio during such period is
assumed to have been reinvested at the net asset value on the reinvestment date.
The shares then owned as a result of this process are valued at the net asset
value at the end of the period. The percentage increase is determined by
subtracting the initial value of the investment from the ending value and
dividing the remainder by the initial value. Each Portfolio's total return shows
a Portfolio's overall dollar or percentage change in value, including changes in
share price and assuming each Portfolio's dividends and capital gains
distributions are reinvested. An average annual total return reflects the
hypothetical annually compounded return that would have produced the same
cumulative return if a Portfolio's performance had been constant over the entire
period. Total return figures are based on the overall change in value of a
hypothetical investment in each Portfolio. Because average annual returns for
more than one year tend to smooth out variations in each Portfolio's return,
investors should recognize that such figures are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Portfolio may separate its cumulative and average annual returns into income
results and capital gains or losses.
The Portfolios may also measure performance in terms of yield. Each
Portfolio's yield shows the rate of income the Portfolio earns on its
investments as a percentage of the Portfolio's share price. To calculate yield,
the Portfolio takes the interest and dividend income it earned from its
investments for a 30-day period (net of expenses), divides it by the average
number of Portfolio shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Portfolio's net asset value
at the end of the 30-day period. For the Portfolio's investments denominated in
foreign currencies, income and expenses are calculated in their respective
currencies and then converted to U.S. dollars. Yields are calculated according
to methods that are standardized for all stock and bond funds. Because yield
calculation methods differ from the method used for other accounting purposes
(in particular, currency gains and losses are not reflected in the yield
calculation), a Portfolio's yield may not equal the income paid to shareholders'
accounts or the income reported in the Portfolio's financial statements.
The Portfolios impose no sales or other charges that would impact the
total return or yield computations. Portfolio performance figures are based upon
historical results and are not intended to indicate future performance. The
investment return and principal value of an investment in any of the Portfolios
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Yield and total returns quoted from the Portfolios include the effect
of deducting each Portfolio's expenses, but may not include charges and expenses
attributable to any particular insurance product. Because shares of the
Portfolios may be purchased through variable insurance contracts, the prospectus
of the Participating Insurance Company sponsoring such contract should be
carefully reviewed for information on relevant charges and expenses. Excluding
these charges from quotations of each Portfolio's performance has the effect of
increasing the performance quoted. The effect of these charges should be
considered when comparing a Portfolio's performance to that of other mutual
funds. In advertising and sales literature, these figures will be accompanied by
figures that reflect the applicable contract charges.
From time to time in advertisements or sales material, the Portfolios (or
Participating Insurance Companies) may discuss their performance ratings or
other information as published by recognized mutual fund statistical or rating
services, such as Lipper Analytical Services, Inc., Morningstar or by
publications of general interest, such as Forbes or Money. The Portfolios may
also compare their performance to that of other selected mutual funds, mutual
fund averages or recognized stock market indicators, including the Standard &
Poor's 500 Stock Index, the Standard & Poor Midcap Index, the Dow Jones
Industrial Average, the Russell 2000 and the NASDAQ composite. In addition, the
Portfolios may compare their total return or yield to the yield on U.S. Treasury
obligations and to the percentage change in the Consumer Price Index. Each of
the AST Janus Overseas Growth Portfolio, T. Rowe Price International Equity
Portfolio, T. Rowe Price International Bond Portfolio, Founders Passport
Portfolio, Twentieth Century International Growth Portfolio and AST Putnam
International Equity Portfolio may compare its performance to the record of
global market indicators such as Morgan Stanley Capital International Europe,
Australia, Far East Index (EAFE Index), an unmanaged index of foreign common
stock prices translated into U.S. dollars. Such performance ratings or
comparisons may be made with funds that may have different investment
restrictions, objectives, policies or techniques than the Portfolios and such
other funds or market indicators may be comprised of securities that differ
significantly from the Portfolios' investments.
TRANSFER AND SHAREHOLDER SERVICING AGENT AND CUSTODIAN: The custodian for
all cash and securities of the AST Janus Overseas Growth Portfolio, T. Rowe
Price International Equity Portfolio, T. Rowe Price International Bond
Portfolio, Founders Passport Portfolio, Twentieth Century International Growth
Portfolio and AST Putnam International Equity Portfolio is Morgan Stanley Trust
Company, One Pierrepont, Brooklyn, New York. The custodian for all cash and
securities of the other Portfolios is PNC Bank, Airport Business Center,
International Court 2, 200 Stevens Drive, Philadelphia, Pennsylvania 19113. For
these Portfolios, Morgan Stanley Trust Company will serve as co-custodian with
respect to foreign securities. The Trust's transfer and shareholder servicing
agent is PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware 19809.
COUNSEL AND AUDITORS: The firm of Werner & Kennedy, 1633 Broadway, 46th Floor,
New York, New York 10019, is counsel for the Trust. Deloitte & Touche LLP, 117
Campus Drive, Princeton, New Jersey 08540, has been appointed independent
auditor for the Trust.
OTHER INFORMATION: This Prospectus omits certain information contained in the
registration statement filed with the Securities and Exchange Commission. Copies
of the registration statement, including items omitted herefrom, may be obtained
from the Commission by paying the charges prescribed under its rules and
regulations. The Statement of Additional Information included in such
registration statement may be obtained without charge from the Trust's office at
One Corporate Drive, Shelton, Connecticut 06484 or by calling (203) 926-1888.
Shareholder inquiries should be made by telephone to (203) 926-1888 or,
if in writing, to the Trust's office at One Corporate Drive, Shelton,
Connecticut 06484. Holders of variable annuity contracts or variable life
insurance policies issued by Participating Insurance Companies for which shares
of the Trust are the investment vehicle will receive from the Participating
Insurance Companies unaudited semi-annual financial statements and year-end
financial statements audited by the Trust's independent auditors. If applicable,
each plan participant will receive from the Qualified Plan trustees, or directly
from the Trust, unaudited semi-annual financial statements and year-end
financial statements audited by the Trust's independent auditors. Each report
will show the investments owned by the Trust and the market values of the
investments and will provide other information about the Trust and its
operations.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND INFORMATION
OR REPRESENTATIONS NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DECEMBER 30, 1996
AMERICAN SKANDIA TRUST
One Corporate Drive, Shelton, Connecticut 06484
- --------------------------------------------------------------------------------
American Skandia Trust (the "Trust") is a managed, open-end investment
company whose separate portfolios ("Portfolios") are diversified, unless
otherwise indicated. The Trust seeks to meet the differing objectives of its
Portfolios. Currently, these Portfolios include the Lord Abbett Growth and
Income Portfolio, the JanCap Growth Portfolio, the AST Janus Overseas Growth
Portfolio, the AST Money Market Portfolio, the Federated Utility Income
Portfolio, the Federated High Yield Portfolio, the T. Rowe Price Asset
Allocation Portfolio, the T. Rowe Price International Equity Portfolio, the T.
Rowe Price Natural Resources Portfolio, the T. Rowe Price International Bond
Portfolio (formerly, the AST Scudder International Bond Portfolio), the T. Rowe
Price Small Company Value Portfolio, the Founders Capital Appreciation
Portfolio, the Founders Passport Portfolio (formerly, the Seligman Henderson
International Small Cap Portfolio), the INVESCO Equity Income Portfolio, the
PIMCO Total Return Bond Portfolio, the PIMCO Limited Maturity Bond Portfolio,
the Berger Capital Growth Portfolio, the Robertson Stephens Value + Growth
Portfolio, the Twentieth Century International Growth Portfolio, the Twentieth
Century Strategic Balanced Portfolio, the AST Putnam Value Growth & Income
Portfolio, the AST Putnam International Equity Portfolio (formerly, the Seligman
Henderson International Equity Portfolio) and the AST Putnam Balanced Portfolio
(formerly, the AST Phoenix Balanced Asset Portfolio).
American Skandia Investment Services, Incorporated ("ASISI") is the
investment manager ("Investment Manager") for the Trust. Currently, ASISI
engages a sub-advisor ("Sub-advisor") for each Portfolio. The Sub-advisor for
each Portfolio is as follows: (a) Lord Abbett Growth and Income Portfolio: Lord,
Abbett & Co.; (b) JanCap Growth Portfolio: Janus Capital Corporation; (c) AST
Janus Overseas Growth Portfolio: Janus Capital Corporation; (d) AST Money Market
Portfolio: J.P. Morgan Investment Management, Inc.; (e) Federated Utility Income
Portfolio: Federated Investment Counseling; (f) Federated High Yield Portfolio:
Federated Investment Counseling; (g) T. Rowe Price Asset Allocation Portfolio:
T. Rowe Price Associates, Inc.; (h) T. Rowe Price International Equity
Portfolio: Rowe Price-Fleming International, Inc.; (i) T. Rowe Price Natural
Resources Portfolio: T. Rowe Price Associates, Inc.; (j) T. Rowe Price
International Bond Portfolio: Rowe Price-Fleming International, Inc. (formerly,
the AST Scudder International Bond Portfolio when the Sub-advisor was Scudder,
Stevens & Clark, Inc.); (k) T. Rowe Price Small Company Value Portfolio: T. Rowe
Price Associates, Inc.; (l) Founders Capital Appreciation Portfolio: Founders
Asset Management, Inc.; (m) Founders Passport Portfolio: Founders Asset
Management, Inc. (formerly, the Seligman Henderson International Small Cap
Portfolio when the Sub-advisor was Seligman Henderson Co.; (n) INVESCO Equity
Income Portfolio: INVESCO Trust Company; (o) PIMCO Total Return Bond Portfolio:
Pacific Investment Management Company; (p) PIMCO Limited Maturity Bond
Portfolio: Pacific Investment Management Company; (q) Berger Capital Growth
Portfolio: Berger Associates, Inc.; (r) Robertson Stephens Value + Growth
Portfolio: Robertson, Stephens & Company Investment Management, L.P.; (s)
Twentieth Century International Growth Portfolio: Investors Research Corporation
(name changed to "American Century Investment Management, Inc." as of January 1,
1997); (t) Twentieth Century Strategic Balanced Portfolio: Investors Research
Corporation (name changed to "American Century Investment Management, Inc." as
of January 1, 1997); (u) AST Putnam Value Growth & Income Portfolio: Putnam
Investment Management, Inc.; (v) AST Putnam International Equity Portfolio:
Putnam Investment Management, Inc. (formerly, the Seligman Henderson
International Equity Portfolio when the Sub-advisor was Seligman Henderson Co.);
and (w) AST Putnam Balanced Portfolio: Putnam Investment Management, Inc.
(formerly, the AST Phoenix Balanced Asset Portfolio when the Sub-advisor was
Phoenix Investment Counsel, Inc.).
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Trust's current Prospectus, a copy of which may be
obtained by writing the Trust's administrative office at One Corporate Drive,
Shelton, Connecticut 06484 or by calling (203) 926-1888.
This Statement relates to the Trust's Prospectus dated December 30, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Caption Page
General Information and History....................................................................................3
Investment Objectives and Policies.................................................................................3
Lord Abbett Growth and Income Portfolio.......................................................................3
JanCap Growth Portfolio.......................................................................................4
AST Janus Overseas Growth Portfolio...........................................................................7
AST Money Market Portfolio....................................................................................10
Federated Utility Income Portfolio............................................................................11
Federated High Yield Portfolio................................................................................12
T. Rowe Price Asset Allocation Portfolio......................................................................14
T. Rowe Price International Equity Portfolio..................................................................24
T. Rowe Price Natural Resources Portfolio.....................................................................33
T. Rowe Price International Bond Portfolio....................................................................44
T. Rowe Price Small Company Value Portfolio...................................................................53
Founders Capital Appreciation Portfolio.......................................................................64
Founders Passport Portfolio...................................................................................71
INVESCO Equity Income Portfolio...............................................................................79
PIMCO Total Return Bond Portfolio.............................................................................80
PIMCO Limited Maturity Bond Portfolio.........................................................................91
Berger Capital Growth Portfolio...............................................................................101
Robertson Stephens Value + Growth Portfolio...................................................................103
Twentieth Century International Growth Portfolio..............................................................111
Twentieth Century Strategic Balanced Portfolio................................................................113
AST Putnam Value Growth & Income Portfolio....................................................................120
AST Putnam International Equity Portfolio.....................................................................129
AST Putnam Balanced Portfolio.................................................................................137
Investment Restrictions............................................................................................147
Certain Risk Factors and Investment Methods........................................................................165
Portfolio Turnover.................................................................................................181
Management.........................................................................................................182
Management of the Trust............................................................................................184
Brokerage Allocation...............................................................................................186
Allocation of Investments..........................................................................................187
Regulatory Matters.................................................................................................187
Computation of Net Asset Values....................................................................................187
Purchase and Redemption of Shares..................................................................................188
Tax Matters........................................................................................................188
Underwriter........................................................................................................188
Performance........................................................................................................189
Other Information..................................................................................................190
Financial Statements...............................................................................................190
Appendix...........................................................................................................342
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY:
Prior to May 1, 1992, the Trust was known as the Henderson International
Growth Fund, which consisted of only one portfolio. This Portfolio is now known
as the AST Putnam International Equity Portfolio (formerly, the Seligman
Henderson International Equity Portfolio). The Lord Abbett Growth and Income
Portfolio was first offered as of May 1, 1992. The JanCap Growth Portfolio and
the AST Money Market Portfolio were first offered as of November 4, 1992. The
Federated Utility Income Portfolio and the AST Putnam Balanced Portfolio
(formerly, the AST Phoenix Balanced Asset Portfolio) were first offered as of
May 1, 1993. The Federated High Yield Portfolio, the T. Rowe Price Asset
Allocation Portfolio, the T. Rowe Price International Equity Portfolio, the
Founders Capital Appreciation Portfolio, the INVESCO Equity Income Portfolio and
the PIMCO Total Return Bond Portfolio were first offered as of December 31,
1993. The T. Rowe Price Interinational Bond Portfolio (formerly, the AST Scudder
International Bond Portfolio) was first offered as of May 1, 1994. The Berger
Capital Growth Portfolio was first offered as of October 19, 1994. The Founders
Passport Portfolio (formerly, the Seligman Henderson International Small Cap
Portfolio), the T. Rowe Price Natural Resources Portfolio and the PIMCO Limited
Maturity Bond Portfolio were first offered as of May 2, 1995. The Robertson
Stephens Value + Growth Portfolio was first offered as of May 2, 1996. The AST
Janus Overseas Growth Portfolio, the T. Rowe Price Small Company Value
Portfolio, the Twentieth Century International Growth Portfolio, the Twentieth
Century Strategic Balanced Portfolio and the AST Putnam Value Growth & Income
Portfolio are first being offered as of the date of this Statement.
INVESTMENT OBJECTIVES AND POLICIES:
The following information supplements, and should be read in
conjunction with, the section in the Trust's Prospectus entitled "Investment
Objectives and Policies." The investment objective and supplemental information
regarding the policies for each of the Portfolios are described below and should
be considered separately. Each Portfolio has a different investment objective
and certain policies may vary. As a result, the risks, opportunities and return
in each Portfolio may differ. There can be no assurance that any Portfolio's
investment objective will be achieved. Certain risk factors in relation to
various securities and instruments in which the Portfolios may invest are
described in this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
The objective for each Portfolio, if it is specifically noted as its
"investment objective," and the restrictions specifically noted as "investment
restrictions" described in the section of this Statement entitled "Investment
Restrictions" are "fundamental" policies, and may not be changed without
approval of the shareholders of the affected Portfolio. Investment policies not
noted as "investment objectives" or "investment restrictions" are not
"fundamental" policies. As indicated in the "Investment Restrictions" section of
this Statement, certain investment restrictions apply to all Portfolios, while
others only apply to a specific Portfolio. The Trust has the right to modify
without shareholder approval the investment policies of any Portfolio that are
not specifically identified in the Trust's Prospectus or this Statement as
"fundamental."
Each portfolio may be subject to state regulatory requirements which
may be more restrictive than the stated investment policies, in which case, the
sub-advisor will adhere to the more restrictive standard.
Lord Abbett Growth and Income Portfolio:
Investment Objective: The investment objective of the Lord Abbett Growth and
Income Portfolio is long-term growth of capital and income without excessive
fluctuation in market value.
Investment Policies:
Covered Call Options. The Portfolio may write covered call options
which are traded on a national securities exchange with respect to its
securities in an attempt to increase income and to provide greater flexibility
in the disposition of securities. A "call option" is a contract sold for a price
(the "premium") giving its holder the right to buy a specific number of shares
of stock at a specific price prior to a specified date. A "covered call option"
is a call option issued on securities already owned by the writer of the call
option for delivery to the holder upon the exercise of the option. During the
period of the option, the Portfolio forgoes the opportunity to profit from any
increase in the market price of the underlying security above the exercise price
of the option (to the extent that the increase exceeds the net premium). The
Portfolio may also enter into "closing purchase transactions" in order to
terminate its obligation to deliver the underlying security (this may result in
a short-term gain or loss). A closing purchase transaction is the purchase of a
call option (at a cost which may be more or less than the premium received for
writing the original call option) on the same security with the same exercise
price and call period as the option previously written. If the Portfolio is
unable to enter into a closing purchase transaction, it may be required to hold
a security that it might otherwise have sold to protect against depreciation.
The Sub-advisor does not intend to have the Portfolio write covered call options
with respect to securities with an aggregate market value of more than 10% of
the Portfolio's gross assets at the time an option is written. This percentage
limitation will not be increased without prior disclosure in the current
Prospectus of the Trust. For an additional discussion of call options, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Illiquid Securities. Subject to guidelines promulgated by the Board of
Trustees of the Trust, the Portfolio may invest in illiquid securities.
Investments in illiquid securities are limited to a maximum of 10% of Portfolio
net assets. Illiquid securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A of the Securities
Act of 1933 which have been determined to be liquid by the Sub-advisor under the
supervision of the Trustees. Examples of factors which the Sub-advisor may take
into account with respect to a Rule 144A security include the frequency of
trades and quotes for the security, the number of dealers willing to purchase or
sell the security and the number of other potential purchasers, dealer
undertakings to make a market in the security, and the nature of the security
and the nature of the marketplace (e.g., the time period needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
For a discussion of illiquid or restricted securities and certain risks involved
therein see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
JanCap Growth Portfolio:
Investment Objective: The investment objective of the JanCap Growth Portfolio is
growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on the Portfolio's investments, therefore, will be incidental to
the Portfolio's objective.
Investment Policies:
The Portfolio may, as a fundamental policy, invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as the Portfolio subject to the prior approval of the Investment
Manager. The Investment Manager will not approve such investment unless: (a) the
Investment Manager believes, on the advice of counsel, that such investment will
not have an adverse effect on the tax status of the annuity contracts and/or
life insurance policies supported by the separate accounts of the Participating
Insurance Companies which purchase shares of the Trust; (b) the Investment
Manager has given prior notice to the Participating Insurance Companies that it
intends to permit such investment and has determined whether such Participating
Insurance Companies intend to redeem any shares and/or discontinue the purchase
of shares because of such investment; (c) the Trustees have determined that the
fees to be paid by the Trust for administrative, accounting, custodial and
transfer agency services for the Portfolio subsequent to such an investment are
appropriate, or the Trustees have approved changes to the agreements providing
such services to reflect a reduction in fees; (d) the Sub-advisor for the
Portfolio has agreed to reduce its fee by the amount of any investment advisory
fees paid to the investment manager of such open-end management investment
company; and (e) shareholder approval is obtained if required by law. The
Portfolio will apply for such exemptive relief under the provisions of the
Investment Company Act of 1940, or other such relief as may be necessary under
the then governing rules and regulations of the Investment Company Act of 1940,
regarding investments in such investment companies.
Futures, Options and Other Derivative Instruments. The Portfolio may enter
into futures contracts on securities, financial indices, and foreign currencies
and options on such contracts, and may invest in options on securities,
financial indices and foreign currencies, forward contracts and swaps. Please
refer to the description of these strategies and these instruments, as well as
certain risks entailed with the use of such strategies and instruments, in this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
The Portfolio will not enter into any futures contracts or options on
futures contracts if the aggregate amount of the Portfolio's commitments under
outstanding futures contracts positions and options on futures contracts written
by the Portfolio would exceed the market value of the total assets of the
Portfolio (i.e., no leveraging).
The Portfolio may invest in forward currency contracts with stated
values of up to the value of the Portfolio's assets.
The Portfolio may buy or write options in privately negotiated
transactions on the types of securities and indices based on the types of
securities in which the Portfolio is permitted to invest directly. The Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy, and only pursuant to procedures adopted, by the Sub-advisor for
monitoring the creditworthiness of those entities. To the extent that an option
bought or written by the Portfolio in a negotiated transaction is illiquid, the
value of an option bought or the amount of the Portfolio's obligations under an
option written by the Portfolio, as the case may be, will be subject to the
Portfolio's limitation on illiquid investments. In the case of illiquid options,
it may not be possible for the Portfolio to effect an offsetting transaction at
a time when the Sub-advisor believes it would be advantageous for the Portfolio
to do so.
Interest Rate Swaps and Purchasing and Selling Interest Rate Caps and
Floors. In addition to the strategies noted above, the Portfolio, in order to
attempt to protect the value of its investments from interest rate or currency
exchange rate fluctuations, may enter into interest rate swaps and may buy or
sell interest rate caps and floors. The Portfolio expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its investments. The Portfolio also may enter into these
transactions to protect against any increase in the price of securities the
Portfolio may consider buying at a later date. The Portfolio does not intend to
use these transactions as a speculative investment. See the section in this
Statement entitled "Certain Risk Factors and Investment Methods" for a
description of these strategies. Interest rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments.
The exchange commitments can involve payments to be made in the same currency or
in different currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually based principal amount
from the party selling the interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a contractually
based principal amount from the party selling the interest rate floor.
The Portfolio may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending upon whether it is
hedging its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments. The net amount of the excess, if any, of the Portfolio's
obligations over its entitlements with respect to each interest rate swap will
be calculated on a daily basis and an amount of cash or high-grade liquid assets
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. If the
Portfolio enters into an interest rate swap on other than a net basis, the
Portfolio would maintain a segregated account in the full amount accrued on a
daily basis of the Portfolio's obligations with respect to the swap. The
Portfolio will not enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in one of the three highest rating categories of at least one
nationally recognized statistical rating organization at the time of entering
into such transaction. The Sub-advisor will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party to
such a transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. The Sub-advisor has determined
that, as a result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps. To the extent
the Portfolio sells (i.e., writes) caps and floors, it will maintain in a
segregated account cash or high-grade liquid assets having an aggregate net
asset value at least equal to the full amount, accrued on a daily basis, of the
Portfolio's obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Portfolio
or its counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that the Portfolio contractually is entitled
to receive. The Portfolio may buy and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement described above.
Repurchase Agreements and Reverse Repurchase Agreements. Subject to
guidelines promulgated by the Board of Trustees of the Trust, the Portfolio may
enter into repurchase agreements. The Portfolio may also enter into reverse
repurchase agreements. For a description of these investment techniques, see the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following are investment policies applicable to the JanCap Growth Portfolio.
These are not "fundamental" investment restrictions, and may be changed by the
Trustees without shareholder approval.
1. The Portfolio will not purchase a security if as a result, more than
15% of its net assets in the aggregate, at market value, would be invested in
securities which cannot be readily resold because of legal or contractual
restrictions on resale or for which there is no readily available market, or
repurchase agreements maturing in more than seven days or securities used as a
cover for written over-the-counter options, if any. The Trustees, or the
Investment Manager or the Sub-advisor acting pursuant to authority delegated by
the Trustees, may determine that a readily available market exists for
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to such rule, and therefore that such securities are not
subject to the foregoing limitation.
2. The Portfolio may borrow money for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of its total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 25% of the value of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the 25%
limitation. Under such a circumstance, the Portfolio may have to liquidate
securities at a time when it is disadvantageous to do so. This policy shall not
prohibit reverse repurchase agreements or deposits of assets to margin or
guarantee positions in futures, options, swaps or forward contracts, or the
segregation of assets in connection with such contracts.
3. The Portfolio will not invest in warrants if, at the time of
acquisition, the investment in warrants, valued at the lower of cost or market
value, would exceed 5% of the Portfolio's net assets. Included within that
amount, but not to exceed 2% of the value of the Portfolio's net assets, may be
warrants that are not listed on the New York or American Stock Exchange. For
purposes of this restriction, warrants acquired by the Portfolio in units or
attached to securities may be deemed to be without value.
4. The Portfolio will not enter into any futures contracts or options
on futures contracts for purposes other than bona fide hedging transactions (as
defined by the CFTC) if as a result the sum of the initial margin deposits and
premium required to establish positions in futures contracts and related options
that do not fall within the definition of bona fide hedging transactions would
exceed 5% of the fair market value of the Portfolio's net assets.
5. The Portfolio will not enter into any futures contracts if the
aggregate amount of the Portfolio's commitments under outstanding futures
contracts positions of the Portfolio would exceed the market value of the total
assets of the Portfolio.
6. The Portfolio will not sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short, and provided that transactions in options, swaps and forward futures
contracts are not deemed to constitute selling securities short.
7. The Portfolio will not mortgage or pledge any securities owned or
held by the Portfolio in amounts that exceed, in the aggregate, 15% of the
Portfolio's net asset value, provided that this limitation does not apply to
reverse repurchase agreements or in the case of assets deposited to margin or
guarantee positions in futures, options, swaps or forward contracts or placed in
a segregated account in connection with such contracts.
8. The Portfolio will not invest directly in oil, gas, or other mineral
exploration or development programs; however, the Portfolio may purchase
securities of issuers whose principal business activities fall within such
areas.
9. The Portfolio will not purchase a security (other than those issued
by U.S. government agencies and instrumentalities or instruments guaranteed by
an entity with a record of more than three years continuous operation, including
that of predecessors) if as a result, more than 5% of the value of that
Portfolio's assets, at market value, would be invested in the securities of
issuers which, with their predecessors, have been in business less than three
years.
AST Janus Overseas Growth Portfolio:
Investment Objective: The investment objective of the AST Janus Overseas
Growth Portfolio is to seek long-term growth of capital.
Investment Policies:
The portfolio pursues its objective by investing primarily in common
stocks of foreign issuers of any size. The Portfolio normally invests at least
65% of its total assets in issuers from at least five different countries
excluding the United States. The Portfolio may invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and restrictions as the
Portfolio subject to the prior approval of the Investment Manager. The
Investment Manager will not approve such investment unless: (a) the Investment
Manager believes, on the advice of counsel, that such investment will not have
an adverse effect on the tax status of the annuity contracts and/or life
insurance policies supported by the separate accounts of the Participating
Insurance Companies which purchase shares of the Trust; (b) the Investment
Manager has given prior notice to the Participating Insurance Companies that it
intends to permit such investment and has determined whether such Participating
Insurance Companies intend to redeem any shares and/or discontinue the purchase
of shares because of such investment; (c) the Trustees have determined that the
fees to be paid by the Trust for administrative, accounting, custodial and
transfer agency services for the Portfolio subsequent to such an investment are
appropriate, or the Trustees have approved changes to the agreements providing
such services to reflect a reduction in fees; (d) the Sub-advisor has agreed to
reduce its fee by the amount of any investment advisory fees paid to the
investment manager of such open-end management investment company; and (e)
shareholder approval is obtained if required by law. The Portfolio will apply
for such exemptive relief under the provisions of the Investment Company Act of
1940, or other such relief as may be necessary under the then governing rules
and regulations of the Investment Company Act of 1940, regarding investments in
such investment companies.
Futures, Options and Other Derivative Instruments. The Portfolio may enter
into futures contracts on securities, financial indices, and foreign currencies
and options on such contracts, and may invest in options on securities,
financial indices and foreign currencies, forward contracts and swaps. Please
refer to the description of these strategies and these instruments, as well as
certain risks entailed with the use of such strategies and instruments, in this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
The Portfolio will not enter into any futures contracts or options on
futures contracts if the aggregate amount of the Portfolio's commitments under
outstanding futures contracts positions and options on futures contracts written
by the Portfolio would exceed the market value of the total assets of the
Portfolio (i.e., no leveraging).
The Portfolio may invest in forward currency contracts with stated
values of up to the value of the Portfolio's assets.
The Portfolio may buy or write options in privately negotiated
transactions on the types of securities and indices based on the types of
securities in which the Portfolio is permitted to invest directly. The Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy, and only pursuant to procedures adopted, by the Sub-advisor for
monitoring the creditworthiness of those entities. To the extent that an option
bought or written by the Portfolio in a negotiated transaction is illiquid, the
value of an option bought or the amount of the Portfolio's obligations under an
option written by the Portfolio, as the case may be, will be subject to the
Portfolio's limitation on illiquid investments. In the case of illiquid options,
it may not be possible for the Portfolio to effect an offsetting transaction at
a time when the Sub-advisor believes it would be advantageous for the Portfolio
to do so.
Eurodollar Instruments. The Portfolio may make investments in
Eurodollar instruments. Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon which are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency-denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. The Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. The Portfolio may enter into interest
rate swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with the Portfolio receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of the Portfolio's obligations over its entitlement with respect to each
interest rate swap will be calculated on a daily basis and an amount of cash or
high-grade liquid assets having an aggregate net asset value at least equal to
the accrued excess will be maintained in a segregated account by the custodian
of the Portfolio. If the Portfolio enters into an interest rate swap on other
than a net basis, it would maintain a segregated account in the full amount
accrued on a daily basis of its obligations with respect to the swap. The
Portfolio will not enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in one of the three highest rating categories of at least one
nationally recognized statistical rating organization at the time of entering
into such transaction. The Sub-advisor will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party to
such a transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. The Sub-advisor has determined
that, as a result, the swap market has become relatively liquid. Caps and floors
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps. To the extent
the Portfolio sells (i.e., writes) caps and floors, it will segregate cash or
high-grade liquid assets having an aggregate net asset value at least equal to
the full amount, accrued on a daily basis, of its obligations with respect to
any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Portfolio. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Portfolio
or its counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, the Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
The Portfolio may buy and sell (i.e., write) caps and floors without limitation,
subject to the segregation requirement described above.
Illiquid Investments. The Portfolio may invest up to 15% of its net
assets in illiquid investments (i.e., securities that are not readily
marketable). The Sub-advisor will make liquidity determinations with respect to
the Portfolio securities, including Rule 144A Securities, commercial paper and
municipal lease obligations. Under the guidelines established by the Trustees,
the Sub-advisor will consider the following factors: 1) the frequency of trades
and quoted prices for the obligation; 2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; 3)
the willingness of dealers to undertake to make a market in the security; and 4)
the nature of the security and the nature of marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. In the case of commercial paper, the Sub-advisor will
also consider whether the paper is traded flat or in default as to principal and
interest and any ratings of the paper by an NRSRO.
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Zero-Coupon, Pay-In-Kind and Step Coupon Securities. The Portfolio may
invest up to 10% of its assets in zero-coupon, pay-in-kind and step coupon
securities. For a discussion of zero-coupon debt securities and the risks
involved therein, see this Statement under "Certain Risk Factors and Investment
Methods."
Pass-Through Securities. The Portfolio may invest in various types of
pass-through securities, such as mortgage-backed securities, asset-backed
securities and participation interests. A pass-through security is a share or
certificate of interest in a pool of debt obligations that have been repackaged
by an intermediary, such as a bank or broker-dealer. The purchaser of a
pass-through security receives an undivided interest in the underlying pool of
securities. The issuers of the underlying securities make interest and principal
payments to the intermediary which are passed through to purchasers, such as the
Portfolio. For an additional discussion of pass-through securities and certain
risks involved therein, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Depositary Receipts. The Portfolio may invest in sponsored and
unsponsored American Depositary Receipts ("ADRs"), which are receipts issued by
an American bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer. ADRs, in registered form, are designed for use in
U.S. securities markets. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of these ADRs generally bear all
the costs of the ADR facility, whereas foreign issuers typically bear certain
costs in a sponsored ADR. The bank or trust company depositary of an unsponsored
ADR may be under no obligation to distribute shareholder communications received
from the foreign issuer or to pass through voting rights. The Portfolio may also
invest in European Depositary Receipts ("EDRs"), receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, Global
Depositary Receipts ("GDRs") and in other similar instruments representing
securities of foreign companies. EDRs, in bearer form, are designed for use in
European securities markets. GDRs are securities convertible into equity
securities of foreign issuers.
Otherncome-Producing Securities. Other types of income producing securities that
the Portfolio may purchase include, but are not limited to, the following types
of securities:
Variable and Floating Rate Obligations. These types of
securities are relatively long-term instruments that often carry demand features
permitting the holder to demand payment of principal at any time or at specified
intervals prior to maturity.
Standby Commitments. These instruments, which are similar to a
put, give the Portfolio the option to obligate a broker, dealer or bank to
repurchase a security held by that Portfolio at a specified price.
Tender Option Bonds. Tender option bonds are relatively
long-term bonds that are coupled with the agreement of a third party (such as a
broker, dealer or bank) to grant the holders of such securities the option to
tender the securities to the institution at periodic intervals.
Inverse Floaters. Inverse floaters are debt instruments whose
interest bears an inverse relationship to the interest rate on another security.
The Portfolio will not invest more than 5% of its assets in inverse floaters.
The Portfolio will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of the Portfolio.
Repurchase and Reverse Repurchase Agreements. Subject to guidelines
promulgated by the Board of Trustees of the Trust, the Portfolio may enter into
repurchase agreements. Repurchase agreements that mature in more than seven days
will be subject to the 15% limit on illiquid investments. While it is not
possible to eliminate all risks from these transactions, it is the policy of the
Sub-advisor to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by Sub-advisor. The
Portfolio may also enter into reverse repurchase agreements. While a reverse
repurchase agreement is outstanding, the Portfolio will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Portfolio will enter into reverse repurchase
agreements only with parties that Sub-advisor deems creditworthy. For a
description of these investment techniques, see the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Investment Policies Which May be Changed Without Shareholder Approval. The
following restrictions, applicable only to the AST Janus Overseas Growth
Portfolio, are not "fundamental" restrictions and may be changed without
shareholder approval:
1. The Portfolio's investments in warrants, valued at the lower of cost
or market, may not exceed 5% of the value of its net assets. Included within
that amount, but not to exceed 2% of the value of the Portfolio's net assets,
may be warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by the Portfolio in units or attached to securities shall be
deemed to be without value for the purpose of monitoring this policy.
2. The Portfolio will not (i) enter into any futures contracts and
related options for purposes other than bona fide hedging transactions within
the meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions will exceed 5% of the fair market value of the
Portfolio's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; and (ii) enter into
any futures contracts if the aggregate amount of the Portfolio's commitments
under outstanding futures contracts positions would exceed the market value of
its total assets.
3. The Portfolio does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
4. The Portfolio does not currently intend to purchase securities on
margin, except that the Portfolio may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities on
margin.
5. The Portfolio does not currently intend to purchase securities of other
investment companies, except in compliance with the Investment Company Act of
1940 and applicable state law. Duplicate fees may result from such purchases.
6. The Portfolio may not mortgage or pledge any securities owned or held by
the Portfolio in amounts that exceed, in the aggregate, 15% of the Portfolio's
net asset value, provided that this limitation does not apply to reverse
repurchase agreements, deposits of assets to margin, guarantee positions in
futures, options, swaps or forward contracts, or the segregation of assets in
connection with such contracts.
7. The Portfolio does not currently intend to invest directly in oil,
gas, or other mineral development or exploration programs or leases; however,
the Portfolio may own debt or equity securities of companies engaged in those
businesses.
8. The Portfolio does not currently intend to purchase any security or
enter into a repurchase agreement if, as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal and interest within seven days and in securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market. The Trustees, or the Investment Manager acting
pursuant to authority delegated by the Trustees, may determine that a readily
available market exists for securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities"), or any successor to
such rule, and Section 4(2) commercial paper. Accordingly, such securities may
not be subject to the foregoing limitation.
9. The Portfolio may not invest in companies for the purpose of
exercising control of management.
AST Money Market Portfolio:
Investment Objective: The investment objective of the AST Money Market Portfolio
is to seek high current income and maintain high levels of liquidity.
Investment Policies:
Bank Obligations. The Portfolio will not invest in bank obligations for which
any affiliate of the Sub-advisor is the ultimate obligor or accepting bank.
Asset-Backed Securities. Subject to the limitations described in the
Trust's Prospectus under "Investment Objectives and Policies," the asset-backed
securities in which the Portfolio may invest are subject to the Portfolio's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts on credit card debt thereby reducing the balance due.
Additionally, if the letter of credit is exhausted, holders of asset-backed
securities may also experience delays in payments or losses if the full amounts
due on underlying sales contracts are not realized. Because asset-backed
securities are relatively new, the market experience in these securities is
limited and the market's ability to sustain liquidity through all phases of the
market cycle has not been tested. For a discussion of asset-backed securities
and the risks involved therein see the Trust's Prospectus and this Statement
under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements.
The repurchase agreements into which the Portfolio may enter will usually be
short, from overnight to one week, and at no time will the Portfolio invest in
repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
thirteen months from the effective date of the repurchase agreement. For a
discussion of repurchase agreements and the certain risks involved therein, see
the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Reverse Repurchase Agreements. The Portfolio invests the proceeds of
borrowings under reverse repurchase agreements. The Portfolio will enter into a
reverse repurchase agreement only when the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. The Portfolio will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. The Portfolio may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. The Portfolio will establish and maintain with its custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. If
interest rates rise during the term of a reverse repurchase agreement, such
reverse repurchase agreement may have a negative impact on the Portfolio's
ability to maintain a net asset value of $1.00 per share.
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
foreign securities. Any foreign commercial paper must not be subject to foreign
withholding tax at the time of purchase. Foreign investments may be made
directly in securities of foreign issuers or in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Generally, ADRs and
EDRs are receipts issued by a bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation and that are designed for
use in the domestic, in the case of ADRs, or European, in the case of EDRs,
securities markets. For a discussion of depositary receipts and the risks
involved in investing in foreign securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Lending Portfolio Securities. The Portfolio may pay reasonable finders'
and custodial fees in connection with a loan. In making a loan, the Portfolio
will consider all facts and circumstances surrounding the making of the loan,
including the creditworthiness of the borrowing financial institution. The
Portfolio will not make any loans in excess of one year. The Portfolio will not
lend its securities to any officer, employee or Trustee of the Trust, the
Investment Manager, any Sub-advisor of the Trust, or the Administrator unless
otherwise permitted by applicable law.
Federated Utility Income Portfolio:
Investment Objective: The investment objective of the Federated Utility Income
Portfolio is high current income and moderate capital appreciation by investing
primarily in equity and debt securities of utility companies.
Investment Policies:
U.S. Government Securities. The Portfolio may invest in U.S. government
obligations which generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These securities
are backed by the full faith and credit of the U.S. Treasury; the issuer's right
to borrow from the U.S. Treasury; the discretionary authority of the U.S.
government to purchase certain obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations. Examples of
instrumentalities and agencies which may not always receive support from the
U.S. government are: Federal Land Banks; Central Bank for Cooperatives; Federal
Intermediate Credit Banks; Federal Home Loan Banks; Farmers Home Administration;
and Federal National Mortgage Association.
When-Issued and Delayed Delivery Transactions. These transactions are
made to secure what is considered to be an advantageous price and yield for the
Portfolio. Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary from
the purchase prices. No fees or other expenses, other than normal transaction
costs, are incurred. However, liquid assets of the Portfolio sufficient to make
payment for the securities purchased are segregated on the Portfolio's records
at the trade date. These securities are marked to market daily and maintained
until the transaction is settled. For a discussion of when-issued securities and
certain risks involved therein see this Statement under "Certain Risk Factors
and Investment Methods."
Lending Portfolio Securities. The collateral received when the
Portfolio lends portfolio securities must be valued daily and, should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to the Portfolio. During the time Portfolio securities are on loan,
the borrower pays the Portfolio any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Portfolio or
the Borrower. The Portfolio may pay reasonable administrative and custodial fees
in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or equivalent collateral to the borrower or placing broker.
The Portfolio does not have the right to vote the securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important by the Investment Manager with respect to the investment.
Reverse Repurchase Agreements. The use of reverse repurchase agreements
may allow the Portfolio to avoid selling Portfolio instruments at a time when a
sale may be deemed to be disadvantageous, but the ability to enter into a
reverse repurchase agreement does not ensure that the Portfolio will be able to
avoid selling Portfolio instruments at a disadvantageous time. For a discussion
of reverse repurchase agreements, see the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Investment Policy Which May Be Changed Without Shareholder Approval.
The following investment policy is not a "fundamental" restriction and may be
changed by the Trustees without shareholder approval. It is applicable only to
the Federated Utility Income Portfolio.
The Portfolio will not write call options on securities unless the
securities are held in the Portfolio or unless the Portfolio is entitled to them
in deliverable form without further payment or after segregating cash in the
amount of any further payment. The Portfolio will not purchase options on
securities unless the securities are held in the Portfolio.
Federated High Yield Portfolio:
Investment Objective: The Federated High Yield Portfolio's investment objective
is to seek high current income.
Investment Policies:
Corporate Debt Securities. Corporate debt obligations in which the
Portfolio invests may bear fixed, floating, floating and contingent, or
increasing rates of interest. They may involve equity features such as
conversion or exchange rights, warrants for the acquisition of common stock of
the same or a different issuer, participations based on revenues, sales or
profits, or the purchase of common stock in a unit transaction (where corporate
debt securities and common stock are offered as a unit). The Portfolio invests
primarily in fixed rate corporate debt securities. The fixed rate corporate debt
obligations in which the Portfolio intends to invest are expected to be
lower-rated. There are special risks associated with lower-rated securities. See
the Trust's Prospectus and this Statement under "Certain Risk Factors and
Investment Methods" for a discussion of these risk factors.
U.S. Government Obligations. The types of U.S. government obligations in which
the Trust may invest include, but are not limited to, direct obligations of the
U.S. Treasury (such as U.S. Treasury bills, notes, and bonds) and obligations
issued or guaranteed by U.S. government agencies or instrumentalities. These
securities may be backed by: the full faith and credit of the U.S. Treasury; the
issuer's right to borrow from the U.S.. Treasury; the discretionary authority of
the U.S. government to purchase certain obligations of agencies or
instrumentalities; or the credit of the agency or instrumentality issuing the
obligations. For an additional discussion of the types of U.S. Government
Obligations in which the Portfolio may invest, see the Trust's Prospectus under
"Investment Objectives and Policies."
Restricted Securities. The Portfolio expects that any restricted
securities would be acquired either from institutional investors who originally
acquired the securities in private placements or directly from the issuers of
the securities in private placements. Restricted securities are generally
subject to legal or contractual delays on resale. Restricted securities and
securities that are not readily marketable may sell at a discount from the price
they would bring if freely marketable. For a discussion of illiquid or
restricted securities and certain risks involved therein, see the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
When-Issued and Delayed Delivery Transactions. The Portfolio may
purchase fixed-income securities on a when-issued or delayed delivery basis. The
Portfolio may engage in when-issued and delayed delivery transactions only for
the purpose of acquiring portfolio securities consistent with the Portfolio's
investment objective and policies, not for investment leverage. These
transactions are arrangements in which the Portfolio purchases securities with
payment and delivery scheduled for a future time. Settlement dates may be a
month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. These transactions
are made to secure what is considered to be an advantageous price and yield for
the Portfolio.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Portfolio sufficient to make payment for
the securities to be purchased are segregated at the trade date. These
securities are marked to market daily and will maintain until the transaction is
settled. For an additional discussion of when-issued securities and certain
risks involved therein, see this Statement under "Certain Risk Factors and
Investment Methods."
Repurchase Agreements. The Portfolio will require its custodian to take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. To the extent that the original
seller does not repurchase the securities from the Portfolio, the Portfolio
could receive less than the repurchase price on any sale of such securities. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Portfolio might be delayed
pending court action. The Portfolio believes that under the regular procedures
normally in effect for custody of the Portfolio's portfolio securities subject
to repurchase agreements, a court of competent jurisdiction would rule in favor
of the Portfolio and allow retention or disposition of such securities. The
Portfolio will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by the
Sub-advisor to be creditworthy, pursuant to guidelines established by the Board
of Trustees. For an additional discussion of repurchase agreements and certain
risks involved therein, see the Trust's Prospectus under "Certain Risk Factors
and Investment Methods."
Lending Portfolio Securities. In order to generate additional income,
the Portfolio may lend its securities to brokers/dealers, banks, or other
institutional borrowers of securities. The Portfolio will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
Sub-advisor has determined are creditworthy under guidelines established by the
Trustees. The collateral received when the Portfolio lends portfolio securities
must be valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Portfolio.
During the time Portfolio securities are on loan, the borrower pays the
Portfolio any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Portfolio or the borrower. The Portfolio may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or cash
equivalent collateral to the borrower or placing broker. The Portfolio does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
Reverse Repurchase Agreements. The Portfolio may also enter into
reverse repurchase agreements. When effecting reverse repurchase agreements,
liquid assets of the Portfolio, in a dollar amount sufficient to make payment
for the obligations to be purchased, are segregated at the trade date. These
securities are marked to market daily and are maintained until the transaction
is settled. During the period any reverse repurchase agreements are outstanding,
but only to the extent necessary to ensure completion of the reverse repurchase
agreements, the Portfolio will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements. For a discussion of reverse repurchase agreements
and certain risks involved therein, see the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Portfolio Turnover. The Portfolio may experience greater portfolio
turnover than would be expected with a portfolio of higher-rated securities. A
high portfolio turnover rate will result in increased transaction costs to the
Portfolio. The Portfolio will not attempt to set or meet a portfolio turnover
rate since any turnover rate would be incidental to transactions undertaken in
an attempt to achieve the Trust's investment objective.
Adverse Legislation. In 1989, legislation was enacted that required
federally insured savings and loan associations to divest their holdings of
lower-rated bonds by 1994. This legislation also created the Resolution Trust
Corporation (the "RTC"), which has disposed of a substantial portion of
lower-rated bonds held by failed savings and loan associations over the past
three years. The reduction of the number of institutions empowered to purchase
and hold lower-rated bonds, and the divestiture of bonds by these institutions
and the RTC, have had an adverse impact on the overall liquidity of the market
for such bonds. Federal and state legislatures and regulators have and may
continue to propose new laws and regulations designed to limit the number or
type of institutions that may purchase lower-rated bonds, reduce the tax
benefits to issuers of such bonds, or otherwise adversely impact the liquidity
of such bonds. The Portfolio cannot predict the likelihood that any of these
proposals will be adopted, or their potential impact on the liquidity of
lower-rated bonds.
Investment Risks. For a discussion of certain risks involved with
investing in foreign securities, including currency risks, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Investment Restrictions Which May Be Changed Without Shareholder
Approval. The following restrictions are not "fundamental" and may be changed by
the Trustees without shareholder approval. They are applicable only to the
Federated High Yield Portfolio.
1. The Portfolio will not invest more than 5% of the value of its total
assets in securities of companies, including their predecessors, that have been
in operation for less than three years and in equity securities of any issuer
that are not readily marketable.
2. The Portfolio will not purchase the securities of any issuer (other
than the U.S. government, its agencies, or instrumentalities or instruments
secured by securities of such issuers, such as repurchase agreements) if as a
result more than 5% of the value of its total assets would be invested in the
securities of such issuer. For these purposes, the Portfolio takes all common
stock and all preferred stock of an issuer each as a single class, regardless of
priorities, series designations or other differences.
T. Rowe Price Asset Allocation Portfolio:
Investment Objective: The investment objective of the T. Rowe Price Asset
Allocation Portfolio is to seek a high level of total return by investing
primarily in a diversified group of fixed-income and equity securities.
Investment Policies: The Portfolio's share price will fluctuate with changing
market conditions and interest rate levels and your investment may be worth more
or less when redeemed than when purchased. The Portfolio should not be relied
upon for short-term financial needs, nor used to play short-term swings in the
stock or bond markets. The Portfolio cannot guarantee that it will achieve its
investment objectives.
Fixed-Income Securities. Fixed income securities in which the Portfolio may
invest include, but are not limited to, those described below.
U.S. Government Obligations. Bills, notes, bonds and other debt securities
issued by the U.S. Treasury. These are direct obligations of the U.S. Government
and differ mainly in the length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include securities
issued by the Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business Association, and
the Tennessee Valley Authority. Some of these securities are supported by the
full faith and credit of the U.S. Treasury, and the remainder are supported only
by the credit of the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers' acceptances, and other
short-term debt obligations. Certificates of deposit are short-term obligations
of commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with international commercial
transactions. Certificates of deposit may have fixed or variable rates. The
Portfolio may invest in U.S. banks, foreign branches of U.S. banks, U.S.
branches of foreign banks and foreign branches of foreign banks.
Savings and Loan Obligations. Negotiable certificates of deposit and other
short-term debt obligations of savings and loan associations.
The Portfolio may also invest in the securities of certain supranational
entities, such as the International Development Bank.
Collateralized Mortgage Obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
a Portfolio invests, the investment may be subject to a greater or lesser risk
of prepayment than other types of mortgage-related securities.
For a discussion of mortgage-backed securities and certain risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Mortgage-Backed Securities. Mortgage-backed securities are securities
representing interest in a pool of mortgages. After purchase by the Portfolio, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require a sale of
such security by the Portfolio. However, the Sub-advisor will consider such
event in its determination of whether the Portfolio should continue to hold the
security. To the extent that the ratings given by Moody's or S&P may change as a
result of changes in such organizations or their rating systems, the Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies continued in the Trust's Prospectus.
For a discussion of mortgage-backed securities and certain risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Asset-Backed Securities. The Portfolio may invest a portion of its
assets in debt obligations known as asset-backed securities. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets
which in turn may be affected by a variety of economic and other factors. As a
result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity.
Automobile Receivable Securities. The Portfolio may invest in
asset-backed securities which are backed by receivables from motor vehicle
installment sales contracts or installment loans secured by motor vehicles
("Automobile Receivable Securities").
Credit Card Receivable Securities. The Portfolio may invest in
asset-backed securities backed by receivables from revolving credit card
agreements ("Credit Card Receivable Securities").
Other Assets. The Sub-advisor anticipates that asset-backed
securities backed by assets other than those described above will be issued in
the future. The Portfolio may invest in such securities in the future if such
investment is otherwise consistent with its investment objective and policies.
For a discussion of these securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
In addition to the investments described in the Trust's Prospectus, the
Portfolio may invest in the following:
Writing Covered Call Options. The Portfolio may write (sell) "covered"
call options and purchase options to close out options previously written by the
Portfolio. In writing covered call options, the Portfolio expects to generate
additional premium income which should serve to enhance the Portfolio's total
return and reduce the effect of any price decline of the security or currency
involved in the option. Covered call options will generally be written on
securities or currencies which, in the Sub-advisor's opinion, are not expected
to have any major price increases or moves in the near future but which, over
the long term, are deemed to be attractive investments for the Portfolio.
The Portfolio will write only covered call options. This means that the
Portfolio will own the security or currency subject to the option or an option
to purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. government securities or other liquid high-grade debt
obligations having a value equal to the fluctuating market value of the optioned
securities or currencies. In order to comply with the requirements of several
states, the Portfolio will not write a covered call option if, as a result, the
aggregate market value of all Portfolio securities or currencies covering call
or put options exceeds 25% of the market value of the Portfolio's net assets.
Should these state laws change or should the Portfolio obtain a waiver of their
application, the Portfolio reserves the right to increase this percentage. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objectives. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, the Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely, retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligations as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency, The Portfolio does not consider a security or
currency covered by a call "pledged" as that term is used in the Portfolio's
policy which limits the pledging or mortgaging of its assets.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, Sub-advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call options
will be recorded as a liability of the Portfolio. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Portfolio
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The option will be terminated upon expiration of
the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
Writing Covered Put Options. The Portfolio may write American or
European style covered put options and purchase options to close out options
previously written by the Portfolio.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where Sub-advisor wishes to purchase the underlying security or
currency for the Portfolio's portfolio at a price lower than the current market
price of the security or currency. In such event the Portfolio would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Portfolio would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in the exercise of the put, can
not benefit from appreciation, if any, with respect to such specific securities
or currencies. In order to comply with the requirements of several states, the
Portfolio will not write a covered put option if, as a result, the aggregate
market value of all portfolio securities or currencies covering put or call
options exceeds 25% of the market value of the Portfolio's net assets. Should
these state laws change or should the Portfolio obtain a waiver of their
application, the Portfolio reserves the right to increase this percentage. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies. For a discussion of options, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Purchasing Put Options. The Portfolio may purchase American or European
style put options. The Portfolio may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. The Portfolio
may purchase put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies. An example of
such use of put options is provided in this Statement under "Certain Risk
Factors and Investment Methods."
To the extent required by the laws of certain states, the Portfolio may
not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options. Should these state laws change or should the
Portfolio obtain a waiver of their application, the Portfolio may commit more
than 5% of its assets to premiums when purchasing call and put options. The
Portfolio may also purchase call options on underlying securities or currencies
it owns in order to protect unrealized gains on call options previously written
by it. A call option would be purchased for this purpose where tax
considerations make it inadvisable to realize such gains through a closing
purchase transaction. Call options may also be purchased at times to avoid
realizing losses.
Purchasing Call Options. The Portfolio may purchase American or
European call options. The Portfolio may enter into closing sale transactions
with respect to such options, exercise them or permit them to expire. The
Portfolio may purchase call options for the purpose of increasing its current
return or avoiding tax consequences which could reduce its current return. The
Portfolio may also purchase call options in order to acquire the underlying
securities or currencies. Examples of such uses of call options are provided
this Statement under "Certain Risk Factors and Investment Methods."
To the extent required by the laws of certain states, the Portfolio may
not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options. Should these state laws change or should the
Portfolio obtain a waiver of their application, the Portfolio may commit more
than 5% of its assets to premiums when purchasing call and put options. The
Portfolio may also purchase call options on underlying securities or currencies
it owns in order to protect unrealized gains on call options previously written
by it. A call option would be purchased for this purpose where tax
considerations make it inadvisable to realize such gains through a closing
purchase transaction. Call options may also be purchased at times to avoid
realizing losses.
Dealer Options. The Portfolio may engage in transactions involving
dealer options. Certain risks are specific to dealer options. While the
Portfolio would look to a clearing corporation to exercise exchange-traded
options, if the Portfolio were to purchase a dealer option, it would rely on the
dealer from whom it purchased the option to perform if the option were
exercised. While the Portfolio will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of entering into
closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction. For a discussion of dealer options, see this
Statement under "Certain Risk Factors and Investment Methods."
Futures Contracts.
Transactions in Futures. The Portfolio may enter into
financial futures contracts, including stock index, interest rate and currency
futures ("futures or futures contracts").
Stock index futures contracts may be used to attempt to provide a hedge
for a portion of the Portfolio's portfolio, as a cash management tool, or as an
efficient way for the Sub-advisor to implement either an increase or decrease in
portfolio market exposure in response to changing market conditions. Stock index
futures contracts are currently traded with respect to the S&P 500 Index and
other broad stock market indices, such as the New York Stock Exchange Composite
Stock Index and the Value Line Composite Stock Index. The Portfolio may,
however, purchase or sell futures contracts with respect to any stock index.
Nevertheless, to hedge the Portfolio's portfolio successfully, the Portfolio
must sell futures contacts with respect to indices or subindexes whose movements
will have a significant correlation with movements in the prices of the
Portfolio's securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges and are standardized as to maturity date
and underlying financial instrument. The principal financial futures exchanges
in the United States are the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board of
Trade. Futures exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
Futures are traded in London at the London International Financial Futures
Exchange, in Paris at the MATIF and in Tokyo at the Tokyo Stock Exchange.
Although techniques other than the sale and purchase of futures contracts could
be used for the above-referenced purposes, futures contracts offer an effective
and relatively low cost means of implementing the Portfolio's objectives in
these areas. For a discussion of futures transactions and certain risks involved
therein, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Regulatory Limitations. The Portfolio will engage in
transactions in futures contracts and options thereon only for bona fide
hedging, yield enhancement and risk management purposes, in each case in
accordance with the rules and regulations of the CFTC.
The Portfolio may not enter into futures contracts or options thereon
if, with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits on the
Portfolio's existing futures and premiums paid for options on futures would
exceed 5% of the net asset value of the Portfolio after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; provided, however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in calculating the
5% limitation.
The Portfolio's use of futures contracts will not result in leverage.
Therefore, to the extent necessary, in instances involving the purchase of
futures contracts or call options thereon or the writing of put options thereon
by the Portfolio, an amount of cash, U.S. government securities or other liquid,
high-grade debt obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be identified in an
account with the Portfolio's custodian to cover the position, or alternative
cover will be employed.
In addition, CFTC regulations may impose limitations on the Portfolio's
ability to engage in certain yield enhancement and risk management strategies.
If the CFTC or other regulatory authorities adopt different (including less
stringent) or additional restrictions, the Portfolio would comply with such new
restrictions.
Risks of Transactions in Futures Contracts. See this Statement
and the Trust's Prospectus under "Certain Risks and Investment Methods" for an
additional description of certain risks involved in futures contracts.
Options on Futures Contracts. As an alternative to writing or
purchasing call and put options on stock index futures, the Portfolio may write
or purchase call and put options on stock indices. Such options would be used in
a manner similar to the use of options on futures contracts. From time to time,
a single order to purchase or sell futures contracts (or options thereon) may be
made on behalf of the Portfolio and other mutual funds or portfolios of mutual
funds for which T. Rowe Price Associates, Inc. or Rowe Price-Fleming
International, Inc. serve as sub-advisor. Such aggregated orders would be
allocated among the Portfolio and such other mutual funds or portfolios of
mutual funds in a fair and non-discriminatory manner.
Risks of Transactions in Options on Futures Contracts. See this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods" for a description of certain risks involved in options on futures
contracts.
Additional Futures and Options Contracts. Although the Portfolio has no
current intention of engaging in financial futures or options transactions other
than those described above, it reserves the right to do so. Such futures or
options trading might involve risks which differ from those involved in the
futures and options described above.
Foreign Futures and Options. The Portfolio is permitted to enter into
foreign futures and options transactions. See this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods" for a description
of certain risks involved in foreign futures and options.
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
and non-U.S. dollar-denominated securities of foreign issuers in developed
countries. Because the Portfolio may invest in foreign securities, investment in
the Portfolio involves risks that are different in some respects from an
investment in a Portfolio which invests only in securities of U.S. domestic
issuers. Foreign investments may be affected favorably or unfavorably by changes
in currency rates and exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing, and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. There may be less governmental supervision of securities markets,
brokers and issuers of securities. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the U.S. For an additional discussion of
certain risks involved in investing in foreign securities, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Currency Transactions. The Portfolio will generally enter into
forward foreign currency exchange contracts under two circumstances. First, when
the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security.
Second, when the Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Portfolio's securities denominated in such foreign
currency. Alternatively, where appropriate, the Portfolio may hedge all or part
of its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. In such a case, the Portfolio may enter into a forward
contract where the amount of the foreign currency to be sold exceeds the value
of the securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Portfolio. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Other than as set forth above, and immediately
below, the Portfolio will also not enter into such forward contracts or maintain
a net exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's securities or other assets denominated in that
currency. The Portfolio, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to forward contracts in excess of
the value of the Portfolio's securities or other assets to which the forward
contracts relate (including accrued interest to the maturity of the forward on
such securities) provided the excess amount is "covered" by liquid, high-grade
debt securities, denominated in any currency, at least equal at all times to the
amount of such excess. For these purposes "the securities or other assets to
which the forward contracts relate may be securities or assets denominated in a
single currency, or where proxy forwards are used, securities denominated in
more than one currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the Sub-advisor believes that it is important to have the flexibility
to enter into such forward contracts when it determines that the best interests
of the Portfolio will be served.
At the maturity of a forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Portfolio may
use liquid, high-grade debt securities denominated in any currency, to cover the
amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer.
For a discussion of certain risks involved in foreign currency
transactions, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts. The Portfolio may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures on currencies,
which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. The Portfolio
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay such
distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. For securities offsetting a purchased put,
this adjustment of the holding period may increase the gain from sales of
securities held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity security
will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Pending tax regulations could limit the extent
that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement. In addition, gains realized on the sale or other disposition of
securities, including option, futures or foreign forward exchange contracts on
securities or securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Portfolio's annual
gross income. In order to avoid realizing excessive gains on securities or
currencies held less than three months, the Portfolio may be required to defer
the closing out of option, futures or foreign forward exchange contracts beyond
the time when it would otherwise be advantageous to do so. It is anticipated
that unrealized gains on Section 1256 option, futures and foreign forward
exchange contracts, which have been open for less than three months as of the
end of the Portfolio's fiscal year and which are recognized for tax purposes,
will not be considered gains on securities or currencies held less than three
months for purposes of the 30% test.
Hybrid Commodity and Security Instruments. Instruments have been
developed which combine the elements of futures contracts or options with those
of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Often these hybrid instruments are indexed to the price of a
commodity or particular currency or a domestic or foreign debt or equity
securities index. Hybrid instruments may take a variety of forms, including, but
not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
at a future point in time, preferred stock with dividend rates determined by
reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity. For a discussion of certain
risks involved in investing in hybrid instruments, see this Statement under
"Certain Risk Factors and Investment Methods."
Restricted Securities. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may invest in illiquid securities. The
Portfolio may invest in illiquid securities including repurchase agreements
which do not provide for payment within seven days, but will not acquire such
securities if, as a result, they would comprise more than 15% of the value of
the Portfolio's net assets.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where
registration is required, the Portfolio may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in accordance with procedures
prescribed by the Board of Trustees. If through the appreciation of restricted
securities or the depreciation of unrestricted securities or the depreciation of
liquid securities, the Portfolio should be in a position where more than 15% of
the value of its net assets are invested in illiquid assets, including
restricted securities, the Portfolio will take appropriate steps to protect
liquidity.
The Portfolio may purchase securities which while privately placed, are
eligible for purchase and sale under Rule 144A under the 1933 Act. This rule
permits certain qualified institutional buyers, such as the Portfolio, to trade
in privately placed securities even though such securities are not registered
under the 1933 Act. Sub-advisor, under the supervision of the Trust's Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Portfolio's restriction of investing no more
than 15% of its assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, the Sub-advisor will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, Sub-advisor could consider the (1) frequency of trades
and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) the nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored, and if as a result of changed conditions it is
determined that a Rule 144A security is no longer liquid, the Portfolio's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Portfolio does not invest more than 15% of
its assets in illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of the Portfolio's assets invested in
illiquid securities if qualified institutional buyers are unwilling to purchase
such securities.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements through which an investor (such as the Portfolio) purchases a
security (known as the "underlying security") from a well-established securities
dealer or a bank which is a member of the Federal Reserve System. Any such
dealer or bank will be on Sub-advisor's approved list and have a credit rating
with respect to its short-term debt of at least A1 by Standard & Poor's
Corporation, P1 by Moody's Investors Service, Inc., or the equivalent rating by
Sub-advisor. At that time, the bank or securities dealer agrees to repurchase
the underlying security at the same price, plus specified interest. Repurchase
agreements are generally for a short period of time, often less than a week.
Repurchase agreements which do not provide for payment within seven days will be
considered illiquid. The Portfolio will only enter into repurchase agreements
where (i) the underlying securities are of the type (excluding maturity
limitations) which the Portfolio's investment guidelines would allow it to
purchase directly, (ii) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying security is made only
upon physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Portfolio could experience
both delays in liquidating the underlying securities and losses, including: (a)
possible decline in the value of the underlying security during the period while
the Portfolio seeks to enforce its rights thereto; (b) possible subnormal levels
of income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Lending of Portfolio Securities. For the purpose of realizing
additional income, the Portfolio may make secured loans of Portfolio securities
amounting to not more than 33 1/3% of its total assets. This policy is a
fundamental policy. Securities loans are made to broker-dealers, institutional
investors, or other persons pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent marked to market on a daily basis. The collateral received
will consist of cash, U.S. government securities, letters of credit or such
other collateral as may be permitted under its investment program. While the
securities are being lent, the Portfolio will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Portfolio has a right to call each loan and obtain the securities on five
business days' notice or, in connection with securities trading on foreign
markets, within such longer period of time which coincides with the normal
settlement period for purchases and sales of such securities in such foreign
markets. The Portfolio will not have the right to vote securities while they are
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to persons deemed by the
Sub-advisor to be of good standing and will not be made unless, in the judgment
of Sub-advisor, the consideration to be earned from such loans would justify the
risk.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission, the Portfolio may make loans to, or borrow Portfolios from,
other mutual funds or portfolios of mutual funds sponsored or advised by
Sub-advisor or Rowe Price-Fleming International, Inc. (collectively, "Price
Portfolios"). The Portfolio has no current intention of engaging in these
practices at this time.
When-Issued Securities. The Portfolio may from time to time purchase
securities on a "when-issued" basis. At the time the Portfolio makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Portfolio does not believe that its net asset value or income will be
adversely affected by its purchase of securities on a when-issued basis. The
Portfolio will maintain cash and marketable securities equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date. For a
discussion of when-issued securities, see this Statement under "Certain Risk
Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval. The
following limitations are applicable only to the T. Rowe Price Asset Allocation
Portfolio. As a matter of operating policy, which can be changed without
shareholder approval, the Portfolio may not:
1. Purchase additional securities when money borrowed exceeds 5% of the
Portfolio's total assets;
2. Invest in companies for the purpose of exercising management or
control;
3. Purchase illiquid securities and securities of unseasoned issuers
if, as a result, more than 15% of its net assets would be invested in such
securities, provided that the Portfolio will not invest more than 10% of its
total assets in restricted securities and not more than 5% of its total assets
in securities of unseasoned issuers. Securities eligible for resale under Rule
144A of the Securities Act of 1933 are not included in the 10% limitation but
are subject to the 15% limitation.
4. Purchase securities of open-end or closed-end investment companies
except in compliance with the Investment Company Act of 1940 and applicable
state law. Duplicate fees may result from such purchases;
5. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Portfolio as security for indebtedness except as may be
necessary in connection with permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 33 1/3% of the Portfolio's
total assets at the time of borrowing or investment;
6. Purchase participations or other direct interests in or enter into
leases with respect to, oil, gas, other mineral exploration or development
programs;
7. Invest in puts, calls, straddles, spreads, or any combination
thereof to the extent permitted by the Prospectus and this Statement;
8. Purchase securities on margin, except (i) for use of short-term
credit necessary for clearance of purchases of portfolio securities and (ii) the
Portfolio may make margin deposits in connection with futures contracts or other
permissible investments;
9. Purchase a security (other than obligations issued or guaranteed by
the U.S., and foreign, state or local government, their agencies or
instrumentalities) if, as a result, more than 5% of the value of the Portfolio's
total assets would be invested in the securities of issuers which at the time of
purchase had been in operation for less than three years (for this purpose, the
period of operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer); provided, however, that
this restriction does not apply to securities of pooled investment vehicles or
mortgage- or asset-backed securities;
10. Invest in warrants if, as a result thereof, more than 2% of the
value of the total assets of the Portfolio would be invested in warrants which
are not listed on the New York Stock Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of the value of the total assets of
the Portfolio would be invested in warrants whether or not so listed. For
purposes of these percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the Portfolio in units or
attached to securities may be deemed to be without value;
11. Purchase or retain the securities of any issuer if, to the
knowledge of the Trust's management, those officers and directors of the Trust,
and of the Investment Manager, who each own beneficially more then 0.5% of the
outstanding securities of any issuer, together beneficially own more than 5% of
such securities;
12. Effect short sales of securities;
13. Purchase a futures contract or an option thereon if, with respect
to positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such positions would
exceed 5% of the Portfolio's net assets.
Notwithstanding anything in the above fundamental and operating
restrictions to the contrary, the Portfolio may, as a fundamental policy, invest
all of its assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objectives, policies
and restrictions as the Portfolio subject to the prior approval of the
Investment Manager. The Investment Manager will not approve such investment
unless: (a) the Investment Manager believes, on the advice of counsel, that such
investment will not have an adverse effect on the tax status of the annuity
contracts and/or life insurance policies supported by the separate accounts of
the Participating Insurance Companies which purchase shares of the Trust; (b)
the Investment Manager has given prior notice to the Participating Insurance
Companies that it intends to permit such investment and has determined whether
such Participating Insurance Companies intend to redeem any shares and/or
discontinue purchase of shares because of such investment; (c) the Trustees have
determined that the fees to be paid by the Trust for administrative, accounting,
custodial and transfer agency services for the Portfolio subsequent to such an
investment are appropriate, or the Trustees have approved changes to the
agreements providing such services to reflect a reduction in fees; (d) the
Sub-advisor for the Portfolio has agreed to reduce its fee by the amount of any
investment advisory fees paid to the investment manager of such open-end
management investment company; and (e) shareholder approval is obtained if
required by law. The Portfolio will apply for such exemptive relief under the
provisions of the Investment Company Act of 1940 (the "1940 Act"), or other such
relief as may be necessary under the then governing rules and regulations of the
1940 Act, regarding investments in such investment companies.
T. Rowe Price International Equity Portfolio:
Investment Objective: The investment objective of the T. Rowe Price
International Equity Portfolio is to seek a total return on its assets from
long-term growth of capital and income principally through investments in common
stocks of established, non-U.S. companies. Investments may be made solely for
capital appreciation or solely for income or any combination of both for the
purpose of achieving a higher overall return.
Sub-advisor regularly analyzes a broad range of international equity
and fixed-income markets in order to assess the degree of risk and level of
return that can be expected from each market. Based upon its current assessment,
Sub-advisor believes long-term growth of capital may be achieved by investing in
marketable securities of non-U.S. companies which have the potential for growth
of capital. Of course, there can be no assurance that Sub-advisor's forecasts of
expected return will be reflected in the actual returns achieved by the
Portfolio.
The Portfolio's share price will fluctuate with market, economic and
foreign exchange conditions, and your investment may be worth more or less when
redeemed than when purchased. The Portfolio should not be relied upon as a
complete investment program, nor used to play short-term swings in the stock or
foreign exchange markets. The Portfolio is subject to risks unique to
international investing. Further, there is no assurance that the favorable
trends discussed below will continue, and the Portfolio cannot guarantee it will
achieve its objective.
Investment Policies: It is the present intention of Sub-advisor to invest in
companies based in (or governments of or within) the Far East (for example,
Japan, Hong Kong, Singapore, and Malaysia), Western Europe (for example, United
Kingdom, Germany, Netherlands, France, Spain, and Switzerland), South Africa,
Australia, Canada, and such other areas and countries as Sub-advisor may
determine from time to time.
In determining the appropriate distribution of investments among
various countries and geographic regions, Sub-advisor ordinarily considers the
following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors.
In analyzing companies for investment, Sub-advisor ordinarily looks
for one or more of the following characteristics: an above-average earnings
growth per share; high return on invested capital; healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their market place. While current dividend income is not a
prerequisite in the selection of portfolio companies, the companies in which the
Portfolio invests normally will have a record of paying dividends, and will
generally be expected to increase the amounts of such dividends in future years
as earnings increase.
It is expected that the Portfolio's investments will ordinarily be
traded on exchanges located at least in the respective countries in which the
various issuers of such securities are principally based.
Today, more investment opportunities may exist abroad than in the U.S.
In 1970, more than one-half of the world's equity capitalization (the total
market value of the world's equity securities traded on stock exchanges) was
attributable to U.S. securities. Now practically the opposite is true. And over
the last ten years, the EAFE Index, a widely accepted index of European,
Australian and Far Eastern equity securities, has outperformed the Standard &
Poor's 500 Index. Although the EAFE Index may not be representative of the
Portfolio, Sub-advisor believes it may be a useful indicator of the
opportunities in foreign equity investing.
Risk Factors of Foreign Investing. There are special risks in
investing in the Portfolio. Certain of these risks are inherent in any
international mutual fund others relate more to the countries in which the
Portfolio will invest. Many of the risks are more pronounced for investments in
developing or emerging countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a per capita gross
national product of less than $8,000.
Investors should understand that all investments have a risk factor.
There can be no guarantee against loss resulting from an investment in the
Portfolio, and there can be no assurance that the Portfolio's investment
policies will be successful, or that its investment objective will be attained.
The Portfolio is designed for individual and institutional investors seeking to
diversify beyond the United States in an actively researched and managed
portfolio, and is intended for long-term investors who can accept the risks
entailed in investment in foreign securities. For a discussion of certain risks
involved in foreign investing see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
The Portfolio will invest in securities denominated in currencies
specified elsewhere herein.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanged located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market.
The Portfolio may invest in investment portfolios which have been
authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these respective countries. The Portfolio's investment in these
portfolios is subject to the provisions of the 1940 Act discussed below. If the
Portfolio invests in such investment portfolios, the Portfolio's shareholders
will bear not only their proportionate share of the expenses of the Portfolio
(including operating expenses and the fees of the Investment Manager), but also
will bear indirectly similar expenses of the underlying investment portfolios.
In addition, the securities of these investment portfolios may trade at a
premium over their net asset value.
Apart from the matters described herein, the Portfolio is not aware at
this time of the existence of any investment or exchange control regulations
which might substantially impair the operations of the Portfolio as described in
the Trust's Prospectus and this Statement. It should be noted, however, that
this situation could change at any time.
The Portfolio may invest in companies located in Eastern Europe. The
Portfolio will only invest in a company located in, or a government of, Eastern
Europe or Russia, if the Sub-advisor believes the potential return justifies the
risk. To the extent any securities issued by companies in Eastern Europe and
Russia are considered illiquid, the Portfolio will be required to include such
securities within its 15% restriction on investing in illiquid securities.
In addition to the investments described in the Trust's Prospectus,
the Portfolio may invest in the following:
Writing Covered Call Options. The Portfolio may write (sell) "covered"
call options and purchase options to close out options previously written by the
Portfolio. In writing covered call options, the Portfolio expects to generate
additional premium income which should serve to enhance the Portfolio's total
return and reduce the effect of any price decline of the security or currency
involved in the option. Covered call options will generally be written on
securities or currencies which, in Sub-advisor's opinion, are not expected to
have any major price increases or moves in the near future but which, over the
long term, are deemed to be attractive investments for the Portfolio.
The Portfolio will write only covered call options. This means that
the Portfolio will own the security or currency subject to the option or an
option to purchase the same underlying security or currency, having an exercise
price equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. government securities or other liquid high-grade debt
obligations having a value equal to the fluctuating market value of the optioned
securities or currencies. In order to comply with the requirements of the
securities or currencies laws in several states, the Portfolio will not write a
covered call option if, as a result, the aggregate market value of all Portfolio
securities or currencies covering call or put options exceeds 25% of the market
value of the Portfolio's net assets. Should these state laws change or should
the Portfolio obtain a waiver of their application, the Portfolio reserves the
right to increase this percentage. In calculating the 25% limit, the Portfolio
will offset, against the value of assets covering written calls and puts, the
value of purchased calls and puts on identical securities or currencies with
identical maturity dates.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objective. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, the Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely, retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligations as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency, The Portfolio does not consider a security or
currency covered by a call "pledged" as that term is used in the Portfolio's
policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, Sub-advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call options
will be recorded as a liability of the Portfolio. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Portfolio
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the average of the latest bid and asked price. The option will be
terminated upon expiration of the option, the purchase of an identical option in
a closing transaction, or delivery of the underlying security or currency upon
the exercise of the option.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The Portfolio will effect closing transactions in order to realize a
profit on an outstanding call option, to prevent an underlying security or
currency from being called, or, to permit the sale of the underlying security or
currency. The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
Writing Covered Put Options. Although the Portfolio has no current
intention in the foreseeable future of writing American or European style
covered put options and purchasing put options to close out options previously
written by the Portfolio, the Portfolio reserves the right to do so.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" options at all
times while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where Sub-advisor wishes to purchase the underlying security or
currency for the Portfolio's portfolio at a price lower than the current market
price of the security or currency. In such event the Portfolio would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Portfolio would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in exercise of the put, cannot
benefit from appreciation, if any, with respect to such specific securities or
currencies. In order to comply with the requirements of several states, the
Portfolio will not write a covered put option if, as a result, the aggregate
market value of all portfolio securities or currencies covering put or call
options exceeds 25% of the market value of the Portfolio's net assets. Should
these state laws change or should the Portfolio obtain a waiver of their
application, the Portfolio reserves the right to increase this percentage. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates. For a
discussion of certain risks involved in options, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Purchasing Put Options. The Portfolio may purchase American or
European style put options. As the holder of a put option, the Portfolio has the
right to sell the underlying security or currency at the exercise price at any
time during the option period. The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase put options for defensive purposes in order
to protect against an anticipated decline in the value of its securities or
currencies. An example of such use of put options is provided in this Statement
under "Certain Risk Factors and Investment Methods."
To the extent required by the laws of certain states, the Portfolio
may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options. Should these state laws change or should the
Portfolio obtain a waiver of their application, the Portfolio may commit more
than 5% of its assets to premiums when purchasing call and put options. The
premium paid by the Portfolio when purchasing a put option will be recorded as
an asset of the Portfolio. This asset will be adjusted daily to the option's
current market value, which will be the latest sale price at the time at which
the net asset value per share of the Portfolio is computed (close of New York
Stock Exchange), or, in the absence of such sale, the latest bid price. This
asset will be terminated upon expiration of the option, the selling (writing) of
an identical option in a closing transaction, or the delivery of the underlying
security or currency upon the exercise of the option.
Purchasing Call Options. The Portfolio may purchase American or
European style call options. As the holder of a call option, the Portfolio has
the right to purchase the underlying security or currency at the exercise price
at any time during the option period (American style) or at the expiration of
the option (European style). The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Portfolio may also purchase call options in order to acquire the
underlying securities or currencies. Examples of such uses of call options are
provided below.
To the extent required by the laws of certain states, the Portfolio
may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options. Should these state laws change or should the
Portfolio obtain a waiver of their application, the Portfolio may commit more
than 5% of its assets to premiums when purchasing call and put options. The
Portfolio may also purchase call options on underlying securities or currencies
it owns in order to protect unrealized gains on call options previously written
by it. A call option would be purchased for this purpose where tax
considerations make it inadvisable to realize such gains through a closing
purchase transaction. Call options may also be purchased at times to avoid
realizing losses.
Dealer Options. The Portfolio may engage in transactions involving
dealer options. Certain risks are specific to dealer options. While the
Portfolio would look to a clearing corporation to exercise exchange-traded
options, if the Portfolio were to purchase a dealer option, it would rely on the
dealer from whom it purchased the option to perform if the option were
exercised. While the Portfolio will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of entering into
closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
Futures Contracts.
Transactions in Futures. The Portfolio may enter into
financial futures contracts, including stock index, interest rate and currency
futures ("futures or futures contracts"); however, the Portfolio has no current
intention of entering into interest rate futures. The Portfolio, however,
reserves the right to trade in financial futures of any kind.
Stock index futures contracts may be used to attempt to provide a
hedge for a portion of the Portfolio's portfolio, as a cash management tool, or
as an efficient way for Sub-advisor to implement either an increase or decrease
in portfolio market exposure in response to changing market conditions. Stock
index futures contracts are currently traded with respect to the S&P 500 Index
and other broad stock market indices, such as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Index. The Portfolio
may, however, purchase or sell futures contracts with respect to any stock index
whose movements will, in its judgment, have a significant correlation with
movements in the prices of all or portions of the Portfolio's portfolio
securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges and are standardized as to maturity date
and underlying financial instrument. The principal financial futures exchanges
in the United States are the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board of
Trade. Futures exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
Futures are traded in London at the London International Financial Futures
Exchange, in Paris at the MATIF and in Tokyo at the Tokyo Stock Exchange.
Although techniques other than the sale and purchase of futures contracts could
be used for the above-referenced purposes, futures contracts offer an effective
and relatively low cost means of implementing the Portfolio's objectives in
these areas.
For a discussion of futures transactions and certain risks involved
therein, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Regulatory Limitations. The Portfolio will engage in
transactions in futures contracts and options thereon only for bona fide
hedging, yield enhancement and risk management purposes, in each case in
accordance with the rules and regulations of the CFTC.
The Portfolio may not enter into futures contracts or options thereon
if, with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits on the
Portfolio's existing futures and premiums paid for options on futures would
exceed 5% of the net asset value of the Portfolio after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; provided however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in calculating the
5% limitation.
The Portfolio's use of futures contracts will not result in leverage.
Therefore, to the extent necessary, in instances involving the purchase of
futures contracts or call options thereon or the writing of put options thereon
by the Portfolio, an amount of cash, U.S. government securities or other liquid,
high-grade debt obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be identified in an
account with the Portfolio's custodian to cover the position, or alternative
cover will be employed.
In addition, CFTC regulations may impose limitations on the
Portfolio's ability to engage in certain yield enhancement and risk management
strategies. If the CFTC or other regulatory authorities adopt different
(including less stringent) or additional restrictions, the Portfolio would
comply with such new restrictions.
Options on Futures Contracts. As an alternative to writing or
purchasing call and put options on stock index futures, the Portfolio may write
or purchase call and put options on stock indices. Such options would be used in
a manner similar to the use of options on futures contracts. From time to time,
a single order to purchase or sell futures contracts (or options thereon) may be
made on behalf of the Portfolio and other mutual funds or portfolios of mutual
funds managed by Price-Fleming International, Inc. or T. Rowe Price Associates,
Inc. Such aggregated orders would be allocated among the Portfolio and such
other portfolios in a fair and non-discriminatory manner.
Risks of Transactions in Options on Futures Contracts. See this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods" for a description of certain risks involved in options and futures
contracts.
Additional Futures and Options Contracts. Although the Portfolio has
no current intention of engaging in financial futures or option transactions
other than those described above, it reserves the right to do so. Such futures
or options trading might involve risks which differ from those involved in the
futures and options described above.
Foreign Futures and Options. The Portfolio is permitted to invest in
foreign futures and options. For a description of foreign futures and options
and certain risks involved therein as well as certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Foreign Currency Transactions. The Portfolio will generally enter into
forward foreign currency exchange contracts under two circumstances. First, when
the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security.
Second, when the Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Portfolio's securities denominated in such foreign
currency. Alternatively, where appropriate, the Portfolio may hedge all or part
of its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. In such a case, the Portfolio may enter into a forward
contract where the amount of the foreign currency to be sold exceeds the value
of the securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Portfolio. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Other than as set forth above, and immediately
below, the Portfolio will also not enter into such forward contracts or maintain
a net exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's securities or other assets denominated in that
currency. The Portfolio, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to forward contracts in excess of
the value of the Portfolio's securities or other assets to which the forward
contracts relate (including accrued interest to the maturity of the forward on
such securities) provided the excess amount is "covered" by liquid, high-grade
debt securities, denominated in any currency, at least equal at all times to the
amount of such excess. For these purposes "the securities or other assets to
which the forward contracts relate may be securities or assets denominated in a
single currency, or where proxy forwards are used, securities denominated in
more than one currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, Sub-advisor believes that it is important to have the flexibility to
enter into such forward contracts when it determines that the best interests of
the Portfolio will be served.
At the maturity of a forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Portfolio may
use liquid, high-grade debt securities denominated in any currency, to cover the
amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer.
For an additional discussion of certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward
Foreign Exchange Contracts. The Portfolio may enter into certain option,
futures, and forward foreign exchange contracts, including options and futures
on currencies, which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. The Portfolio
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay such
distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. For securities offsetting a purchased put,
this adjustment of the holding period may increase the gain from sales of
securities held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity security
will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Pending tax regulations could limit the extent
that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement. In addition, gains realized on the sale or other disposition of
securities, including option, futures or foreign forward exchange contracts on
securities or securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Portfolio's annual
gross income. In order to avoid realizing excessive gains on securities or
currencies held less than three months, the Portfolio may be required to defer
the closing out of option, futures or foreign forward exchange contracts beyond
the time when it would otherwise be advantageous to do so. It is anticipated
that unrealized gains on Section 1256 option, futures and foreign forward
exchange contracts, which have been open for less than three months as of the
end of the Portfolio's fiscal year and which are recognized for tax purposes,
will not be considered gains on securities or currencies held less than three
months for purposes of the 30% test.
Hybrid Commodity and Security Instruments. Instruments have been
developed which combine the elements of futures contracts or options with those
of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Often these hybrid instruments are indexed to the price of a
commodity or particular currency or a domestic or foreign debt or equity
securities index. Hybrid instruments may take a variety of forms, including, but
not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
at a future point in time, preferred stock with dividend rates determined by
reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity. For a discussion of certain
risks involved in hybrid instruments, see this Statement under "Certain Risk
Factors and Investment Methods."
Repurchase Agreements. The Portfolio may enter into repurchase
agreements through which an investor (such as the Portfolio) purchases a
security (known as the "underlying security") from a well-established securities
dealer or a bank that is a member of the Federal Reserve System. Any such dealer
or bank will be on T. Rowe Price Associates, Inc. ("T. Rowe Price") approved
list and have a credit rating with respect to its short-term debt of at least A1
by Standard & Poor's Corporation, P1 by Moody's Investors Service, Inc., or the
equivalent rating by T. Rowe Price. At that time, the bank or securities dealer
agrees to repurchase the underlying security at the same price, plus specified
interest. Repurchase agreements are generally for a short period of time, often
less than a week. Repurchase agreements which do not provide for payment within
seven days will be treated as illiquid securities. The Portfolio will only enter
into repurchase agreements where (i) the underlying securities are of the type
(excluding maturity limitations) which the Portfolio's investment guidelines
would allow it to purchase directly, (ii) the market value of the underlying
security, including interest accrued, will be at all times equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-entry transfer
to the account of the custodian or a bank acting as agent. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Portfolio
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying security
during the period while the Portfolio seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights.
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Illiquid Securities. The Portfolio may not invest in illiquid
securities including repurchase agreements which do not provide for payment
within seven days, if as a result, they would comprise more than 15% of the
value of the Portfolio's net assets.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where
registration is required, the Portfolio may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in accordance with procedures
prescribed by the Trust's Board of Trustees. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Portfolio
should be in a position where more than 15% of the value of its net assets are
invested in illiquid assets, including restricted securities, the Portfolio will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Portfolio may purchase securities which
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. Sub-advisor, under the
supervision of the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its assets in illiquid securities.
A determination of whether a Rule 144A security is liquid or not is a question
of fact. In making this determination Sub-advisor will consider the trading
markets for the specific security taking into account the unregistered nature of
a Rule 144A security. In addition, Sub-advisor could consider the (1) frequency
of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, (4) and the nature of the security and of market
place trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Portfolio's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Portfolio does not invest more than 15% of
its assets in illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of a Portfolio's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Lending of Portfolio Securities. For the purpose of realizing
additional income, the Portfolio may make secured loans of portfolio securities
amounting to not more than 33 1/3% of its total assets. This policy is a
"fundamental policy." Securities loans are made to broker-dealers, institutional
investors, or other persons pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent marked to market on a daily basis. The collateral received
will consist of cash, U.S. government securities, letters of credit or such
other collateral as may be permitted under its investment program. While the
securities are being lent, the Portfolio will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Portfolio has a right to call each loan and obtain the securities on five
business days' notice or, in connection with securities trading on foreign
markets, within such longer period of time which coincides with the normal
settlement period for purchases and sales of such securities in such foreign
markets. The Portfolio will not have the right to vote securities while they are
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to persons deemed by
Sub-advisor to be of good standing and will not be made unless, in the judgment
of Sub-advisor, the consideration to be earned from such loans would justify the
risk.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission, the Portfolio may make loans to, or borrow funds from,
other mutual funds sponsored or advised by Sub-advisor or T. Rowe Price
Associates, Inc. (collectively, "Price Portfolios"). The Portfolio has no
current intention of engaging in these practices at this time.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the T. Rowe Price International
Equity Portfolio. As a matter of operating policy which can be changed without
shareholder approval, the Portfolio may not:
1. Purchase additional securities when money borrowed exceeds 5% of the
Portfolio's total assets.
2. Invest in companies for the purpose of exercising management or
control;
3. Purchase illiquid securities and securities of unseasoned issuers
if, as a result, more than 15% of its net assets would be invested in such
securities, provided that the Portfolio will not invest more than 10% of its
total assets in restricted securities and not more than 5% of its total assets
in securities of unseasoned issuers. Securities eligible for resale under Rule
144A of the Securities Act of 1933 are not included in the 10% limitation but
are subject to the 15% limitation;
4. Purchase securities of open-end or closed-end investment companies
except in compliance with the Investment Company Act of 1940 and applicable
state law. Duplicate fees may result from such purchases;
5. Purchase participations or other direct interests in or enter into
leases with respect to oil, gas, other mineral exploration or development
programs;
6. Invest in puts, calls, straddles, spreads, or any combination
thereof to the extent permitted by the Prospectus and this Statement;
7. Purchase securities on margin, except (i) for use of short-term
credit necessary for clearance of purchases of Portfolio securities and (ii) the
Portfolio may make margin deposits in connection with futures contracts and
other permissible investments;
8. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Portfolio as a security for indebtedness except as may be
necessary in connection with permissible borrowings or investments and then such
mortgaging, pledging, or hypothecating may not exceed 33 1/3% of the Portfolio's
total assets at the time of borrowing or investment;
9. Purchase a security (other than obligations issued or guaranteed by
the U.S., and foreign, state or local government, their agencies or
instrumentalities) if, as a result, more than 5% of the value of the Portfolio's
total assets would be invested in the securities of issuers which at the time of
purchase had been in operation for less than three years (for this purpose, the
period of operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer); provided, however, that
this restriction does not apply to the purchase of securities of pooled
investment vehicles or mortgage- or asset-backed securities;
10. Effect short sales of securities;
11. Invest in warrants if, as a result thereof, more than 2% of the
value of the total assets of the Portfolio would be invested in warrants which
are not listed on the New York Stock Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of the value of the total assets of
the Portfolio would be invested in warrants whether or not so listed. For
purposes of these percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the Portfolio in units or
attached to securities may be deemed to be without value;
12. Purchase or retain the securities of any issuer if, to the
knowledge of the Trust's management, those officers and directors of the Trust
and of the Investment Manager, who each own beneficially more than 0.5% of the
outstanding securities of such issuer, together own beneficially more than 5% of
such securities;
13. Purchase a futures contract or an option thereon if, with respect
to positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such positions would
exceed 5% of the Portfolio's net assets.
Notwithstanding anything in the above fundamental and operating
restrictions to the contrary, the Portfolio may, as a fundamental policy, invest
all of its assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objectives, policies
and restrictions as the Portfolio subject to the prior approval of the
Investment Manager. The Investment Manager will not approve such investment
unless: (a) the Investment Manager believes, on the advice of counsel, that such
investment will not have an adverse effect on the tax status of the annuity
contracts and/or life insurance policies supported by the separate accounts of
the Participating Insurance Companies which purchase shares of the Trust; (b)
the Investment Manager has given prior notice to the Participating Insurance
Companies that it intends to permit such investment and has determined whether
such Participating Insurance Companies intend to redeem any shares and/or
discontinue purchase of shares because of such investment; (c) the Trustees have
determined that the fees to be paid by the Trust for administrative, accounting,
custodial and transfer agency services for the Portfolio subsequent to such an
investment are appropriate, or the Trustees have approved changes to the
agreements providing such services to reflect a reduction in fees; (d) the
Sub-advisor for the Portfolio has agreed to reduce its fee by the amount of any
investment advisory fees paid to the investment manager of such open-end
management investment company; and (e) shareholder approval is obtained if
required by law. The Portfolio will apply for such exemptive relief under the
provisions of the Investment Company Act of 1940 (the "1940 Act"), or other such
relief as may be necessary under the then governing rules and regulations of the
1940 Act, regarding investments in such investment companies.
In addition to the restrictions described above, some foreign
countries limit, or prohibit, all direct foreign investment in the securities of
their companies. However, the governments of some countries have authorized the
organization of investment portfolios to permit indirect foreign investment in
such securities. For tax purposes these portfolios may be known as Passive
Foreign Investment Companies. The Portfolio is subject to certain percentage
limitations under the 1940 Act and certain states relating to the purchase of
securities of investment companies, and may be subject to the limitation that no
more than 10% of the value of the Portfolio's total assets may be invested in
such securities.
T. Rowe Price Natural Resources Portfolio:
Investment Policies: The Portfolio will normally have primarily all of its
assets in equity securities (e.g., common stocks). This portion of the
Portfolio's assets will be subject to all of the risks of investing in the stock
market. There is risk in all investment. The value of the portfolio securities
of the Portfolio will fluctuate based upon market conditions. Although the
Portfolio seeks to reduce risk by investing in a diversified portfolio, such
diversification does not eliminate all risk.
Fixed-Income Securities. The fixed-income securities in which the
Portfolio may invest include, but are not limited to, those described below.
U.S. Government Obligations. Bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in the length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include securities
issued by the Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business Association, and
the Tennessee Valley Authority. Some of these securities are supported by the
full faith and credit of the U.S. Treasury; and the remainder are supported only
by the credit of the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers' acceptances, and
other short-term debt obligations. Certificates of deposit are short-term
obligations of commercial banks. A bankers' acceptance is a time draft drawn on
a commercial bank by a borrower, usually in connection with international
commercial transactions. Certificates of deposit may have fixed or variable
rates. The Portfolio may invest in U.S. banks, foreign branches of U.S. banks,
U.S. branches of foreign banks, and foreign branches of foreign banks.
Short-Term Corporate Debt Securities. Outstanding nonconvertible
corporate debt securities (e.g., bonds and debentures) which have one year or
less remaining to maturity. Corporate notes may have fixed, variable, or
floating rates.
Commercial Paper. Short-term promissory notes issued by corporations
primarily to finance short-term credit needs. Certain notes may have floating or
variable rates.
Foreign Government Securities. Issued or guaranteed by a foreign
government, province, instrumentality, political subdivision or similar unit
thereof.
Savings and Loan Obligations. Negotiable certificates of deposit and
other short-term debt obligations of savings and loan associations.
The Portfolio may also invest in the securities of certain
supranational entities, such as the International Development Bank.
Debt Obligations Although primarily all of the Portfolio's assets are
invested in common stocks, the Portfolio may invest in convertible securities,
corporate debt securities and preferred stocks. See this Statement under
"Certain Risk Factors and Investment Methods," for a discussion of debt
obligations.
The Portfolio's investment program permits it to purchase below
investment grade securities. Since investors generally perceive that there are
greater risks associated with investment in lower quality securities, the yields
from such securities normally exceed those obtainable from higher quality
securities. However, the principal value of lower-rated securities generally
will fluctuate more widely than higher quality securities. Lower quality
investments entail a higher risk of default -- that is, the nonpayment of
interest and principal by the issuer than higher quality investments. Such
securities are also subject to special risks, discussed below. Although the
Portfolio seeks to reduce risk by portfolio diversification, credit analysis,
and attention to trends in the economy, industries and financial markets, such
efforts will not eliminate all risk. There can, of course, be no assurance that
the Portfolio will achieve its investment objective.
After purchase by the Portfolio, a debt security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event will require a sale of such security by the Portfolio.
However, Sub-advisor will consider such event in its determination of whether
the Portfolio should continue to hold the security. To the extent that the
ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the prospectus.
Risks of Low-Rated Debt Securities. The Portfolio may invest in low
quality bonds commonly referred to as "junk bonds." Junk bonds are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low and lower-medium
quality bonds involves greater investment risk, to the extent the Portfolio
invests in such bonds, achievement of its investment objective will be more
dependent on Sub-advisor's credit analysis than would be the case if the
Portfolio was investing in higher quality bonds. For a discussion of the special
risks involved in low-rated bonds, see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
Collateralized Mortgage Obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
a Portfolio invests, the investment may be subject to a greater or lesser risk
of prepayment than other types of mortgage-related securities.
For a discussion of mortgage-backed securities and certain risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Mortgage-Backed Securities. Mortgage-backed securities are securities
representing interest in a pool of mortgages. After purchase by the Portfolio, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require a sale of
such security by the Portfolio. However, the Sub-advisor will consider such
event in its determination of whether the Portfolio should continue to hold the
security. To the extent that the ratings given by Moody's or S&P may change as a
result of changes in such organizations or their rating systems, the Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies continued in the Trust's Prospectus.
For a discussion of mortgage-backed securities and certain risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Asset-Backed Securities. The Portfolio may invest a portion of its
assets in debt obligations known as asset-backed securities. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets
which in turn may be affected by a variety of economic and other factors. As a
result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity.
Automobile Receivable Securities. The Portfolio may invest in
asset-backed securities which are backed by receivables from motor vehicle
installment sales contracts or installment loans secured by motor vehicles
("Automobile Receivable Securities").
Credit Card Receivable Securities. The Portfolio may invest in
asset-backed securities backed by receivables from revolving credit card
agreements ("Credit Card Receivable Securities").
Other Assets. The Sub-advisor anticipates that asset-backed
securities backed by assets other than those described above will be issued in
the future. The Portfolio may invest in such securities in the future if such
investment is otherwise consistent with its investment objective and policies.
For a discussion of these securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Stripped Agency Mortgage-Backed Securities. Stripped Agency
Mortgage-Backed securities represent interests in a pool of mortgages, the cash
flow of which has been separated into its interest and principal components.
"IOs" (interest only securities) receive the interest portion of the cash flow
while "POs" (principal only securities) receive the principal portion. Stripped
Agency Mortgage-Backed Securities may be issued by U.S. Government Agencies or
by private issuers similar to those described above with respect to CMOs and
privately-issued mortgage-backed certificates. As interest rates rise and fall,
the value of IOs tends to move in the same direction as interest rates. The
value of the other mortgage-backed securities described herein, like other debt
instruments, will tend to move in the opposite direction compared to interest
rates. Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to the Portfolio.
The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to recoup fully its
initial investment in an IO class of a stripped mortgage-backed security, even
if the IO class is rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the price on a PO class will be affected
more severely than would be the case with a traditional mortgage-backed
security.
The Portfolio will treat IOs and POs, other than government-issued IOs
or POs backed by fixed rate mortgages, as illiquid securities and, accordingly,
limit its investments in such securities, together with all other illiquid
securities, to 15% of the Portfolio's net assets. Sub-advisor will determine the
liquidity of these investments based on the following guidelines: the type of
issuer; type of collateral, including age and prepayment characteristics; rate
of interest on coupon relative to current market rates and the effect of the
rate on the potential for prepayments; complexity of the issue's structure,
including the number of tranches; size of the issue and the number of dealers
who make a market in the IO or PO. The Portfolio will treat
non-government-issued IOs and POs not backed by fixed or adjustable rate
mortgages as illiquid unless and until the Securities and Exchange Commission
modifies its position.
Writing Covered Call Options. The Portfolio may write (sell) American
or European style "covered" call options and purchase options to close out
options previously written by a Portfolio. In writing covered call options, the
Portfolio expects to generate additional premium income which should serve to
enhance the Portfolio's total return and reduce the effect of any price decline
of the security or currency involved in the option. Covered call options will
generally be written on securities or currencies which, in Sub-advisor is
opinion, are not expected to have any major price increases or moves in the near
future but which, over the long term, are deemed to be attractive investments
for the Portfolio.
The Portfolio will write only covered call options. This means that the
Portfolio will own the security or currency subject to the option or an option
to purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. government securities or other liquid high-grade debt
obligations having a value equal to the fluctuating market value of the optioned
securities or currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objective. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, a Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency. The Portfolio does not consider a security or
currency covered by a call to be "pledged" as that term is used in the
Portfolio's policy which limits the pledging or mortgaging of its assets.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, Sub-advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call options
will be recorded as a liability of the Portfolio. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Portfolio
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The option will be terminated upon expiration of
the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
The Portfolio will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities or currencies covering call
or put options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Writing Covered Put Options. The Portfolio may write American or
European style covered put options and purchase options to close out options
previously written by the Portfolio.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where the Sub-advisor wishes to purchase the underlying security
or currency for the Portfolio at a price lower than the current market price of
the security or currency. In such event the Portfolio would write a put option
at an exercise price which, reduced by the premium received on the option,
reflects the lower price it is willing to pay. Since the Portfolio would also
receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in exercise of the put, cannot
benefit from appreciation, if any, with respect to such specific securities or
currencies.
The Portfolio will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies covering put or
call options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
Purchasing Put Options. The Portfolio may purchase American or European
style put options. As the holder of a put option, the Portfolio has the right to
sell the underlying security or currency at the exercise price at any time
during the option period (American style) or at the expiration of the option
(European style). The Portfolio may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. The Portfolio
may purchase put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies. An example of
such use of put options is provided in this Statement under "Certain Risk
Factors and Investment Methods."
To the extent required by the laws of certain states, the Portfolio may
not be permitted to commit more than 5% of its assets to premiums when
purchasing put and call options. Should these state laws change or should the
Portfolio obtain a waiver of its application, the Portfolio may commit more than
5% of its assets to premiums when purchasing call and put options. The premium
paid by the Portfolio when purchasing a put option will be recorded as an asset
of the Portfolio. This asset will be adjusted daily to the option's current
market value, which will be the latest sale price at the time at which the net
asset value per share of the Portfolio is computed (close of New York Stock
Exchange), or, in the absence of such sale, the latest bid price. This asset
will be terminated upon expiration of the option, the selling (writing) of an
identical option in a closing transaction, or the delivery of the underlying
security or currency upon the exercise of the option.
Purchasing Call Options. The Portfolio may purchase American or
European style call options. As the holder of a call option, the Portfolio has
the right to purchase the underlying security or currency at the exercise price
at any time during the option period (American style) or at the expiration of
the option (European style). The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Portfolio may also purchase call options in order to acquire the
underlying securities or currencies. Examples of such uses of call options are
provided in this Statement under "Certain Risk Factors and Investment Methods."
To the extent required by the laws of certain states, the Portfolio may
not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options. Should these state laws change or should the
Portfolio obtain a waiver of its application, the Portfolio may commit more than
5% of its assets to premiums when purchasing call and put options. The Portfolio
may also purchase call options on underlying securities or currencies it owns in
order to protect unrealized gains on call options previously written by it. A
call option would be purchased for this purpose where tax considerations make it
inadvisable to realize such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid realizing losses.
Dealer (Over-the-Counter) Options. The Portfolio may engage in
transactions involving dealer options. Certain risks are specific to dealer
options. While the Portfolio would look to a clearing corporation to exercise
exchange-traded options, if the Portfolio were to purchase a dealer option, it
would rely on the dealer from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction. For a discussion of dealer options, see this Statement under
"Certain Risk Factors and Investment Methods."
Futures Contracts.
Transactions in Futures. The Portfolio may enter into futures
contracts, including stock index, interest rate and currency futures ("futures
or futures contracts"). The Portfolio may also enter into futures on commodities
related to the types of companies in which it invests, such as oil and gold
futures. Otherwise the nature of such futures and the regulatory limitations and
risks to which they are subject are the same as those described below.
Stock index futures contracts may be used to attempt to hedge a portion
of the Portfolio, as a cash management tool, or as an efficient way for the
Sub-advisor to implement either an increase or decrease in portfolio market
exposure in response to changing market conditions. The Portfolio may purchase
or sell futures contracts with respect to any stock index. Nevertheless, to
hedge the Portfolio successfully, the Portfolio must sell futures contacts with
respect to indices or subindices whose movements will have a significant
correlation with movements in the prices of the Portfolio's securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges, and are standardized as to maturity date
and underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the CFTC. Futures are
traded in London, at the London International Financial Futures Exchange, in
Paris, at the MATIF, and in Tokyo, at the Tokyo Stock Exchange. Although
techniques other than the sale and purchase of futures contracts could be used
for the above-referenced purposes, futures contracts offer an effective and
relatively low cost means of implementing the Portfolio's objectives in these
areas.
Regulatory Limitations. The Portfolio will engage in futures
contracts and options thereon only for bona fide hedging, yield enhancement, and
risk management purposes, in each case in accordance with rules and regulations
of the CFTC and applicable state law.
The Portfolio may not purchase or sell futures contracts or related
options if, with respect to positions which do not qualify as bona fide hedging
under applicable CFTC rules, the sum of the amounts of initial margin deposits
and premiums paid on those positions would exceed 5% of the net asset value of
the Portfolio after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into; provided, however, that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5% limitation. For purposes of this
policy options on futures contracts and foreign currency options traded on a
commodities exchange will be considered "related options." This policy may be
modified by the Board of Trustees of the Trust without a shareholder vote and
does not limit the percentage of the Portfolio's assets at risk to 5%.
The Portfolio's use of futures contracts will not result in leverage.
Therefore, to the extent necessary, in instances involving the purchase of
futures contracts or the writing of call or put options thereon by the
Portfolio, an amount of cash, U.S. government securities or other liquid,
high-grade debt obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be identified in an
account with the Portfolio's custodian to cover the position, or alternative
cover (such as owning an offsetting position) will be employed. Assets used as
cover or held in an identified account cannot be sold while the position in the
corresponding option or future is open, unless they are replaced with similar
assets. As a result, the commitment of a large portion of a Portfolio's assets
to cover or identified accounts could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
If the CFTC or other regulatory authorities adopt different (including
less stringent) or additional restrictions, the Portfolio would comply with such
new restrictions.
Options on Futures Contracts. The Portfolio may purchase and sell
options on the same types of futures in which it may invest. As an alternative
to writing or purchasing call and put options on stock index futures, the
Portfolio may write or purchase call and put options on stock indices. Such
options would be used in a manner similar to the use of options on futures
contracts. From time to time, a single order to purchase or sell futures
contracts (or options thereon) may be made on behalf of the Portfolio and other
T. Rowe Price Portfolios. Such aggregated orders would be allocated among the
Portfolio and the other T. Rowe Price Portfolios in a fair and
non-discriminatory manner.
Risks of Transactions in Options on Future Contracts. See this
Statement and Trust's Prospectus under "Certain Risk Factors and Investment
Methods" for a description of certain risks in options and future contracts.
Additional Futures and Options Contracts. Although the Portfolio has no
current intention of engaging in futures or options transactions other than
those described above, it reserves the right to do so. Such futures and options
trading might involve risks which differ from those involved in the futures and
options described above.
Foreign Futures and Options. The Portfolio is permitted to invest in
foreign futures and options. For a description of foreign futures and options
and certain risks involved therein as well as certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
and non-U.S. dollar-denominated securities of foreign issuers. There are special
risks in foreign investing. Certain of these risks are inherent in any
international mutual fund while others relate more to the countries in which the
Portfolio will invest. Many of the risks are more pronounced for investments in
developing or emerging countries, such as many of the countries of Southeast
Asia, Latin America, Eastern Europe and the Middle East. For an additional
discussion of certain risks involved in investing in foreign securities, see
this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Foreign Currency Transactions. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are principally traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
The Portfolio may enter into forward contracts for a variety of
purposes in connection with the management of the foreign securities portion of
its portfolio. The Portfolio's use of such contracts would include, but not be
limited to, the following:
First, when the Portfolio enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security.
Second, when the Sub-advisor believes that one currency may experience
a substantial movement against another currency, including the U.S. dollar, it
may enter into a forward contract to sell or buy the amount of the former
foreign currency, approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency. Alternatively, where
appropriate, the Portfolio may hedge all or part of its foreign currency
exposure through the use of a basket of currencies or a proxy currency where
such currency or currencies act as an effective proxy for other currencies. In
such a case, the Portfolio may enter into a forward contract where the amount of
the foreign currency to be sold exceeds the value of the securities denominated
in such currency. The use of this basket hedging technique may be more efficient
and economical than entering into separate forward contracts for each currency
held in the Portfolio. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible since the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Under normal circumstances, consideration of the prospect for currency parities
will be incorporated into the longer term investment decisions made with regard
to overall diversification strategies. However, Sub-advisor believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served.
The Portfolio may enter into forward contracts for any other purpose
consistent with the Portfolio's investment objective and policies. However, the
Portfolio will not enter into a forward contract, or maintain exposure to any
such contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid, high-grade debt
securities and currency available for cover of the forward contract(s). In
determining the amount to be delivered under a contract, the Portfolio may net
offsetting positions.
At the maturity of a forward contract, the Portfolio may sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and either extend the maturity of the forward contract (by
"rolling" that contract forward) or may initiate a new forward contract.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer. For a discussion of
certain risk factors involved in foreign currency transactions, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts. The Portfolio may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures on currencies,
which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. The Portfolio
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay such
distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes, in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. For securities offsetting a purchased put,
this adjustment of the holding period may increase the gain from sales of
securities held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity security
will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Pending tax regulations could limit the extent
that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement. In addition, gains realized on the sale or other disposition of
securities, including option, futures or foreign forward exchange contracts on
securities or securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Portfolio's annual
gross income. In order to avoid realizing excessive gains on securities or
currencies held less than three months, the Portfolio may be required to defer
the closing out of option, futures or foreign forward exchange contracts) beyond
the time when it would otherwise be advantageous to do so. It is anticipated
that unrealized gains on Section 1256 option, futures and foreign forward
exchange contracts, which have been open for less than three months as of the
end of the Portfolio's fiscal year and which are recognized for tax purposes,
will not be considered gains on securities or currencies held less than three
months for purposes of the 30% test.
Illiquid or Restricted Securities. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Portfolio
should be in a position where more than 15% of the value of its net assets is
invested in illiquid assets, including restricted securities, the Portfolio will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Portfolio may purchase securities which,
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. Sub-advisor under the
supervision of the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, Sub-advisor will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, Sub-advisor could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) the nature of the security and
of marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities would be monitored, and if as a result of changed
conditions it is determined that a Rule 144A security is no longer liquid, the
Portfolio's holdings of illiquid securities would be reviewed to determine what,
if any, steps are required to assure that the Portfolio does not invest more
than 15% of its net assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Portfolio's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Hybrid Instruments. Hybrid Instruments have been developed and combine
the elements of futures contracts, options or other financial instruments with
those of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments. Hybrid Instruments may take a variety of forms, including, but not
limited to, debt instruments with interest or principal payments or redemption
terms determined by reference to the value of a currency or commodity or
securities index at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible securities
with the conversion terms related to a particular commodity. For a discussion of
certain risks involved in investing in hybrid instruments see this statement
under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. The Portfolio may enter into a repurchase
agreement through which an investor (such as the Portfolio) purchases a security
(known as the "underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Any such dealer or
bank will be on Sub-advisor's approved list and have a credit rating with
respect to its short-term debt of at least A1 by Standard & Poor's Corporation,
P1 by Moody's Investors Service, Inc., or the equivalent rating by Sub-advisor.
At that time, the bank or securities dealer agrees to repurchase the underlying
security at the same price, plus specified interest. Repurchase agreements are
generally for a short period of time, often less than a week. Repurchase
agreements which do not provide for payment within seven days will be treated as
illiquid securities. The Portfolio will only enter into repurchase agreements
where (i) the underlying securities are of the type (excluding maturity
limitations) which the Portfolio's investment guidelines would allow it to
purchase directly, (ii) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying security is made only
upon physical delivery or evidence of book- entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Portfolio could experience
both delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period while
the Portfolio seeks to enforce its rights thereto; (b) possible subnormal levels
of income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Reverse Repurchase Agreements. Although the Portfolio has no current
intention, in the foreseeable future, of engaging in reverse repurchase
agreements, the Portfolio reserves the right to do so. Reverse repurchase
agreements are ordinary repurchase agreements in which a Portfolio is the seller
of, rather than the investor in, securities, and agrees to repurchase them at an
agreed upon time and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of the securities because it
avoids certain market risks and transaction costs. A reverse repurchase
agreement may be viewed as a type of borrowing by the Portfolio.
Warrants. The Portfolio may acquire warrants. For a discussion of risks
involved therein, see this Statement under "Certain Risk Factor and Investment
Methods."
Lending of Portfolio Securities. Securities loans are made to
broker-dealers or institutional investors or other persons, pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash, U.S. government
securities, letters of credit or such other collateral as may be permitted under
its investment program. While the securities are being lent, the Portfolio will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Portfolio has a right to call each
loan and obtain the securities on five business days' notice or, in connection
with securities trading on foreign markets, within such longer period of time
which coincides with the normal settlement period for purchases and sales of
such securities in such foreign markets. The Portfolio will not have the right
to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to firms deemed by Sub-advisor to be of good standing and will
not be made unless, in the judgment of Sub-advisor, the consideration to be
earned from such loans would justify the risk.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission and certain state regulatory agencies, the Portfolio may
make loans to, or borrow funds from, other mutual funds sponsored or advised by
Sub-advisor or Rowe Price-Fleming International, Inc.(collectively, "Price
Portfolio"). The Portfolio has no current intention of engaging in these
practices at this time.
When-Issued Securities and Forward Commitment Contracts. The Portfolio
may purchase securities on a "when-issued" or delayed delivery basis and may
purchase securities on a forward commitment basis. Any or all of the Portfolio's
investments in debt securities may be in the form of when-issueds and forwards.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment take place
at a later date. Normally, the settlement date occurs within 90 days of the
purchase for when-issueds, but may be substantially longer for forwards. The
Portfolio will cover these securities by maintaining cash and/or liquid,
high-grade debt securities with its custodian bank equal in value to commitments
for them during the time between the purchase and the settlement. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date. For a discussion of these securities and the risks involved
therein, see this Statement under "Certain Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the T. Rowe Price Natural Resources
Portfolio. As a matter of operating policy, which can be changed without
shareholder approval, the Portfolio may not:
1. Purchase additional securities when money borrowed exceeds 5% of its
total assets;
2. Invest in companies for the purpose of exercising management or
control;
3. Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would exceed
5% of the Portfolio's net asset value;
4. Purchase illiquid securities and securities of unseasoned issuers
if, as a result, more than 15% of its net assets would be invested in such
securities, provided that the Portfolio will not invest more than 10% of its
total assets in restricted securities and not more than 5% of its total assets
in securities of unseasoned issuers. Securities eligible for resale under Rule
144A of the Securities Act of 1933 are not included in the 10% limitation but
are subject to the 15% limitation;
5. Purchase securities of open-end or closed-end investment companies
except in compliance with the Investment Company Act of 1940 and applicable
state law. Duplicate fees may result from such purchases;
6. Purchase securities on margin, except (i) for use of short-term
credit necessary for clearance of purchases of portfolio securities and (ii) the
Portfolio may make margin deposits in connection with futures contracts or other
permissible investments;
7. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Portfolio as security for indebtedness except as may be
necessary in connection with permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 33 1/3% of the Portfolio's
total assets at the time of borrowing or investment;
8. Purchase participations or other direct interests in or enter into
leases with respect to, oil, gas, or other mineral exploration or development
programs;
9. Invest in puts, calls, straddles, spreads, or any combination
thereof, except to the extent permitted by the Prospectus and this Statement;
10. Purchase or retain the securities of any issuer if those officers
and directors of the Portfolio, and of its investment manager, who each owns
beneficially more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities;
11. Effect short sales of securities;
12. Purchase a security (other than obligations issued or guaranteed by
the U.S., any foreign, state or local government, their agencies or
instrumentalities) if, as a result, more than 5% of the value of the Portfolio's
total assets would be invested in the securities of issuers which at the time of
purchase had been in operation for less than three years (for this purpose, the
period of operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer). This restriction does
not apply to securities of pooled investment vehicles or mortgage- or
asset-backed securities; or
13. Invest in warrants if, as a result thereof, more than 2% of the
value of the net assets of the Portfolio would be invested in warrants which are
not listed on the New York Stock Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of the value of the net assets of
the Portfolio would be invested in warrants whether or not so listed. For
purposes of these percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the Portfolio in units or
attached to securities may be deemed to be without value.
T. Rowe Price International Bond Portfolio:
Investment Objective: The T. Rowe Price International Bond Portfolio's objective
is to provide high current income and capital appreciation by investing in
high-quality, non dollar-denominated government and corporate bonds outside the
United States.
Investment Policies: The Portfolio also seeks to moderate price fluctuation by
actively managing its maturity structure and currency exposure. The Portfolio's
investments may include debt securities issued or guaranteed by a foreign
national government, its agencies, instrumentalities or political subdivisions,
debt securities issued or guaranteed by supranational organizations, corporate
debt securities, bank or bank holding company debt securities and other debt
securities including those convertible into common stock. The Portfolio will
invest at least 65% of its assets in high-quality bonds but may invest up to 20%
of assets in below investment-grade, high-risk bonds, including bonds in default
or those with the lowest rating.
Sub-advisor regularly analyzes a broad range of international equity
and fixed-income markets in order to assess the degree of risk and level of
return that can be expected from each market. Of course, there can be no
assurance that Sub-advisor's forecasts of expected return will be reflected in
the actual returns achieved by the Portfolio.
The Portfolio's share price will fluctuate with market, economic and
foreign exchange conditions, and your investment may be worth more or less when
redeemed than when purchased. The Portfolio should not be relied upon as a
complete investment program, nor used to play short-term swings in the global
bond or foreign exchange markets. The Portfolio is subject to risks unique to
international investing.
Risk Factors of Foreign Investing. There are special risks in
investing in the Portfolio. Certain of these risks are inherent in any
international mutual fund others relate more to the countries in which the
Portfolio will invest. Many of the risks are more pronounced for investments in
developing or emerging countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a per capita gross
national product of less than $8,000.
Investors should understand that all investments have a risk factor.
There can be no guarantee against loss resulting from an investment in the
Portfolio, and there can be no assurance that the Portfolio's investment
policies will be successful, or that its investment objective will be attained.
The Portfolio is designed for individual and institutional investors seeking to
diversify beyond the United States in an actively researched and managed
portfolio, and is intended for long-term investors who can accept the risks
entailed in investment in foreign securities. For a discussion of certain risks
involved in foreign investing see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
The Portfolio will invest in securities denominated in currencies
specified elsewhere herein.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanged located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market.
The Portfolio may invest in investment portfolios which have been
authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these respective countries. The Portfolio's investment in these
portfolios is subject to the provisions of the 1940 Act discussed below. If the
Portfolio invests in such investment portfolios, the Portfolio's shareholders
will bear not only their proportionate share of the expenses of the Portfolio
(including operating expenses and the fees of the Investment Manager), but also
will bear indirectly similar expenses of the underlying investment portfolios.
In addition, the securities of these investment portfolios may trade at a
premium over their net asset value.
Apart from the matters described herein, the Portfolio is not aware at
this time of the existence of any investment or exchange control regulations
which might substantially impair the operations of the Portfolio as described in
the Trust's Prospectus and this Statement. It should be noted, however, that
this situation could change at any time.
The Portfolio may invest in companies located in Eastern Europe,
Russia or certain Latin American countries. The Portfolio will only invest in a
company located in, or a government of, Eastern Europe, Russia or Latin America,
if the Sub-advisor believes the potential return justifies the risk.
In addition to the investments described in the Trust's Prospectus,
the Portfolio may invest in the following:
Writing Covered Call Options. The Portfolio may write (sell) "covered"
call options and purchase options to close out options previously written by the
Portfolio. In writing covered call options, the Portfolio expects to generate
additional premium income which should serve to enhance the Portfolio's total
return and reduce the effect of any price decline of the security or currency
involved in the option. Covered call options will generally be written on
securities or currencies which, in Sub-advisor's opinion, are not expected to
have any major price increases or moves in the near future but which, over the
long term, are deemed to be attractive investments for the Portfolio.
The Portfolio will write only covered call options. This means that
the Portfolio will own the security or currency subject to the option or an
option to purchase the same underlying security or currency, having an exercise
price equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. government securities or other liquid high-grade debt
obligations having a value equal to the fluctuating market value of the optioned
securities or currencies. In order to comply with the requirements of the
securities or currencies laws in several states, the Portfolio will not write a
covered call option if, as a result, the aggregate market value of all Portfolio
securities or currencies covering call or put options exceeds 25% of the market
value of the Portfolio's net assets. Should these state laws change or should
the Portfolio obtain a waiver of their application, the Portfolio reserves the
right to increase this percentage. In calculating the 25% limit, the Portfolio
will offset, against the value of assets covering written calls and puts, the
value of purchased calls and puts on identical securities or currencies with
identical maturity dates.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objective. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, the Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely, retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligations as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency, The Portfolio does not consider a security or
currency covered by a call "pledged" as that term is used in the Portfolio's
policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, Sub-advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call options
will be recorded as a liability of the Portfolio. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Portfolio
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the average of the latest bid and asked price. The option will be
terminated upon expiration of the option, the purchase of an identical option in
a closing transaction, or delivery of the underlying security or currency upon
the exercise of the option.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The Portfolio will effect closing transactions in order to realize a
profit on an outstanding call option, to prevent an underlying security or
currency from being called, or, to permit the sale of the underlying security or
currency. The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
Writing Covered Put Options. Although the Portfolio has no current
intention in the foreseeable future of writing American or European style
covered put options and purchasing put options to close out options previously
written by the Portfolio, the Portfolio reserves the right to do so.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" options at all
times while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where Sub-advisor wishes to purchase the underlying security or
currency for the Portfolio's portfolio at a price lower than the current market
price of the security or currency. In such event the Portfolio would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Portfolio would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in exercise of the put, cannot
benefit from appreciation, if any, with respect to such specific securities or
currencies. In order to comply with the requirements of several states, the
Portfolio will not write a covered put option if, as a result, the aggregate
market value of all portfolio securities or currencies covering put or call
options exceeds 25% of the market value of the Portfolio's net assets. Should
these state laws change or should the Portfolio obtain a waiver of their
application, the Portfolio reserves the right to increase this percentage. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates. For a
discussion of certain risks involved in options, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Purchasing Put Options. The Portfolio may purchase American or
European style put options. As the holder of a put option, the Portfolio has the
right to sell the underlying security or currency at the exercise price at any
time during the option period. The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase put options for defensive purposes in order
to protect against an anticipated decline in the value of its securities or
currencies. An example of such use of put options is provided in this Statement
under "Certain Risk Factors and Investment Methods."
To the extent required by the laws of certain states, the Portfolio
may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options. Should these state laws change or should the
Portfolio obtain a waiver of their application, the Portfolio may commit more
than 5% of its assets to premiums when purchasing call and put options. The
premium paid by the Portfolio when purchasing a put option will be recorded as
an asset of the Portfolio. This asset will be adjusted daily to the option's
current market value, which will be the latest sale price at the time at which
the net asset value per share of the Portfolio is computed (close of New York
Stock Exchange), or, in the absence of such sale, the latest bid price. This
asset will be terminated upon expiration of the option, the selling (writing) of
an identical option in a closing transaction, or the delivery of the underlying
security or currency upon the exercise of the option.
Purchasing Call Options. The Portfolio may purchase American or
European style call options. As the holder of a call option, the Portfolio has
the right to purchase the underlying security or currency at the exercise price
at any time during the option period (American style) or at the expiration of
the option (European style). The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Portfolio may also purchase call options in order to acquire the
underlying securities or currencies. Examples of such uses of call options are
provided below.
To the extent required by the laws of certain states, the Portfolio
may not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options. Should these state laws change or should the
Portfolio obtain a waiver of their application, the Portfolio may commit more
than 5% of its assets to premiums when purchasing call and put options. The
Portfolio may also purchase call options on underlying securities or currencies
it owns in order to protect unrealized gains on call options previously written
by it. A call option would be purchased for this purpose where tax
considerations make it inadvisable to realize such gains through a closing
purchase transaction. Call options may also be purchased at times to avoid
realizing losses.
Dealer Options. The Portfolio may engage in transactions involving
dealer options. Certain risks are specific to dealer options. While the
Portfolio would look to a clearing corporation to exercise exchange-traded
options, if the Portfolio were to purchase a dealer option, it would rely on the
dealer from whom it purchased the option to perform if the option were
exercised. While the Portfolio will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of entering into
closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate a dealer option at a favorable price at any
time prior to expiration. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
Futures Contracts.
Transactions in Futures. The Portfolio may enter into
financial futures contracts, including stock index, interest rate and currency
futures ("futures or futures contracts"); however, the Portfolio has no current
intention of entering into interest rate futures. The Portfolio, however,
reserves the right to trade in financial futures of any kind.
Stock index futures contracts may be used to attempt to provide a
hedge for a portion of the Portfolio's portfolio, as a cash management tool, or
as an efficient way for Sub-advisor to implement either an increase or decrease
in portfolio market exposure in response to changing market conditions. Stock
index futures contracts are currently traded with respect to the S&P 500 Index
and other broad stock market indices, such as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Index. The Portfolio
may, however, purchase or sell futures contracts with respect to any stock index
whose movements will, in its judgment, have a significant correlation with
movements in the prices of all or portions of the Portfolio's portfolio
securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges and are standardized as to maturity date
and underlying financial instrument. The principal financial futures exchanges
in the United States are the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board of
Trade. Futures exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
Futures are traded in London at the London International Financial Futures
Exchange, in Paris at the MATIF and in Tokyo at the Tokyo Stock Exchange.
Although techniques other than the sale and purchase of futures contracts could
be used for the above-referenced purposes, futures contracts offer an effective
and relatively low cost means of implementing the Portfolio's objectives in
these areas.
For a discussion of futures transactions and certain risks involved
therein, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Regulatory Limitations. The Portfolio will engage in
transactions in futures contracts and options thereon only for bona fide
hedging, yield enhancement and risk management purposes, in each case in
accordance with the rules and regulations of the CFTC.
The Portfolio may not enter into futures contracts or options thereon
if, with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits on the
Portfolio's existing futures and premiums paid for options on futures would
exceed 5% of the net asset value of the Portfolio after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; provided however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in calculating the
5% limitation.
The Portfolio's use of futures contracts will not result in leverage.
Therefore, to the extent necessary, in instances involving the purchase of
futures contracts or call options thereon or the writing of put options thereon
by the Portfolio, an amount of cash, U.S. government securities or other liquid,
high-grade debt obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be identified in an
account with the Portfolio's custodian to cover the position, or alternative
cover will be employed.
In addition, CFTC regulations may impose limitations on the
Portfolio's ability to engage in certain yield enhancement and risk management
strategies. If the CFTC or other regulatory authorities adopt different
(including less stringent) or additional restrictions, the Portfolio would
comply with such new restrictions.
Options on Futures Contracts. As an alternative to writing or
purchasing call and put options on stock index futures, the Portfolio may write
or purchase call and put options on stock indices. Such options would be used in
a manner similar to the use of options on futures contracts. From time to time,
a single order to purchase or sell futures contracts (or options thereon) may be
made on behalf of the Portfolio and other mutual funds or portfolios of mutual
funds managed by Price-Fleming International, Inc. or T. Rowe Price Associates,
Inc. Such aggregated orders would be allocated among the Portfolio and such
other portfolios in a fair and non-discriminatory manner.
Risks of Transactions in Options on Futures Contracts. See this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods" for a description of certain risks involved in options and futures
contracts.
Additional Futures and Options Contracts. Although the Portfolio has
no current intention of engaging in financial futures or option transactions
other than those described above, it reserves the right to do so. Such futures
or options trading might involve risks which differ from those involved in the
futures and options described above.
Foreign Futures and Options. The Portfolio is permitted to invest in
foreign futures and options. For a description of foreign futures and options
and certain risks involved therein as well as certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Foreign Currency Transactions. The Portfolio will generally enter into
forward foreign currency exchange contracts under two circumstances. First, when
the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security.
Second, when the Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Portfolio's securities denominated in such foreign
currency. Alternatively, where appropriate, the Portfolio may hedge all or part
of its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an effective proxy for
other currencies. In such a case, the Portfolio may enter into a forward
contract where the amount of the foreign currency to be sold exceeds the value
of the securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Portfolio. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Other than as set forth above, and immediately
below, the Portfolio will also not enter into such forward contracts or maintain
a net exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's securities or other assets denominated in that
currency. The Portfolio, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to forward contracts in excess of
the value of the Portfolio's securities or other assets to which the forward
contracts relate (including accrued interest to the maturity of the forward on
such securities) provided the excess amount is "covered" by liquid, high-grade
debt securities, denominated in any currency, at least equal at all times to the
amount of such excess. For these purposes "the securities or other assets to
which the forward contracts relate may be securities or assets denominated in a
single currency, or where proxy forwards are used, securities denominated in
more than one currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, Sub-advisor believes that it is important to have the flexibility to
enter into such forward contracts when it determines that the best interests of
the Portfolio will be served.
At the maturity of a forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Portfolio may
use liquid, high-grade debt securities denominated in any currency, to cover the
amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer.
For an additional discussion of certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward
Foreign Exchange Contracts. The Portfolio may enter into certain options,
futures, and forward foreign exchange contracts, including options and futures
on currencies, which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. The Portfolio
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay such
distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. For securities offsetting a purchased put,
this adjustment of the holding period may increase the gain from sales of
securities held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity security
will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Pending tax regulations could limit the extent
that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement. In addition, gains realized on the sale or other disposition of
securities, including option, futures or foreign forward exchange contracts on
securities or securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Portfolio's annual
gross income. In order to avoid realizing excessive gains on securities or
currencies held less than three months, the Portfolio may be required to defer
the closing out of option, futures or foreign forward exchange contracts beyond
the time when it would otherwise be advantageous to do so. It is anticipated
that unrealized gains on Section 1256 option, futures and foreign forward
exchange contracts, which have been open for less than three months as of the
end of the Portfolio's fiscal year and which are recognized for tax purposes,
will not be considered gains on securities or currencies held less than three
months for purposes of the 30% test.
Hybrid Commodity and Security Instruments. Instruments have been
developed which combine the elements of futures contracts or options with those
of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Often these hybrid instruments are indexed to the price of a
commodity or particular currency or a domestic or foreign debt or equity
securities index. Hybrid instruments may take a variety of forms, including, but
not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
at a future point in time, preferred stock with dividend rates determined by
reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity. For a discussion of certain
risks involved in hybrid instruments, see this Statement under "Certain Risk
Factors and Investment Methods."
Repurchase Agreements. The Portfolio may enter into repurchase
agreements through which an investor (such as the Portfolio) purchases a
security (known as the "underlying security") from a well-established securities
dealer or a bank that is a member of the Federal Reserve System. Any such dealer
or bank will be on T. Rowe Price Associates, Inc. ("T. Rowe Price") approved
list and have a credit rating with respect to its short-term debt of at least A1
by Standard & Poor's Corporation, P1 by Moody's Investors Service, Inc., or the
equivalent rating by T. Rowe Price. At that time, the bank or securities dealer
agrees to repurchase the underlying security at the same price, plus specified
interest. Repurchase agreements are generally for a short period of time, often
less than a week. Repurchase agreements which do not provide for payment within
seven days will be treated as illiquid securities. The Portfolio will only enter
into repurchase agreements where (i) the underlying securities are of the type
(excluding maturity limitations) which the Portfolio's investment guidelines
would allow it to purchase directly, (ii) the market value of the underlying
security, including interest accrued, will be at all times equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-entry transfer
to the account of the custodian or a bank acting as agent. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Portfolio
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying security
during the period while the Portfolio seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights.
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Illiquid or Restricted Securities. Subject to guidelines promulgated by
the Board of Trustees of the Trust, the Portfolio may invest in illiquid
securities. The Portfolio may invest in illiquid securities, including
restricted securities and repurchase agreements which do not provide for payment
within seven days, but will not acquire such securities if, as a result, they
would comprise more than 15% of the value of the Portfolio's net assets.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where
registration is required, the Portfolio may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in accordance with procedures
prescribed by the Trust's Board of Trustees. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Portfolio
should be in a position where more than 15% of the value of its net assets are
invested in illiquid assets, including restricted securities, the Portfolio will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Portfolio may purchase securities which,
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Sub-advisor, under the
supervision of the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Sub-advisor will consider
the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, the Sub-advisor could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchases, (3) dealer undertakings to make a market, and (4) the
nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored, and if as a
result of changed conditions it is determined that a Rule 144A security is no
longer liquid, the Portfolio's holdings of illiquid securities would be reviewed
to determine what, if any, steps are required to assure that the Portfolio does
not invest more than 15% of its net assets in illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Portfolio's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
Debt Securities. The Portfolio's investment program permits it to
purchase below investment grade securities. Since investors generally perceive
that there are greater risks associated with investment in lower quality
securities, the yields from such securities normally exceed those obtainable
from higher quality securities. However, the principal value of lower-rated
securities generally will fluctuate more widely than higher quality securities.
Lower quality investments entail a higher risk of default -- that is, the
nonpayment of interest and principal by the issuer than higher quality
investments. Such securities are also subject to special risks, discussed below.
Although the Portfolio seeks to reduce risk by portfolio diversification, credit
analysis, and attention to trends in the economy, industries and financial
markets, such efforts will not eliminate all risk. There can, of course, be no
assurance that the Portfolio will achieve its investment objective.
After purchase by the Portfolio, a debt security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event will require a sale of such security by the Portfolio.
However, Sub-advisor will consider such event in its determination of whether
the Portfolio should continue to hold the security. To the extent that the
ratings given by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P") may change as a result of changes in such
organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the prospectus. The Portfolio may invest up to
20% of its total assets in securities rated below BBB or Baa, including bonds in
default or those with the lowest rating. See the Appendix to this Statement for
a more complete description of the ratings assigned by ratings organizations and
their respective characteristics.
High Yield, High Risk Securities. Below investment grade securities
(rated below Baa by Moody's and below BBB by S&P) or unrated securities of
equivalent quality in the Sub-advisor's judgment, carry a high degree of risk
(including the possibility of default or bankruptcy of the issuers of such
securities), generally involve greater volatility of price and risk of principal
and income, and may be less liquid, than securities in the higher rating
categories and are considered speculative. The lower the ratings of such debt
securities, the greater their risks render them like equity securities.
For an additional discussion of certain risks involved in investing in
lower-rated debt securities, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Zero-Coupon Securities. The Portfolio may invest in zero-coupon
securities which pay no cash income and are sold at substantial discounts from
their value at maturity. For a discussion of Zero-Coupon Securities and the
risks associated therein, see this Statement under "Certain Risk Factors and
Investment Methods."
Lending of Portfolio Securities. For the purpose of realizing
additional income, the Portfolio may make secured loans of portfolio securities
amounting to not more than 33 1/3% of its total assets. This policy is a
"fundamental policy." Securities loans are made to broker-dealers, institutional
investors, or other persons pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent marked to market on a daily basis. The collateral received
will consist of cash, U.S. government securities, letters of credit or such
other collateral as may be permitted under its investment program. While the
securities are being lent, the Portfolio will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Portfolio has a right to call each loan and obtain the securities on five
business days' notice or, in connection with securities trading on foreign
markets, within such longer period of time which coincides with the normal
settlement period for purchases and sales of such securities in such foreign
markets. The Portfolio will not have the right to vote securities while they are
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to persons deemed by
Sub-advisor to be of good standing and will not be made unless, in the judgment
of Sub-advisor, the consideration to be earned from such loans would justify the
risk.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission, the Portfolio may make loans to, or borrow funds from,
other mutual funds sponsored or advised by Sub-advisor or T. Rowe Price
Associates, Inc. (collectively, "Price Portfolios"). The Portfolio has no
current intention of engaging in these practices at this time.
Investment Restrictions Which May Be Changed Without Shareholder Approval.
The following investment restrictions are not "fundamental" and apply only to
the T. Rowe Price International Bond Portfolio. As a matter of non-fundamental
policy which may be changed without shareholder approval, the Portfolio may not:
1. Pledge, mortgage or hypothecate its assets in excess, together with permitted
borrowings, of 1/3 of its total assets;
2. Purchase securities on margin, unless, by virtue of its ownership of other
securities, it has the right to obtain securities equivalent in kind and amount
to the securities sold and, if the right is conditional, the sale is made upon
the same conditions, except in connection with arbitrage transactions and except
that the Portfolio may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of securities;
3. Purchase illiquid securities and securities of unseasoned issuers if, as a
result, more than 15% of its net assets would be invested in such securities;
4. Purchase securities of any issuer with a record of less than three years
continuous operations, including predecessors, except U.S. Government
securities, and obligations issued or guaranteed by any foreign government or
its agencies or instrumentalities, if such purchase would cause the investments
of the Portfolio in all such issues to exceed 5% of the total assets of the
Portfolio taken at market value;
5. Buy options on securities or financial instruments, unless the aggregate
premiums paid on all such options held by the Portfolio at any time do not
exceed 20% of its net assets; or sell put options on securities if, as a result,
the aggregate value of the obligations underlying such put options would exceed
50% of the Portfolio's net assets;
6. Enter into futures contracts or purchase options thereon unless immediately
after the purchase, the value of the aggregate initial margin with respect to
all futures contracts entered into on behalf of the Portfolio and the premiums
paid for options on futures contracts does not exceed 5% of the Portfolio's
total assets, provided that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in computing the 5%
limit;
7. Invest in oil, gas or other mineral leases, or exploration or development
programs (although it may invest in issuers which own or invest in such
interests);
8. Purchase warrants if as a result warrants taken at the lower of cost or
market value would represent more than 5% of the value of the Portfolio's total
net assets or more than 2% of its net assets in warrants that are not listed on
the New York or American Stock Exchanges or on a recognized foreign exchange
(for this purpose, warrants attached to securities will be deemed to have no
value);
9. Make securities loans if the value of such securities loaned exceeds 30% of
the value of the Portfolio's total assets at the time any loan is made; all
loans of portfolio securities will be fully collateralized and marked to market
daily. The Portfolio has no current intention of making loans of portfolio
securities that would amount to greater than 5% of the Portfolio's total assets;
or
10. Purchase or sell real estate limited partnership interests.
11. Purchase securities which are not bonds denominated in foreign currency
("international bonds") if, immediately after such purchase, less than 65% of
its total assets would be invested in international bonds, except that for
temporary defensive purposes the Portfolio may purchase securities which are not
international bonds without limitation;
12. Borrow money in excess of 5% of its total assets (taken at market value) or
borrow other than from banks; however, in the case of reverse repurchase
agreements, the Portfolio may invest in such agreements with other than banks
subject to total asset coverage of 300% for such agreements and all borrowings;
13. Invest more than 20% of its total assets in below investment grade,
high-risk bonds, including bonds in default or those with the lowest rating;
14. Invest in companies for the purpose of exercising management or control;
15. Purchase securities of open-end or closed-end investment companies except in
compliance with the Investment Company Act of 1940 and applicable state law;
16. Purchase or retain the securities of any issuer if those officers and
directors of the Portfolio, and of the Sub-advisor, who each own beneficially
more than .5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such securities; or
17. Effect short sales of securities.
In addition to the restrictions described above, some foreign countries
limit, or prohibit, all direct foreign investment in the securities of their
companies. However, the governments of some countries have authorized the
organization of investment funds to permit indirect foreign investment in such
securities. For tax purposes these funds may be known as Passive Foreign
Investment Companies. The Portfolio is subject to certain percentage limitations
under the 1940 Act and certain states relating to the purchase of securities of
investment companies, and may be subject to the limitation that no more than 10%
of the value of the Portfolio's total assets may be invested in such securities.
Restrictions with respect to repurchase agreements shall be construed
to be for repurchase agreements entered into for the investment of available
cash consistent with the Portfolio's repurchase agreement procedures, not
repurchase commitments entered into for general investment purposes.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Investment Policies" above is
adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of Portfolio's assets will
not be considered a violation of the restriction.
T. Rowe Price Small Company Value Portfolio:
Investment Objective: The investment objective of the T. Rowe Price Small
Company Value Portfolio is to provide long-term capital appreciation by
investing primarily in small-capitalization stocks that appear to be
undervalued.
Investment Policies:
Fixed-Income Securities. The fixed-income securities in which the
Portfolio may invest include, but are not limited to, those described below.
U.S. Government Obligations. Bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in the length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include securities
issued by the Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business Association, and
the Tennessee Valley Authority. Some of these securities are supported by the
full faith and credit of the U.S. Treasury; and the remainder are supported only
by the credit of the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers' acceptances, and
other short-term debt obligations. Certificates of deposit are short-term
obligations of commercial banks. A bankers' acceptance is a time draft drawn on
a commercial bank by a borrower, usually in connection with international
commercial transactions. Certificates of deposit may have fixed or variable
rates. The Portfolio may invest in U.S. banks, foreign branches of U.S. banks,
U.S. branches of foreign banks, and foreign branches of foreign banks.
Short-Term Corporate Debt Securities. Outstanding nonconvertible
corporate debt securities (e.g., bonds and debentures) which have one year or
less remaining to maturity. Corporate notes may have fixed, variable, or
floating rates.
Commercial Paper. Short-term promissory notes issued by corporations
primarily to finance short-term credit needs. Certain notes may have floating or
variable rates.
Foreign Government Securities. Issued or guaranteed by a foreign
government, province, instrumentality, political subdivision or similar unit
thereof.
Savings and Loan Obligations. Negotiable certificates of deposit and
other short-term debt obligations of savings and loan associations.
The Portfolio may also invest in the securities of certain
supranational entities, such as the International Development Bank.
Debt Obligations Although primarily all of the Portfolio's assets are
invested in common stocks, the Portfolio may invest in convertible securities,
corporate debt securities and preferred stocks. See this Statement under
"Certain Risk Factors and Investment Methods," for a discussion of debt
obligations.
The Portfolio's investment program permits it to purchase below
investment grade securities. Since investors generally perceive that there are
greater risks associated with investment in lower quality securities, the yields
from such securities normally exceed those obtainable from higher quality
securities. However, the principal value of lower-rated securities generally
will fluctuate more widely than higher quality securities. Lower quality
investments entail a higher risk of default -- that is, the nonpayment of
interest and principal by the issuer than higher quality investments. Such
securities are also subject to special risks, discussed below. Although the
Portfolio seeks to reduce risk by portfolio diversification, credit analysis,
and attention to trends in the economy, industries and financial markets, such
efforts will not eliminate all risk. There can, of course, be no assurance that
the Portfolio will achieve its investment objective.
After purchase by the Portfolio, a debt security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event will require a sale of such security by the Portfolio.
However, Sub-advisor will consider such event in its determination of whether
the Portfolio should continue to hold the security. To the extent that the
ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the prospectus.
Risks of Low-Rated Debt Securities. The Portfolio may invest in low
quality bonds commonly referred to as "junk bonds." Junk bonds are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low and lower-medium
quality bonds involves greater investment risk, to the extent the Portfolio
invests in such bonds, achievement of its investment objective will be more
dependent on Sub-advisor's credit analysis than would be the case if the
Portfolio was investing in higher quality bonds. For a discussion of the special
risks involved in low-rated bonds, see this Statement and the Trust's Prospectus
under "Certain Risk Factors and Investment Methods."
Collateralized Mortgage Obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
a Portfolio invests, the investment may be subject to a greater or lesser risk
of prepayment than other types of mortgage-related securities.
For a discussion of mortgage-backed securities and certain risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Mortgage-Backed Securities. Mortgage-backed securities are securities
representing interest in a pool of mortgages. After purchase by the Portfolio, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require a sale of
such security by the Portfolio. However, the Sub-advisor will consider such
event in its determination of whether the Portfolio should continue to hold the
security. To the extent that the ratings given by Moody's or S&P may change as a
result of changes in such organizations or their rating systems, the Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies continued in the Trust's Prospectus.
For a discussion of mortgage-backed securities and certain risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Asset-Backed Securities. The Portfolio may invest a portion of its
assets in debt obligations known as asset-backed securities. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets
which in turn may be affected by a variety of economic and other factors. As a
result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity.
Automobile Receivable Securities. The Portfolio may invest in
asset-backed securities which are backed by receivables from motor vehicle
installment sales contracts or installment loans secured by motor vehicles
("Automobile Receivable Securities").
Credit Card Receivable Securities. The Portfolio may invest in
asset-backed securities backed by receivables from revolving credit card
agreements ("Credit Card Receivable Securities").
Other Assets. The Sub-advisor anticipates that asset-backed
securities backed by assets other than those described above will be issued in
the future. The Portfolio may invest in such securities in the future if such
investment is otherwise consistent with its investment objective and policies.
For a discussion of these securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Stripped Agency Mortgage-Backed Securities. Stripped Agency
Mortgage-Backed securities represent interests in a pool of mortgages, the cash
flow of which has been separated into its interest and principal components.
"IOs" (interest only securities) receive the interest portion of the cash flow
while "POs" (principal only securities) receive the principal portion. Stripped
Agency Mortgage-Backed Securities may be issued by U.S. Government Agencies or
by private issuers similar to those described above with respect to CMOs and
privately-issued mortgage-backed certificates. As interest rates rise and fall,
the value of IOs tends to move in the same direction as interest rates. The
value of the other mortgage-backed securities described herein, like other debt
instruments, will tend to move in the opposite direction compared to interest
rates. Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to the Portfolio.
The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to recoup fully its
initial investment in an IO class of a stripped mortgage-backed security, even
if the IO class is rated AAA or Aaa or is derived from a full faith and credit
obligation. Conversely, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the price on a PO class will be affected
more severely than would be the case with a traditional mortgage-backed
security.
The Portfolio will treat IOs and POs, other than government-issued IOs
or POs backed by fixed rate mortgages, as illiquid securities and, accordingly,
limit its investments in such securities, together with all other illiquid
securities, to 15% of the Portfolio's net assets. Sub-advisor will determine the
liquidity of these investments based on the following guidelines: the type of
issuer; type of collateral, including age and prepayment characteristics; rate
of interest on coupon relative to current market rates and the effect of the
rate on the potential for prepayments; complexity of the issue's structure,
including the number of tranches; size of the issue and the number of dealers
who make a market in the IO or PO. The Portfolio will treat
non-government-issued IOs and POs not backed by fixed or adjustable rate
mortgages as illiquid unless and until the Securities and Exchange Commission
modifies its position.
Writing Covered Call Options. The Portfolio may write (sell) American
or European style "covered" call options and purchase options to close out
options previously written by a Portfolio. In writing covered call options, the
Portfolio expects to generate additional premium income which should serve to
enhance the Portfolio's total return and reduce the effect of any price decline
of the security or currency involved in the option. Covered call options will
generally be written on securities or currencies which, in Sub-advisor is
opinion, are not expected to have any major price increases or moves in the near
future but which, over the long term, are deemed to be attractive investments
for the Portfolio.
The Portfolio will write only covered call options. This means that the
Portfolio will own the security or currency subject to the option or an option
to purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. government securities or other liquid high-grade debt
obligations having a value equal to the fluctuating market value of the optioned
securities or currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Portfolio's investment objective. The writing of covered call options
is a conservative investment technique believed to involve relatively little
risk (in contrast to the writing of naked or uncovered options, which the
Portfolio will not do), but capable of enhancing the Portfolio's total return.
When writing a covered call option, a Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency. The Portfolio does not consider a security or
currency covered by a call to be "pledged" as that term is used in the
Portfolio's policy which limits the pledging or mortgaging of its assets.
Call options written by the Portfolio will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities or currencies at the time the options are written. From
time to time, the Portfolio may purchase an underlying security or currency for
delivery in accordance with an exercise notice of a call option assigned to it,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs may be incurred.
The premium received is the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among other
things, the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, Sub-advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Portfolio for writing covered call options
will be recorded as a liability of the Portfolio. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Portfolio
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The option will be terminated upon expiration of
the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Portfolio.
The Portfolio will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities or currencies covering call
or put options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Writing Covered Put Options. The Portfolio may write American or
European style covered put options and purchase options to close out options
previously written by the Portfolio.
The Portfolio would write put options only on a covered basis, which
means that the Portfolio would maintain in a segregated account cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price or the Portfolio will own an option to sell the
underlying security or currency subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. (The rules of a clearing corporation
currently require that such assets be deposited in escrow to secure payment of
the exercise price.) The Portfolio would generally write covered put options in
circumstances where the Sub-advisor wishes to purchase the underlying security
or currency for the Portfolio at a price lower than the current market price of
the security or currency. In such event the Portfolio would write a put option
at an exercise price which, reduced by the premium received on the option,
reflects the lower price it is willing to pay. Since the Portfolio would also
receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Portfolio. In
addition, the Portfolio, because it does not own the specific securities or
currencies which it may be required to purchase in exercise of the put, cannot
benefit from appreciation, if any, with respect to such specific securities or
currencies.
The Portfolio will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies covering put or
call options exceeds 25% of the market value of the Portfolio's net assets. In
calculating the 25% limit, the Portfolio will offset, against the value of
assets covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
Purchasing Put Options. The Portfolio may purchase American or European
style put options. As the holder of a put option, the Portfolio has the right to
sell the underlying security or currency at the exercise price at any time
during the option period (American style) or at the expiration of the option
(European style). The Portfolio may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. The Portfolio
may purchase put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies. An example of
such use of put options is provided in this Statement under "Certain Risk
Factors and Investment Methods."
To the extent required by the laws of certain states, the Portfolio may
not be permitted to commit more than 5% of its assets to premiums when
purchasing put and call options. Should these state laws change or should the
Portfolio obtain a waiver of its application, the Portfolio may commit more than
5% of its assets to premiums when purchasing call and put options. The premium
paid by the Portfolio when purchasing a put option will be recorded as an asset
of the Portfolio. This asset will be adjusted daily to the option's current
market value, which will be the latest sale price at the time at which the net
asset value per share of the Portfolio is computed (close of New York Stock
Exchange), or, in the absence of such sale, the latest bid price. This asset
will be terminated upon expiration of the option, the selling (writing) of an
identical option in a closing transaction, or the delivery of the underlying
security or currency upon the exercise of the option.
Purchasing Call Options. The Portfolio may purchase American or
European style call options. As the holder of a call option, the Portfolio has
the right to purchase the underlying security or currency at the exercise price
at any time during the option period (American style) or at the expiration of
the option (European style). The Portfolio may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Portfolio may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Portfolio may also purchase call options in order to acquire the
underlying securities or currencies. Examples of such uses of call options are
provided in this Statement under "Certain Risk Factors and Investment Methods."
To the extent required by the laws of certain states, the Portfolio may
not be permitted to commit more than 5% of its assets to premiums when
purchasing call and put options. Should these state laws change or should the
Portfolio obtain a waiver of its application, the Portfolio may commit more than
5% of its assets to premiums when purchasing call and put options. The Portfolio
may also purchase call options on underlying securities or currencies it owns in
order to protect unrealized gains on call options previously written by it. A
call option would be purchased for this purpose where tax considerations make it
inadvisable to realize such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid realizing losses.
Dealer (Over-the-Counter) Options. The Portfolio may engage in
transactions involving dealer options. Certain risks are specific to dealer
options. While the Portfolio would look to a clearing corporation to exercise
exchange-traded options, if the Portfolio were to purchase a dealer option, it
would rely on the dealer from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction. For a discussion of dealer options, see this Statement under
"Certain Risk Factors and Investment Methods."
Futures Contracts.
Transactions in Futures. The Portfolio may enter into futures
contracts, including stock index, interest rate and currency futures ("futures
or futures contracts"). The Portfolio may also enter into futures on commodities
related to the types of companies in which it invests, such as oil and gold
futures. Otherwise the nature of such futures and the regulatory limitations and
risks to which they are subject are the same as those described below.
Stock index futures contracts may be used to attempt to hedge a portion
of the Portfolio, as a cash management tool, or as an efficient way for the
Sub-advisor to implement either an increase or decrease in portfolio market
exposure in response to changing market conditions. The Portfolio may purchase
or sell futures contracts with respect to any stock index. Nevertheless, to
hedge the Portfolio successfully, the Portfolio must sell futures contacts with
respect to indices or subindices whose movements will have a significant
correlation with movements in the prices of the Portfolio's securities.
Interest rate or currency futures contracts may be used to attempt to
hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Portfolio. In
this regard, the Portfolio could sell interest rate or currency futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.
The Portfolio will enter into futures contracts which are traded on
national or foreign futures exchanges, and are standardized as to maturity date
and underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the CFTC. Futures are
traded in London, at the London International Financial Futures Exchange, in
Paris, at the MATIF, and in Tokyo, at the Tokyo Stock Exchange. Although
techniques other than the sale and purchase of futures contracts could be used
for the above-referenced purposes, futures contracts offer an effective and
relatively low cost means of implementing the Portfolio's objectives in these
areas.
Regulatory Limitations. The Portfolio will engage in futures
contracts and options thereon only for bona fide hedging, yield enhancement, and
risk management purposes, in each case in accordance with rules and regulations
of the CFTC and applicable state law.
The Portfolio may not purchase or sell futures contracts or related
options if, with respect to positions which do not qualify as bona fide hedging
under applicable CFTC rules, the sum of the amounts of initial margin deposits
and premiums paid on those positions would exceed 5% of the net asset value of
the Portfolio after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into; provided, however, that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5% limitation. For purposes of this
policy options on futures contracts and foreign currency options traded on a
commodities exchange will be considered "related options." This policy may be
modified by the Board of Trustees of the Trust without a shareholder vote and
does not limit the percentage of the Portfolio's assets at risk to 5%.
The Portfolio's use of futures contracts will not result in leverage.
Therefore, to the extent necessary, in instances involving the purchase of
futures contracts or the writing of call or put options thereon by the
Portfolio, an amount of cash, U.S. government securities or other liquid,
high-grade debt obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be identified in an
account with the Portfolio's custodian to cover the position, or alternative
cover (such as owning an offsetting position) will be employed. Assets used as
cover or held in an identified account cannot be sold while the position in the
corresponding option or future is open, unless they are replaced with similar
assets. As a result, the commitment of a large portion of a Portfolio's assets
to cover or identified accounts could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
If the CFTC or other regulatory authorities adopt different (including
less stringent) or additional restrictions, the Portfolio would comply with such
new restrictions.
Options on Futures Contracts. The Portfolio may purchase and sell
options on the same types of futures in which it may invest. As an alternative
to writing or purchasing call and put options on stock index futures, the
Portfolio may write or purchase call and put options on stock indices. Such
options would be used in a manner similar to the use of options on futures
contracts. From time to time, a single order to purchase or sell futures
contracts (or options thereon) may be made on behalf of the Portfolio and other
T. Rowe Price Portfolios. Such aggregated orders would be allocated among the
Portfolio and the other T. Rowe Price Portfolios in a fair and
non-discriminatory manner.
Risks of Transactions in Options on Future Contracts. See this
Statement and Trust's Prospectus under "Certain Risk Factors and Investment
Methods" for a description of certain risks in options and future contracts.
Additional Futures and Options Contracts. Although the Portfolio has no
current intention of engaging in futures or options transactions other than
those described above, it reserves the right to do so. Such futures and options
trading might involve risks which differ from those involved in the futures and
options described above.
Foreign Futures and Options. The Portfolio is permitted to invest in
foreign futures and options. For a description of foreign futures and options
and certain risks involved therein as well as certain risks involved in foreign
investing, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Foreign Securities. The Portfolio may invest in U.S. dollar-denominated
and non-U.S. dollar-denominated securities of foreign issuers. There are special
risks in foreign investing. Certain of these risks are inherent in any
international mutual fund while others relate more to the countries in which the
Portfolio will invest. Many of the risks are more pronounced for investments in
developing or emerging countries, such as many of the countries of Southeast
Asia, Latin America, Eastern Europe and the Middle East. For an additional
discussion of certain risks involved in investing in foreign securities, see
this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Foreign Currency Transactions. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are principally traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
The Portfolio may enter into forward contracts for a variety of
purposes in connection with the management of the foreign securities portion of
its portfolio. The Portfolio's use of such contracts would include, but not be
limited to, the following:
First, when the Portfolio enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security.
Second, when the Sub-advisor believes that one currency may experience
a substantial movement against another currency, including the U.S. dollar, it
may enter into a forward contract to sell or buy the amount of the former
foreign currency, approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency. Alternatively, where
appropriate, the Portfolio may hedge all or part of its foreign currency
exposure through the use of a basket of currencies or a proxy currency where
such currency or currencies act as an effective proxy for other currencies. In
such a case, the Portfolio may enter into a forward contract where the amount of
the foreign currency to be sold exceeds the value of the securities denominated
in such currency. The use of this basket hedging technique may be more efficient
and economical than entering into separate forward contracts for each currency
held in the Portfolio. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible since the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Under normal circumstances, consideration of the prospect for currency parities
will be incorporated into the longer term investment decisions made with regard
to overall diversification strategies. However, Sub-advisor believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served.
The Portfolio may enter into forward contracts for any other purpose
consistent with the Portfolio's investment objective and policies. However, the
Portfolio will not enter into a forward contract, or maintain exposure to any
such contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Portfolio's holdings of liquid, high-grade debt
securities and currency available for cover of the forward contract(s). In
determining the amount to be delivered under a contract, the Portfolio may net
offsetting positions.
At the maturity of a forward contract, the Portfolio may sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and either extend the maturity of the forward contract (by
"rolling" that contract forward) or may initiate a new forward contract.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Portfolio's dealing in forward foreign currency exchange contracts
will generally be limited to the transactions described above. However, the
Portfolio reserves the right to enter into forward foreign currency contracts
for different purposes and under different circumstances. Of course, the
Portfolio is not required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Sub-advisor. It also should be realized that this method of
hedging against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result from
an increase in the value of that currency.
Although the Portfolio values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer. For a discussion of
certain risk factors involved in foreign currency transactions, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts. The Portfolio may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures on currencies,
which will be treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Portfolio's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains or
losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. The Portfolio
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay such
distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes, in which
case a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of the
securities or currencies comprising the straddle will be deemed not to begin
until the straddle is terminated. For securities offsetting a purchased put,
this adjustment of the holding period may increase the gain from sales of
securities held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity security
will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital loss, if the security covering the option was held for more
than twelve months prior to the writing of the option.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or currencies. Pending tax regulations could limit the extent
that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement. In addition, gains realized on the sale or other disposition of
securities, including option, futures or foreign forward exchange contracts on
securities or securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Portfolio's annual
gross income. In order to avoid realizing excessive gains on securities or
currencies held less than three months, the Portfolio may be required to defer
the closing out of option, futures or foreign forward exchange contracts) beyond
the time when it would otherwise be advantageous to do so. It is anticipated
that unrealized gains on Section 1256 option, futures and foreign forward
exchange contracts, which have been open for less than three months as of the
end of the Portfolio's fiscal year and which are recognized for tax purposes,
will not be considered gains on securities or currencies held less than three
months for purposes of the 30% test.
Illiquid or Restricted Securities. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Portfolio
should be in a position where more than 15% of the value of its net assets is
invested in illiquid assets, including restricted securities, the Portfolio will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Portfolio may purchase securities which,
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers, such as
the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. Sub-advisor under the
supervision of the Trust's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, Sub-advisor will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, Sub-advisor could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) the nature of the security and
of marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities would be monitored, and if as a result of changed
conditions it is determined that a Rule 144A security is no longer liquid, the
Portfolio's holdings of illiquid securities would be reviewed to determine what,
if any, steps are required to assure that the Portfolio does not invest more
than 15% of its net assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Portfolio's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Hybrid Instruments. Hybrid Instruments have been developed and combine
the elements of futures contracts, options or other financial instruments with
those of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments. Hybrid Instruments may take a variety of forms, including, but not
limited to, debt instruments with interest or principal payments or redemption
terms determined by reference to the value of a currency or commodity or
securities index at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible securities
with the conversion terms related to a particular commodity. For a discussion of
certain risks involved in investing in hybrid instruments see this statement
under "Certain Risk Factors and Investment Methods."
Repurchase Agreements. The Portfolio may enter into a repurchase
agreement through which an investor (such as the Portfolio) purchases a security
(known as the "underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Any such dealer or
bank will be on Sub-advisor's approved list and have a credit rating with
respect to its short-term debt of at least A1 by Standard & Poor's Corporation,
P1 by Moody's Investors Service, Inc., or the equivalent rating by Sub-advisor.
At that time, the bank or securities dealer agrees to repurchase the underlying
security at the same price, plus specified interest. Repurchase agreements are
generally for a short period of time, often less than a week. Repurchase
agreements which do not provide for payment within seven days will be treated as
illiquid securities. The Portfolio will only enter into repurchase agreements
where (i) the underlying securities are of the type (excluding maturity
limitations) which the Portfolio's investment guidelines would allow it to
purchase directly, (ii) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying security is made only
upon physical delivery or evidence of book- entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Portfolio could experience
both delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period while
the Portfolio seeks to enforce its rights thereto; (b) possible subnormal levels
of income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Reverse Repurchase Agreements. Although the Portfolio has no current
intention, in the foreseeable future, of engaging in reverse repurchase
agreements, the Portfolio reserves the right to do so. Reverse repurchase
agreements are ordinary repurchase agreements in which a Portfolio is the seller
of, rather than the investor in, securities, and agrees to repurchase them at an
agreed upon time and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of the securities because it
avoids certain market risks and transaction costs. A reverse repurchase
agreement may be viewed as a type of borrowing by the Portfolio.
Warrants. The Portfolio may acquire warrants. For a discussion of risks
involved therein, see this Statement under "Certain Risk Factor and Investment
Methods."
Lending of Portfolio Securities. Securities loans are made to
broker-dealers or institutional investors or other persons, pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash, U.S. government
securities, letters of credit or such other collateral as may be permitted under
its investment program. While the securities are being lent, the Portfolio will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Portfolio has a right to call each
loan and obtain the securities on five business days' notice or, in connection
with securities trading on foreign markets, within such longer period of time
which coincides with the normal settlement period for purchases and sales of
such securities in such foreign markets. The Portfolio will not have the right
to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will only be made to firms deemed by Sub-advisor to be of good standing and will
not be made unless, in the judgment of Sub-advisor, the consideration to be
earned from such loans would justify the risk.
Other Lending/Borrowing. Subject to approval by the Securities and
Exchange Commission and certain state regulatory agencies, the Portfolio may
make loans to, or borrow funds from, other mutual funds sponsored or advised by
Sub-advisor or Rowe Price-Fleming International, Inc.(collectively, "Price
Portfolio"). The Portfolio has no current intention of engaging in these
practices at this time.
When-Issued Securities and Forward Commitment Contracts. The Portfolio
may purchase securities on a "when-issued" or delayed delivery basis and may
purchase securities on a forward commitment basis. Any or all of the Portfolio's
investments in debt securities may be in the form of when-issueds and forwards.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment take place
at a later date. Normally, the settlement date occurs within 90 days of the
purchase for when-issueds, but may be substantially longer for forwards. The
Portfolio will cover these securities by maintaining cash and/or liquid,
high-grade debt securities with its custodian bank equal in value to commitments
for them during the time between the purchase and the settlement. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date. For a discussion of these securities and the risks involved
therein, see this Statement under "Certain Risk Factors and Investment Methods."
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the T. Rowe Price Small Company
Value Portfolio. As a matter of operating policy, which can be changed without
shareholder approval, the Portfolio may not:
1. Purchase additional securities when money borrowed exceeds 5% of its
total assets;
2. Invest in companies for the purpose of exercising management or
control;
3. Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would exceed
5% of the Portfolio's net asset value;
4. Purchase illiquid securities and securities of unseasoned issuers
if, as a result, more than 15% of its net assets would be invested in such
securities, provided that the Portfolio will not invest more than 10% of its
total assets in restricted securities and not more than 5% of its total assets
in securities of unseasoned issuers. Securities eligible for resale under Rule
144A of the Securities Act of 1933 are not included in the 10% limitation but
are subject to the 15% limitation;
5. Purchase securities of open-end or closed-end investment companies
except in compliance with the Investment Company Act of 1940 and applicable
state law. Duplicate fees may result from such purchases;
6. Purchase securities on margin, except (i) for use of short-term
credit necessary for clearance of purchases of portfolio securities and (ii) the
Portfolio may make margin deposits in connection with futures contracts or other
permissible investments;
7. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Portfolio as security for indebtedness except as may be
necessary in connection with permissible borrowings or investments and then such
mortgaging, pledging or hypothecating may not exceed 33 1/3% of the Portfolio's
total assets at the time of borrowing or investment;
8. Purchase participations or other direct interests in or enter into
leases with respect to, oil, gas, or other mineral exploration or development
programs;
9. Invest in puts, calls, straddles, spreads, or any combination
thereof, except to the extent permitted by the Prospectus and this Statement;
10. Purchase or retain the securities of any issuer if those officers
and directors of the Portfolio, and of its investment manager, who each owns
beneficially more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities;
11. Effect short sales of securities;
12. Purchase a security (other than obligations issued or guaranteed by
the U.S., any foreign, state or local government, their agencies or
instrumentalities) if, as a result, more than 5% of the value of the Portfolio's
total assets would be invested in the securities of issuers which at the time of
purchase had been in operation for less than three years (for this purpose, the
period of operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer). This restriction does
not apply to securities of pooled investment vehicles or mortgage- or
asset-backed securities; or
13. Invest in warrants if, as a result thereof, more than 2% of the
value of the net assets of the Portfolio would be invested in warrants which are
not listed on the New York Stock Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of the value of the net assets of
the Portfolio would be invested in warrants whether or not so listed. For
purposes of these percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the Portfolio in units or
attached to securities may be deemed to be without value.
Founders Capital Appreciation Portfolio:
Investment Policies:
Options On Stock Indices and Stocks. An option is a right to buy or
sell a security at a specified price within a limited period of time. The
Portfolio may write ("sell") covered call options on any or all of its portfolio
securities. In addition, the Portfolio may purchase options on securities. The
Portfolio may also purchase put and call options on stock indices.
The Portfolio may write ("sell") options on any or all of its portfolio
securities and at such time and from time to time as the Sub-advisor shall
determine to be appropriate. No specified percentage of the Portfolio's assets
is invested in securities with respect to which options may be written. The
extent of the Portfolio's option writing activities will vary from time to time
depending upon the Sub-advisor's evaluation of market, economic and monetary
conditions.
When the Portfolio purchases a security with respect to which it
intends to write an option, it is likely that the option will be written
concurrently with or shortly after purchase. The Portfolio will write an option
on a particular security only if the Sub-advisor believes that a liquid
secondary market will exist on an exchange for options of the same series, which
will permit the Portfolio to enter into a closing purchase transaction and close
out its position. If the Portfolio desires to sell a particular security on
which it has written an option, it will effect a closing purchase transaction
prior to or concurrently with the sale of the security.
The Portfolio may enter into closing purchase transactions to reduce
the percentage of its assets against which options are written, to realize a
profit on a previously written option, or to enable it to write another option
on the underlying security with either a different exercise price or expiration
time or both.
Options written by the Portfolio will normally have expiration dates
between three and nine months from the date written. The exercise prices of
options may be below, equal to or above the current market values of the
underlying securities at the times the options are written. From time to time
for tax and other reasons, the Portfolio may purchase an underlying security for
delivery in accordance with an exercise notice assigned to it, rather than
delivering such security from its portfolio.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the stocks included in the index. The Portfolio
purchases put options on stock indices to protect the Portfolio against decline
in value. The Portfolio purchases call options on stock indices to establish a
position in equities as a temporary substitute for purchasing individual stocks
that then may be acquired over the option period in a manner designed to
minimize adverse price movements. Purchasing put and call options on stock
indices also permits greater time for evaluation of investment alternatives.
When the Sub-advisor believes that the trend of stock prices may be downward,
particularly for a short period of time, the purchase of put options on stock
indices may eliminate the need to sell less liquid stocks and possibly
repurchase them later. The purpose of these transactions is not to generate
gain, but to "hedge" against possible loss. Therefore, successful hedging
activity will not produce net gain to the Portfolio. Any gain in the price of a
call option is likely to be offset by higher prices the Portfolio must pay in
rising markets, as cash reserves are invested. In declining markets, any
increase in the price of a put option is likely to be offset by lower prices of
stocks owned by the Portfolio.
The Portfolio may purchase only those put and call options that are
listed on a domestic exchange or quoted on the automatic quotation system of the
National Association of Securities Dealers, Inc. ("NASDAQ"). Options traded on
stock exchanges are either broadly based, such as the Standard & Poor's 500
Stock Index and 100 Stock Index, or involve stocks in a designated industry or
group of industries. The Portfolio may utilize either broadly based or market
segment indices in seeking a better correlation between the indices and its
portfolio.
Transactions in options are subject to limitations, established by each
of the exchanges upon which options are traded, governing the maximum number of
options which may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options are held in one or more
accounts. Thus, the number of options the Portfolio may hold may be affected by
options held by other advisory clients of the Sub-advisor. As of the date of
this Statement, the Sub-advisor believes that these limitations will not affect
the purchase of stock index options by the Portfolio.
One risk of holding a put or a call option is that if the option is not
sold or exercised prior to its expiration, it becomes worthless. However, this
risk is limited to the premium paid by the Portfolio. Other risks of purchasing
options include the possibility that a liquid secondary market may not exist at
a time when the Portfolio may wish to close out an option position. It is also
possible that trading in options on stock indices might be halted at a time when
the securities markets generally were to remain open. In cases where the market
value of an issue supporting a covered call option exceeds the strike price plus
the premium on the call, the Portfolio will lose the right to appreciation of
the stock for the duration of the option. For an additional discussion of
options on stock indices and stocks and certain risks involved therein, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Futures Contracts. The Portfolio may enter into futures contracts (or
options thereon) for hedging purposes. U.S. futures contracts are traded on
exchanges which have been designated "contract markets" by the Commodity Futures
Trading Commission ("CFTC") and must be executed through a futures commission
merchant (an "FCM") or brokerage firm which is a member of the relevant contract
market. Although futures contracts by their terms call for the delivery or
acquisition of the underlying commodities or a cash payment based on the value
of the underlying commodities, in most cases the contractual obligation is
offset before the delivery date of the contract by buying, in the case of a
contractual obligation to sell, or selling, in the case of a contractual
obligation to buy, an identical futures contract on a commodities exchange. Such
a transaction cancels the obligation to make or take delivery of the
commodities.
The acquisition or sale of a futures contract could occur, for example,
if the Portfolio held or considered purchasing equity securities and sought to
protect itself from fluctuations in prices without buying or selling those
securities. For example, if prices were expected to decrease, the Portfolio
could sell equity index futures contracts, thereby hoping to offset a potential
decline in the value of equity securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the Portfolio and
thereby prevent the Portfolio's net asset value from declining as much as it
otherwise would have. The Portfolio also could protect against potential price
declines by selling portfolio securities and investing in money market
instruments. However, since the futures market is more liquid than the cash
market, the use of futures contracts as an investment technique would allow the
Portfolio to maintain a defensive position without having to sell portfolio
securities.
Similarly, when prices of equity securities are expected to increase,
futures contracts could be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, the Portfolio could
take advantage of the potential rise in the value of equity securities without
buying them until the market had stabilized. At that time, the futures contracts
could be liquidated and the Portfolio could buy equity securities on the cash
market.
The Portfolio may also enter into interest rate and foreign currency
futures contracts. Interest rate futures contracts currently are traded on a
variety of fixed-income securities, including long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury Bills, bank certificates of deposit
and commercial paper. Foreign currency futures contracts currently are traded on
the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark
and on Eurodollar deposits.
The Portfolio will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
assets after taking into account unrealized profits and losses on options
entered into. In the case of an option that is "in-the-money," the in-the-money
amount may be excluded in computing such 5%. In general a call option on a
future is "in-the-money" if the value of the future exceeds the exercise
("strike") price of the call; a put option on a future is "in-the-money" if the
value of the future which is the subject of the put is exceeded by the strike
price of the put. The Portfolio may use futures and options thereon solely for
bona fide hedging or for other non-speculative purposes. As to long positions
which are used as part of the Portfolio's strategies and are incidental to its
activities in the underlying cash market, the "underlying commodity value" of
the Portfolio's futures and options thereon must not exceed the sum of (i) cash
set aside in an identifiable manner, or short-term U.S. debt obligations or
other dollar-denominated high-quality, short-term money instruments so set
aside, plus sums deposited on margin; (ii) cash proceeds from existing
investments due in 30 days; and (iii) accrued profits held at the futures
commission merchant. The "underlying commodity value" of a future is computed by
multiplying the size of the future by the daily settlement price of the future.
For an option on a future, that value is the underlying commodity value of the
future underlying the option.
Unlike the situation in which the Portfolio purchases or sells a
security, no price is paid or received by the Portfolio upon the purchase or
sale of a futures contract. Instead, the Portfolio is required to deposit in a
segregated asset account an amount of cash or qualifying securities (currently
U.S. Treasury bills), currently in a minimum amount of $15,000. This is called
"initial margin." Such initial margin is in the nature of a performance bond or
good faith deposit on the contract. However, since losses on open contracts are
required to be reflected in cash in the form of variation margin payments, the
Portfolio may be required to make additional payments during the term of a
contract to its broker. Such payments would be required, for example, where,
during the term of an interest rate futures contract purchased by the Portfolio,
there was a general increase in interest rates, thereby making the Portfolio's
securities less valuable. In all instances involving the purchase of financial
futures contracts by the Portfolio, an amount of cash together with such other
securities as permitted by applicable regulatory authorities to be utilized for
such purpose, at least equal to the market value of the future contracts, will
be deposited in a segregated account with the Portfolio's custodian to
collateralize the position. At any time prior to the expiration of a futures
contract, the Portfolio may elect to close its position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
Because futures contracts are generally settled within a day from the
date they are closed out, compared with a settlement period of three business
days for most types of securities, the futures markets can provide superior
liquidity to the securities markets. Nevertheless, there is no assurance a
liquid secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it would be impossible
for the Portfolio to enter into new positions or close out existing positions.
If the secondary market for a futures contract were not liquid because of price
fluctuation limits or otherwise, the Portfolio would not promptly be able to
liquidate unfavorable futures positions and potentially could be required to
continue to hold a futures position until the delivery date, regardless of
changes in its value. As a result, the Portfolio's access to other assets held
to cover its futures positions also could be impaired. For an additional
discussion of futures contracts and certain risks involved therein, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Options on Futures Contracts. The Portfolio may purchase put and call
options on futures contracts. An option on a futures contract provides the
holder with the right to enter into a "long" position in the underlying futures
contract, in the case of a call option, or a "short" position in the underlying
futures contract, in the case of a put option, at a fixed exercise price to a
stated expiration date. Upon exercise of the option by the holder, a contract
market clearing house establishes a corresponding short position for the writer
of the option, in the case of a call option, or a corresponding long position,
in the case of a put option. In the event that an option is exercised, the
parties will be subject to all the risks associated with the trading of futures
contracts, such as payment of variation margin deposits.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. See
"Options on Foreign Currencies" below. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying instrument, ownership of the option may or may not
be less risky than ownership of the futures contract or the underlying
instrument. As with the purchase of futures contracts, when the Portfolio is not
fully invested it could buy a call option on a futures contract to hedge against
a market advance.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Portfolio would be able to buy a put option on a futures contract
to hedge its portfolio against the risk of falling prices. For an additional
discussion of options on futures contracts and certain risks involved therein,
see this Statement and the Trust's Prospectus under "Certain Risks Factors and
Investment Methods."
Options on Foreign Currencies. The Portfolio may buy and sell options
on foreign currencies for hedging purposes in a manner similar to that in which
futures on foreign currencies would be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated would reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remained constant. In order to protect against
such diminutions in the value of portfolio securities, the Portfolio could buy
put options on the foreign currency. If the value of the currency declines, the
Portfolio would have the right to sell such currency for a fixed amount in U.S.
dollars and would thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted. Conversely, when a rise is
projected in the U.S. dollar value of a currency in which securities to be
acquired are denominated, thereby increasing the cost of such securities, the
Portfolio could buy call options thereon. The purchase of such options could
offset, at least partially, the effects of the adverse movements in exchange
rates.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities, and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices, or prohibitions on exercise.
Risk Factors of Investing in Futures and Options. The successful use of
the investment practices described above with respect to futures contracts,
options on futures contracts, and options on securities indices, securities, and
foreign currencies draws upon skills and experience which are different from
those needed to select the other instruments in which the Portfolio invests.
Should interest or exchange rates or the prices of securities or financial
indices move in an unexpected manner, the Portfolio may not achieve the desired
benefits of futures and options or may realize losses and thus be in a worse
position than if such strategies had not been used. Unlike many exchange-traded
futures contracts and options on futures contracts, there are no daily price
fluctuation limits with respect to options on currencies and negotiated or
over-the-counter instruments, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In addition, the
correlation between movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
The Portfolio's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in the
instruments. Markets in a number of the instruments are relatively new and still
developing and it is impossible to predict the amount of trading interest that
may exist in those instruments in the future. Particular risks exist with
respect to the use of each of the foregoing instruments and could result in such
adverse consequences to the Portfolio as the possible loss of the entire premium
paid for an option bought by the Portfolio and the possible need to defer
closing out positions in certain instruments to avoid adverse tax consequences.
As a result, no assurance can be given that the Portfolio will be able to use
those instruments effectively for the purposes set forth above.
In addition, options on U.S. Government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be affected adversely by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume. For an additional discussion of
certain risks involved in investing in futures and options, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Securities. Investments in foreign countries involve certain
risks which are not typically associated with U.S. investments. For a discussion
of the risks involved in foreign investments, see the Trust's Prospectus and
this Statement under "Certain Risk Factors and Investment Methods."
Forward Contracts For Purchase or Sale of Foreign Currencies. The
Portfolio generally will conduct its foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market. When the Portfolio purchases or sells a security denominated in
a foreign currency, it may enter into a forward foreign currency contract
("forward contract") for the purchase or sale, for a fixed amount of dollars, of
the amount of foreign currency involved in the underlying security transaction.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. In this manner, the Portfolio may obtain protection against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar and the foreign currency during the period between the date the security
is purchased or sold and the date upon which payment is made or received.
Although such contracts tend to minimize the risk of loss due to the decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.
The Portfolio will not speculate in forward contracts.
Forward contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Generally a forward contract has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the difference between
the prices at which they buy and sell various currencies. When the Sub-Advisor
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar the Portfolio may each enter into a
forward contract to sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of those Portfolio securities
denominated in such foreign currency. The Portfolio will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolio to deliver an amount
of foreign currency in excess of the value of its portfolio securities or other
assets denominated in that currency. Forward contracts may, from time to time,
be considered illiquid, in which case they would be subject to the Portfolio's
limitation on investing in illiquid securities.
At the consummation of a forward contract for delivery by the Portfolio
of a foreign currency, the Portfolio may either make delivery of the foreign
currency or terminate its contractual obligation to deliver the foreign currency
by purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the Portfolio chooses
to make delivery of the foreign currency, it may be required to obtain such
currency through the sale of portfolio securities denominated in such currency
or through conversion of other Portfolio assets into such currency.
Dealings in forward contracts by the Portfolio will be limited to the
transactions described above. Of course, the Portfolio is not required to enter
into such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by the Sub-advisor. It
also should be realized that this method of protecting the value of the
Portfolio's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to the decline in the value of the hedged currency, at the same time they
tend to limit any potential gain which might result should the value of such
currency increase. For an additional discussion of forward foreign currency
contracts and certain risks involved therein, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Illiquid Securities. As discussed in the Prospectus, the Portfolio may
invest up to 15% of the value of its net assets, measured at the time of
investment, in investments which are not readily marketable. Restricted
securities are securities that may not be resold to the public without
registration under the Securities Act of 1933 (the "1933 Act"). Restricted
securities (other than Rule 144A securities deemed to be liquid, discussed
below) and securities which are not readily marketable are illiquid securities.
Illiquid securities are securities which may be subject to resale restrictions
or which, due to their market or the nature of the security, have no readily
available markets for their disposition. These limitations on resale and
marketability may have the effect of preventing the Portfolio from disposing of
such a security at the time desired or at a reasonable price. In addition, in
order to resell a restricted security, the Portfolio might have to bear the
expense and incur the delays associated with effecting registration. In
purchasing illiquid securities, the Portfolio does not intend to engage in
underwriting activities, except to the extent the Portfolio may be deemed to be
a statutory underwriter under the Securities Act in purchasing or selling such
securities. Illiquid securities will be purchased for investment purposes only
and not for the purpose of exercising control or management of other companies.
For an additional discussion of illiquid or restricted securities and certain
risks involved therein, see the Trust's Prospectus under "Certain Risk Factors
and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Rule 144A Securities. In recent years, a large institutional market has
developed for certain securities that are not registered under the 1933 Act.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend on an efficient institutional
market in which such unregistered securities can readily be resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. The Portfolio may invest in Rule 144A securities
which, as disclosed in the Prospectus, are restricted securities which may or
may not be readily marketable. Rule 144A securities are readily marketable if
institutional markets for the securities develop pursuant to Rule 144A which
provide both readily ascertainable values for the securities and the ability to
liquidate the securities when liquidation is deemed necessary or advisable.
However, an insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A security held by the Portfolio could affect adversely the
marketability of the security. In such an instance, the Portfolio might be
unable to dispose of the security promptly or at reasonable prices.
The Sub-advisor will determine that a liquid market exists for
securities eligible for resale pursuant to Rule 144A under the 1933 Act, or any
successor to such rule, and that such securities are not subject to the
Portfolio's limitations on investing in illiquid securities, securities that are
not readily marketable, or securities which do not have readily available market
quotations. The Sub-advisor will consider the following factors, among others,
in making this determination: (1) the unregistered nature of a Rule 144A
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
additional potential purchasers; (4) dealer undertakings to make a market in the
security; and (5) the nature of the security and the nature of market place
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfers).
Low-Rated and Unrated Fixed-Income Securities. The Portfolio may invest
up to 5% of its assets in convertible securities and preferred stocks which are
unrated or are rated below investment grade either at the time of purchase or as
a result of reduction in rating after purchase. Investment in lower-rated or
unrated securities is generally considered to be high risk investment. These
debt securities are generally subject to two kinds of risk, credit risk and
market risk. Credit risk relates to the ability of the issuer to meet interest
or principal payments, or both, as they come due. The ratings given a security
by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P")
provide a generally useful guide as to such credit risk. The Appendix to this
Statement provides a description of such debt security ratings. The lower the
rating given a security by a rating service, the greater the credit risk such
rating service perceives to exist with respect to the security. Increasing the
amount of the Portfolio's assets invested in unrated or lower grade securities,
while intended to increase the yield produced by those assets, will also
increase the risk to which those assets are subject.
Market risk relates to the fact that the market values of debt
securities in which the Portfolio invests generally will be affected by changes
in the level of interest rates. An increase in interest rates will tend to
reduce the market values of such securities, whereas a decline in interest rates
will tend to increase their values. Medium and lower-rated securities (Baa or
BBB and lower) and non-rated securities of comparable quality tend to be subject
to wider fluctuations in yields and market values than higher rated securities
and may have speculative characteristics. In order to decrease the risk in
investing in debt securities, in no event will the Portfolio ever invest in a
debt security rated below B by Moody's or by S&P. Of course, relying in part on
ratings assigned by credit agencies in making investments will not protect the
Portfolio from the risk that the securities in which they invest will decline in
value, since credit ratings represent evaluations of the safety of principal,
dividend, and interest payments on debt securities, and not the market values of
such securities, and such ratings may not be changed on a timely basis to
reflect subsequent events.
Because investment in medium and lower-rated securities involves both
greater credit risk and market risk, achievement of the Portfolio's investment
objectives may be more dependent on the Sub-advisor's own credit analysis than
is the case for funds that do not invest in such securities. In addition, the
share price and yield of the Portfolio may fluctuate more than in the case of
funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower-rated securities experiencing increased financial stress, which
would adversely affect their ability to service their principal, dividend, and
interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield, high risk debt securities has been in existence for many years and from
time to time has experienced economic downturns in recent years, this market has
involved a significant increase in the use of high yield debt securities to
Portfolio highly leveraged corporate acquisitions and restructurings. Past
experience may not, therefore, provide an accurate indication of future
performance of the high yield debt securities market, particularly during
periods of economic recession. Furthermore, expenses incurred in recovering an
investment in a defaulted security may adversely affect the Portfolio's net
asset value. Finally, while the Sub-advisor attempts to limit purchases of
medium and lower-rated securities to securities having an established secondary
market, the secondary market for such securities may be less liquid than the
market for higher quality securities. The reduced liquidity of the secondary
market for such securities may adversely affect the market price of, and ability
of the Portfolio to value, particular securities at certain times, thereby
making it difficult to make specific valuation determinations. The Portfolio
does not invest in any medium and lower-rated securities which present special
tax consequences, such as zero-coupon bonds or pay-in-kind bonds. For an
additional discussion of certain risks involved in lower-rated securities, see
this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
The Sub-advisor seeks to reduce the overall risks associated with the
Portfolio's investments through diversification and consideration of factors
affecting the value of securities it considers relevant. No assurance can be
given, however, regarding the degree of success that will be achieved in this
regard or that the Portfolio will achieve its investment objective.
Repurchase Agreements. As discussed in the Prospectus, the Portfolio
may enter into repurchase agreements with respect to money market instruments
eligible for investment by the Portfolio with member banks of the Federal
Reserve system, registered broker-dealers, and registered government securities
dealers. A repurchase agreement may be considered a loan collateralized by
securities. Repurchase agreements maturing in more than seven days are
considered illiquid and will be subject to the Portfolio's limitation with
respect to illiquid securities.
The Portfolio has not adopted any limits on the amounts of its total
assets that may be invested in repurchase agreements which mature in less than
seven days. The Portfolio may invest up to 15% of the market value of its net
assets, measured at the time of purchase, in securities which are not readily
marketable, including repurchase agreements maturing in more than seven days.
For an additional discussion of repurchase agreements and certain risks involved
therein, see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Convertible Securities. The Portfolio may buy securities convertible
into common stock if, for example, the Sub-advisor believes that a company's
convertible securities are undervalued in the market. Convertible securities
eligible for purchase include convertible bonds, convertible preferred stocks,
and warrants. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specific amount of the corporation's capital
stock at a set price for a specified period of time. Warrants do not represent
ownership of the securities, but only the right to buy the securities. The
prices of warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of a
corporation issuing them. Warrant positions will not be used to increase the
leverage of the Portfolio; consequently, warrant positions are generally
accompanied by cash positions equivalent to the required exercise amount.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable only to the Founders Capital
Appreciation Portfolio. As a matter of operating policy, which may be changed by
the Trustees without shareholder approval, the Portfolio will not:
1. Invest in interests in oil, gas or other mineral exploration or
development programs or leases, although the Portfolio may invest in the
securities of issuers which invest in or sponsor such programs or leases;
2. Invest more than 15% of the market value of its net assets in securities
which are not readily marketable, including repurchase agreements maturing in
over seven days;
3. Participate in any joint trading account;
4. Purchase more than 10% of any class of securities of any single
issuer or purchase more than 10% of the voting securities of any single issuer;
5. Invest more than 5% of the market value of its assets in securities
of companies which with their predecessors have a continuous operating record of
less than three years;
6. Purchase securities of other investment companies except in
compliance with the Investment Company Act of 1940, as amended, and applicable
state law. Duplicate fees may result from such purchases;
7. Acquire or retain the securities of any issuer if any officer or
director of the Sub-advisor owns beneficially more than one-half of 1% of the
issuer's outstanding securities and the aggregate owned by such persons exceeds
5% of such securities;
8. Invest in companies for the purpose of exercising control or
management;
9. Pledge, mortgage or hypothecate its assets except to secure
permitted borrowings, and then only in an amount up to 15% of the value of the
Portfolio's net assets taken at the lower of cost or market value at the time of
such borrowings;
10. Purchase warrants, valued at the lower of cost or market, in excess
of 5% of total assets, except that the purchase of warrants not listed on the
New York or American Stock Exchanges is limited to 2% of total net assets; or
11. Purchase securities of any issuer (other than obligations of, or
guaranteed by, the United States government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of the Portfolio's assets would be
invested in securities of that issuer.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond the specified limit that results
from a change in values or net assets will not be considered a violation.
Founders Passport Portfolio:
Investment Objective: The investment objective of the Founders Passport
Portfolio is to seek capital appreciation.
Investment Policies:
Options On Stock Indices and Stocks. An option is a right to buy or
sell a security at a specified price within a limited period of time. The
Portfolio may write ("sell") covered call options on any or all of its portfolio
securities. In addition, the Portfolio may purchase options on securities. The
Portfolio may also purchase put and call options on stock indices.
The Portfolio may write ("sell") options on any or all of its portfolio
securities and at such time and from time to time as the Sub-advisor shall
determine to be appropriate. No specified percentage of the Portfolio's assets
is invested in securities with respect to which options may be written. The
extent of the Portfolio's option writing activities will vary from time to time
depending upon the Sub-advisor's evaluation of market, economic and monetary
conditions.
When the Portfolio purchases a security with respect to which it
intends to write an option, it is likely that the option will be written
concurrently with or shortly after purchase. The Portfolio will write an option
on a particular security only if the Sub-advisor believes that a liquid
secondary market will exist on an exchange for options of the same series, which
will permit the Portfolio to enter into a closing purchase transaction and close
out its position. If the Portfolio desires to sell a particular security on
which it has written an option, it will effect a closing purchase transaction
prior to or concurrently with the sale of the security.
The Portfolio may enter into closing purchase transactions to reduce
the percentage of its assets against which options are written, to realize a
profit on a previously written option, or to enable it to write another option
on the underlying security with either a different exercise price or expiration
time or both.
Options written by the Portfolio will normally have expiration dates
between three and nine months from the date written. The exercise prices of
options may be below, equal to or above the current market values of the
underlying securities at the times the options are written. From time to time
for tax and other reasons, the Portfolio may purchase an underlying security for
delivery in accordance with an exercise notice assigned to it, rather than
delivering such security from its portfolio.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the stocks included in the index. The Portfolio
purchases put options on stock indices to protect the Portfolio against decline
in value. The Portfolio purchases call options on stock indices to establish a
position in equities as a temporary substitute for purchasing individual stocks
that then may be acquired over the option period in a manner designed to
minimize adverse price movements. Purchasing put and call options on stock
indices also permits greater time for evaluation of investment alternatives.
When the Sub-advisor believes that the trend of stock prices may be downward,
particularly for a short period of time, the purchase of put options on stock
indices may eliminate the need to sell less liquid stocks and possibly
repurchase them later. The purpose of these transactions is not to generate
gain, but to "hedge" against possible loss. Therefore, successful hedging
activity will not produce net gain to the Portfolio. Any gain in the price of a
call option is likely to be offset by higher prices the Portfolio must pay in
rising markets, as cash reserves are invested. In declining markets, any
increase in the price of a put option is likely to be offset by lower prices of
stocks owned by the Portfolio.
The Portfolio may purchase only those put and call options that are
listed on a domestic exchange or quoted on the automatic quotation system of the
National Association of Securities Dealers, Inc. ("NASDAQ"). Options traded on
stock exchanges are either broadly based, such as the Standard & Poor's 500
Stock Index and 100 Stock Index, or involve stocks in a designated industry or
group of industries. The Portfolio may utilize either broadly based or market
segment indices in seeking a better correlation between the indices and the
portfolio.
Transactions in options are subject to limitations, established by each
of the exchanges upon which options are traded, governing the maximum number of
options which may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options are held in one or more
accounts. Thus, the number of options the Portfolio may hold may be affected by
options held by other advisory clients of the Sub-Advisor. As of the date of
this Statement, the Sub-advisor believes that these limitations will not affect
the purchase of stock index options by the Portfolio.
One risk of holding a put or a call option is that if the option is not
sold or exercised prior to its expiration, it becomes worthless. However, this
risk is limited to the premium paid by the Portfolio. Other risks of purchasing
options include the possibility that a liquid secondary market may not exist at
a time when the Portfolio may wish to close out an option position. It is also
possible that trading in options on stock indices might be halted at a time when
the securities markets generally were to remain open. In cases where the market
value of an issue supporting a covered call option exceeds the strike price plus
the premium on the call, the Portfolio will lose the right to appreciation of
the stock for the duration of the option. For an additional discussion of
options on stock indices and stocks and certain risks involved therein, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Futures Contracts. The Portfolio may enter into futures contracts (or
options thereon) for hedging purposes. U.S. futures contracts are traded on
exchanges which have been designated "contract markets" by the Commodity Futures
Trading Commission ("CFTC") and must be executed through a futures commission
merchant (an "FCM") or brokerage firm which is a member of the relevant contract
market. Although futures contracts by their terms call for the delivery or
acquisition of the underlying commodities or a cash payment based on the value
of the underlying commodities, in most cases the contractual obligation is
offset before the delivery date of the contract by buying, in the case of a
contractual obligation to sell, or selling, in the case of a contractual
obligation to buy, an identical futures contract on a commodities exchange. Such
a transaction cancels the obligation to make or take delivery of the
commodities.
The acquisition or sale of a futures contract could occur, for example,
if the Portfolio held or considered purchasing equity securities and sought to
protect itself from fluctuations in prices without buying or selling those
securities. For example, if prices were expected to decrease, the Portfolio
could sell equity index futures contracts, thereby hoping to offset a potential
decline in the value of equity securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the Portfolio and
thereby prevent the Portfolio's net asset value from declining as much as it
otherwise would have. The Portfolio also could protect against potential price
declines by selling portfolio securities and investing in money market
instruments. However, since the futures market is more liquid than the cash
market, the use of futures contracts as an investment technique would allow the
Portfolio to maintain a defensive position without having to sell portfolio
securities.
Similarly, when prices of equity securities are expected to increase,
futures contracts could be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, the Portfolio could
take advantage of the potential rise in the value of equity securities without
buying them until the market had stabilized. At that time, the futures contracts
could be liquidated and the Portfolio could buy equity securities on the cash
market.
The Portfolio may also enter into interest rate and foreign currency
futures contracts. Interest rate futures contracts currently are traded on a
variety of fixed-income securities, including long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury Bills, bank certificates of deposit
and commercial paper. Foreign currency futures contracts currently are traded on
the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark
and on Eurodollar deposits.
The Portfolio will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of its
assets after taking into account unrealized profits and losses on options
entered into. In the case of an option that is "in-the-money," the in-the-money
amount may be excluded in computing such 5%. In general a call option on a
future is "in-the-money" if the value of the future exceeds the exercise
("strike") price of the call; a put option on a future is "in-the-money" if the
value of the future which is the subject of the put is exceeded by the strike
price of the put. The Portfolio may use futures and options thereon solely for
bona fide hedging or for other non-speculative purposes. As to long positions
which are used as part of the Portfolio's portfolio strategies and are
incidental to its activities in the underlying cash market, the "underlying
commodity value" of the Portfolio's futures and options thereon must not exceed
the sum of (i) cash set aside in an identifiable manner, or short-term U.S. debt
obligations or other dollar-denominated high-quality, short-term money
instruments so set aside, plus sums deposited on margin; (ii) cash proceeds from
existing investments due in 30 days; and (iii) accrued profits held at the
futures commission merchant. The "underlying commodity value" of a future is
computed by multiplying the size of the future by the daily settlement price of
the future. For an option on a future, that value is the underlying commodity
value of the future underlying the option.
Unlike the situation in which the Portfolio purchases or sells a
security, no price is paid or received by the Portfolio upon the purchase or
sale of a futures contract. Instead, the Portfolio is required to deposit in a
segregated asset account an amount of cash or qualifying securities (currently
U.S. Treasury bills), currently in a minimum amount of $15,000. This is called
"initial margin." Such initial margin is in the nature of a performance bond or
good faith deposit on the contract. However, since losses on open contracts are
required to be reflected in cash in the form of variation margin payments, the
Portfolio may be required to make additional payments during the term of a
contract to its broker. Such payments would be required, for example, where,
during the term of an interest rate futures contract purchased by the Portfolio,
there was a general increase in interest rates, thereby making the Portfolio's
securities less valuable. In all instances involving the purchase of financial
futures contracts by the Portfolio, an amount of cash together with such other
securities as permitted by applicable regulatory authorities to be utilized for
such purpose, at least equal to the market value of the future contracts, will
be deposited in a segregated account with the Portfolio's custodian to
collateralize the position. At any time prior to the expiration of a futures
contract, the Portfolio may elect to close its position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
Because futures contracts are generally settled within a day from the
date they are closed out, compared with a settlement period of three business
days for most types of securities, the futures markets can provide superior
liquidity to the securities markets. Nevertheless, there is no assurance a
liquid secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it would be impossible
for the Portfolio to enter into new positions or close out existing positions.
If the secondary market for a futures contract were not liquid because of price
fluctuation limits or otherwise, the Portfolio would not promptly be able to
liquidate unfavorable futures positions and potentially could be required to
continue to hold a futures position until the delivery date, regardless of
changes in its value. As a result, the Portfolio's access to other assets held
to cover its futures positions also could be impaired. For an additional
discussion of futures contracts and certain risks involved therein, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Options on Futures Contracts. The Portfolio may purchase put and call
options on futures contracts. An option on a futures contract provides the
holder with the right to enter into a "long" position in the underlying futures
contract, in the case of a call option, or a "short" position in the underlying
futures contract, in the case of a put option, at a fixed exercise price to a
stated expiration date. Upon exercise of the option by the holder, a contract
market clearing house establishes a corresponding short position for the writer
of the option, in the case of a call option, or a corresponding long position,
in the case of a put option. In the event that an option is exercised, the
parties will be subject to all the risks associated with the trading of futures
contracts, such as payment of variation margin deposits.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. See
"Options on Foreign Currencies" below. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying instrument, ownership of the option may or may not
be less risky than ownership of the futures contract or the underlying
instrument. As with the purchase of futures contracts, when the Portfolio is not
fully invested it could buy a call option on a futures contract to hedge against
a market advance. The purchase of a put option on a futures contract is similar
in some respects to the purchase of protective put options on portfolio
securities. For example, the Portfolio would be able to buy a put option on a
futures contract to hedge the Portfolio against the risk of falling prices. For
an additional discussion of options on futures contracts and certain risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risks Factors and Investment Methods."
Options on Foreign Currencies. The Portfolio may buy and sell options
on foreign currencies for hedging purposes in a manner similar to that in which
futures on foreign currencies would be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated would reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remained constant. In order to protect against
such diminutions in the value of portfolio securities, the Portfolio could buy
put options on the foreign currency. If the value of the currency declines, the
Portfolio would have the right to sell such currency for a fixed amount in U.S.
dollars and would thereby offset, in whole or in part, the adverse effect on the
Portfolio which otherwise would have resulted. Conversely, when a rise is
projected in the U.S. dollar value of a currency in which securities to be
acquired are denominated, thereby increasing the cost of such securities, the
Portfolio could buy call options thereon. The purchase of such options could
offset, at least partially, the effects of the adverse movements in exchange
rates.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities, and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices, or prohibitions on exercise.
Risk Factors of Investing in Futures and Options. The successful use of
the investment practices described above with respect to futures contracts,
options on futures contracts, and options on securities indices, securities, and
foreign currencies draws upon skills and experience which are different from
those needed to select the other instruments in which the Portfolio invests.
Should interest or exchange rates or the prices of securities or financial
indices move in an unexpected manner, the Portfolio may not achieve the desired
benefits of futures and options or may realize losses and thus be in a worse
position than if such strategies had not been used. Unlike many exchange-traded
futures contracts and options on futures contracts, there are no daily price
fluctuation limits with respect to options on currencies and negotiated or
over-the-counter instruments, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In addition, the
correlation between movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
The Portfolio's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in the
instruments. Markets in a number of the instruments are relatively new and still
developing and it is impossible to predict the amount of trading interest that
may exist in those instruments in the future. Particular risks exist with
respect to the use of each of the foregoing instruments and could result in such
adverse consequences to the Portfolio as the possible loss of the entire premium
paid for an option bought by the Portfolio and the possible need to defer
closing out positions in certain instruments to avoid adverse tax consequences.
As a result, no assurance can be given that the Portfolio will be able to use
those instruments effectively for the purposes set forth above.
In addition, options on U.S. Government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be affected adversely by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume. For an additional discussion of
certain risks involved in investing in futures and options, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Foreign Securities. Investments in foreign countries involve certain
risks which are not typically associated with U.S. investments. For a discussion
of certain risks involved in foreign investing, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Forward Contracts for Purchase or Sale of Foreign Currencies. The
Portfolio generally conducts its foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
currency market. When the Portfolio purchases or sells a security denominated in
a foreign currency, it may enter into a forward foreign currency contract
("forward contract") for the purchase or sale, for a fixed amount of dollars, of
the amount of foreign currency involved in the underlying security transaction.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. In this manner, the Portfolio may obtain protection against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar and the foreign currency during the period between the date the security
is purchased or sold and the date upon which payment is made or received.
Although such contracts tend to minimize the risk of loss due to the decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.
The Portfolio will not speculate in forward contracts.
Forward contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Generally a forward contract has no deposit requirement, and no commissions are
charged at any stage for trades. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the difference between
the prices at which they buy and sell various currencies. When Sub-advisor
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, the Portfolio may enter into a
forward contract to sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency. The Portfolio will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolio to deliver an amount
of foreign currency in excess of the value of its portfolio securities or other
assets denominated in that currency. Forward contracts may, from time to time,
be considered illiquid, in which case they would be subject to the Portfolio's
limitation on investing in illiquid securities.
At the consummation of a forward contract for delivery by the Portfolio
of a foreign currency, the Portfolio may either make delivery of the foreign
currency or terminate its contractual obligation to deliver the foreign currency
by purchasing an offsetting contract obligating it to purchase, at the same
maturity date, the same amount of the foreign currency. If the Portfolio chooses
to make delivery of the foreign currency, it may be required to obtain such
currency through the sale of portfolio securities denominated in such currency
or through conversion of other Portfolio assets into such currency.
Dealings in forward contracts by the Portfolio will be limited to the
transactions described above. Of course, the Portfolio is not required to enter
into such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by the Sub-advisor. It
also should be realized that this method of protecting the value of the
Portfolio's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to the decline in the value of the hedged currency, at the same time they
tend to limit any potential gain which might result should the value of such
currency increase. For an additional discussion of forward foreign currency
contracts and certain risks involved therein, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Illiquid Securities. As discussed in the Prospectus, the Portfolio may
invest up to 15% of the value of its net assets, measured at the time of
investment, in investments which are not readily marketable. Restricted
securities are securities that may not be resold to the public without
registration under the Securities Act of 1933 (the "1933 Act"). Restricted
securities (other than Rule 144A securities deemed to be liquid, discussed
below) and securities which are not readily marketable are illiquid securities.
Illiquid securities are securities which may be subject to resale restrictions
or which, due to their market or the nature of the security, have no readily
available markets for their disposition. These limitations on resale and
marketability may have the effect of preventing the Portfolio from disposing of
such a security at the time desired or at a reasonable price. In addition, in
order to resell a restricted security, the Portfolio might have to bear the
expense and incur the delays associated with effecting registration. In
purchasing illiquid securities, the Portfolio does not intend to engage in
underwriting activities, except to the extent the Portfolio may be deemed to be
a statutory underwriter under the Securities Act in purchasing or selling such
securities. Illiquid securities will be purchased for investment purposes only
and not for the purpose of exercising control or management of other companies.
For an additional discussion of illiquid or restricted securities and certain
risks involved therein, see the Trust's Prospectus under "Certain Risk Factors
and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Rule 144A Securities. In recent years, a large institutional market has
developed for certain securities that are not registered under the 1933 Act.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend on an efficient institutional
market in which such unregistered securities can readily be resold or on an
issuer's ability to honor a demand for repayment. Therefore, the fact that there
are contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. The Portfolio may invest in Rule 144A securities
which, as disclosed in the Prospectus, are restricted securities which may or
may not be readily marketable. Rule 144A securities are readily marketable if
institutional markets for the securities develop pursuant to Rule 144A which
provide both readily ascertainable values for the securities and the ability to
liquidate the securities when liquidation is deemed necessary or advisable.
However, an insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A security held by the Portfolio could affect adversely the
marketability of the security. In such an instance, the Portfolio might be
unable to dispose of the security promptly or at reasonable prices.
The Sub-advisor will determine that a liquid market exists for
securities eligible for resale pursuant to Rule 144A under the 1933 Act, or any
successor to such rule, and that such securities are not subject to the
Portfolio's limitations on investing in illiquid securities, securities that are
not readily marketable, or securities which do not have readily available market
quotations. The Sub-advisor will consider the following factors, among others,
in making this determination: (1) the unregistered nature of a Rule 144A
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
additional potential purchasers; (4) dealer undertakings to make a market in the
security; and (5) the nature of the security and the nature of market place
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfers).
Lower-Rated or Unrated Fixed-Income Securities. The Portfolio may
invest up to 5% of its assets in convertible securities and preferred stocks
which are unrated or are rated below investment grade either at the time of
purchase or as a result of reduction in rating after purchase. Investments in
lower-rated or unrated securities are generally considered to be of high risk.
These debt securities, commonly referred to as junk bonds, are generally subject
to two kinds of risk, credit risk and market risk. Credit risk relates to the
ability of the issuer to meet interest or principal payments, or both, as they
come due. The ratings given a security by Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's ("S&P") provide a generally useful guide as to
such credit risk. The Appendix to this Statement provides a description of such
debt security ratings. The lower the rating given a security by a rating
service, the greater the credit risk such rating service perceives to exist with
respect to the security. Increasing the amount of the Portfolio's assets
invested in unrated or lower grade securities, while intended to increase the
yield produced by those assets, will also increase the risk to which those
assets are subject.
Market risk relates to the fact that the market values of debt
securities in which the Portfolio invests generally will be affected by changes
in the level of interest rates. An increase in interest rates will tend to
reduce the market values of such securities, whereas a decline in interest rates
will tend to increase their values. Medium and lower-rated securities (Baa or
BBB and lower) and non-rated securities of comparable quality tend to be subject
to wider fluctuations in yields and market values than higher rated securities
and may have speculative characteristics. In order to decrease the risk in
investing in debt securities, in no event will the Portfolio ever invest in a
debt security rated below B by Moody's or by S&P. Of course, relying in part on
ratings assigned by credit agencies in making investments will not protect the
Portfolio from the risk that the securities in which they invest will decline in
value, since credit ratings represent evaluations of the safety of principal,
dividend, and interest payments on debt securities, and not the market values of
such securities, and such ratings may not be changed on a timely basis to
reflect subsequent events.
Because investment in medium and lower-rated securities involves both
greater credit risk and market risk, achievement of the Portfolio's investment
objective may be more dependent on the investment adviser's own credit analysis
than is the case for funds that do not invest in such securities. In addition,
the share price and yield of the Portfolio may fluctuate more than in the case
of funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower-rated securities experiencing increased financial stress, which
would adversely affect their ability to service their principal, dividend, and
interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield debt securities has been in existence for many years and from time to time
has experienced economic downturns in recent years, this market has involved a
significant increase in the use of high yield debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may not,
therefore, provide an accurate indication of future performance of the high
yield debt securities market, particularly during periods of economic recession.
Furthermore, expenses incurred in recovering an investment in a defaulted
security may adversely affect the Portfolio's net asset value. Finally, while
the Sub-advisor attempts to limit purchases of medium and lower-rated securities
to securities having an established secondary market, the secondary market for
such securities may be less liquid than the market for higher quality
securities. The reduced liquidity of the secondary market for such securities
may adversely affect the market price of, and ability of the Portfolio to value,
particular securities at certain times, thereby making it difficult to make
specific valuation determinations. The Portfolio does not invest in any medium
and lower-rated securities which present special tax consequences, such as
zero-coupon bonds or pay-in-kind bonds. For an additional discussion of certain
risks involved in lower-rated securities, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
The Sub-advisor seeks to reduce the overall risks associated with the
Portfolio's investments through diversification and consideration of factors
affecting the value of securities it considers relevant. No assurance can be
given, however, regarding the degree of success that will be achieved in this
regard or that the Portfolio will achieve its investment objective.
Repurchase Agreements. As discussed in the Prospectus, the Portfolio
may enter into repurchase agreements with respect to money market instruments
eligible for investment by the Portfolio with member banks of the Federal
Reserve system, registered broker-dealers, and registered government securities
dealers. A repurchase agreement may be considered a loan collateralized by
securities. Repurchase agreements maturing in more than seven days are
considered illiquid and will be subject to the Portfolio's limitation with
respect to illiquid securities.
The Portfolio has not adopted any limits on the amounts of its total
assets that may be invested in repurchase agreements which mature in less than
seven days. The Portfolio may invest up to 15% of the market value of its net
assets, measured at the time of purchase, in securities which are not readily
marketable, including repurchase agreements maturing in more than seven days.
For an additional discussion of repurchase agreements and certain risks involved
therein, see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Convertible Securities. The Portfolio may buy securities convertible
into common stock if, for example, the Sub-advisor believes that a company's
convertible securities are undervalued in the market. Convertible securities
eligible for purchase include convertible bonds, convertible preferred stocks,
and warrants. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specific amount of the corporation's capital
stock at a set price for a specified period of time. Warrants do not represent
ownership of the securities, but only the right to buy the securities. The
prices of warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of a
corporation issuing them. Warrant positions will not be used to increase the
leverage of the Portfolio; consequently, warrant positions are generally
accompanied by cash positions equivalent to the required exercise amount.
Investment Policies Which May be Changed Without Shareholder Approval.
The following limitations are applicable to the Founders Passport Portfolio. As
a matter of non-fundamental policy, which may be changed without shareholder
approval, the Portfolio will not:
1. Invest in interests in oil, gas or other mineral exploration or
development programs or leases, although the Portfolio may invest in the
securities of issuers which invest in or sponsor such programs or leases;
2. Invest more than 15% of the market value of its net assets in
securities which are not readily marketable, including repurchase agreements
maturing in over seven days;
3. Participate in any joint trading account;
4. Invest more than 5% of the market value of its total assets in
securities of companies which with their predecessors have a continuous
operating record of less than three years;
5. Purchase securities of other investment companies except in
compliance with the Investment Company Act of 1940, as amended, and applicable
state law. Duplicate fees may result from such purchases;
6. Invest in companies for the purpose of exercising control or
management;
7. Pledge, mortgage or hypothecate its assets except to secure
permitted borrowings, and then only in an amount up to 15% of the value of the
Portfolio's net assets taken at the lower of cost or market value at the time of
such borrowings;
8. Purchase warrants, valued at the lower of cost or market, in excess
of 5% of total assets, except that the purchase of warrants not listed on the
New York or American Stock Exchanges is limited to 2% of total net assets.
Warrants acquired by the Portfolio in units or attached to securities shall be
deemed to be without value unless such warrants are separately transferable and
current market prices are available, or unless otherwise determined by the Board
of Trustees of the Trust;
9. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions; or
10. Sell securities short.
In addition, in periods of uncertain market and economic conditions, as
determined by the Sub-advisor, the Portfolio may depart from its basic
investment objective and assume a defensive position with up to 100% of its
assets temporarily invested in high quality corporate bonds or notes and
government issues, or held in cash.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond the specified limit that results
from a change in values or net assets will not be considered a violation.
INVESCO Equity Income Portfolio:
Investment Objective: The INVESCO Equity Income Portfolio seeks high current
income while following sound investment practices. The Portfolio will pursue
this objective by investing its assets in securities which will provide a
relatively high-yield and stable return and which, over a period of years, may
also provide capital appreciation. Capital growth potential is a secondary
factor in the selection of portfolio securities. The Portfolio invests in common
stocks, as well as convertible bonds and preferred stocks.
Investment Policies: In pursuing its investment objective, the Portfolio will
endeavor to select and purchase securities providing reasonably secure dividend
or interest income. Up to 10% of the Portfolio's assets may be invested in
equity securities that do not pay regular dividends. Sometimes warrants are
acquired when offered with income-producing securities, but the warrants are
disposed of at the first favorable opportunity. Acquiring warrants involves a
risk that the Portfolio will lose the premium it pays to acquire warrants if the
Portfolio does not exercise a warrant before it expires. The major portion of
the investment portfolio normally consists of common stocks, convertible bonds
and debentures, and preferred stocks; however, there may also be substantial
holdings of debt securities, including non-investment grade and unrated debt
securities.
As discussed in the section of the Trust's Prospectus entitled
"Investment Objective and Policies," the debt securities in which the Portfolio
invests are generally subject to two kinds of risk, credit risk and market risk.
The ratings given a debt security by Moody's and Standard & Poor's ("S&P")
provide a generally useful guide as to such credit risk. The lower the rating
given a debt security by such rating service, the greater the credit risk such
rating service perceives to exist with respect to such security. Increasing the
amount of Portfolio assets invested in unrated or lower grade (Ba or less by
Moody's, BB or less by S&P) debt securities, while intended to increase the
yield produced by the Portfolio's debt securities, will also increase the credit
risk to which those debt securities are subject.
Lower-rated debt securities and non-rated securities of comparable
quality tend to be subject to wider fluctuations in yields and market values
than higher rated debt securities and may have speculative characteristics.
Although the Portfolio may invest in debt securities assigned lower grade
ratings by S&P or Moody's, the Portfolio's investments have generally been
limited to debt securities rated B or higher by either S&P or Moody's. Debt
securities rated lower than B by either S&P or Moody's may be highly
speculative. The Sub-advisor intends to limit such Portfolio investments to debt
securities which are not believed by the Sub-advisor to be highly speculative
and which are rated at least CCC or Caa, respectively, by S&P or Moody's. In
addition, a significant economic downturn or major increase in interest rates
may well result in issuers of lower-rated debt securities experiencing increased
financial stress which would adversely affect their ability to service their
principal and interest obligations, to meet projected business goals, and to
obtain additional financing. While the Sub-advisor attempts to limit purchases
of lower-rated debt securities to securities having an established retail
secondary market, the market for such securities may not be as liquid as the
market for higher rated debt securities.
For an additional discussion of certain risks involved in lower-rated
or unrated securities, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
As discussed in the Trust's Prospectus, the Portfolio may enter into
repurchase agreements with respect to debt instruments eligible for investment
by the Portfolio, with member banks of the Federal Reserve System, registered
broker-dealers, and registered government securities dealers. A repurchase
agreement may be considered a loan collateralized by securities. The resale
price reflects an agreed upon interest rate effective for the period the
instrument is held by the Portfolio and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by the
Portfolio (including accrued interest earned thereon) must have a total value in
excess of the value of the repurchase agreement, and are held by the Portfolio's
Custodian Bank until repurchased.
Another practice in which the Portfolio may engage is to lend its
securities to qualified brokers, dealers, banks, or other financial
institutions. While voting rights may pass with the loaned securities, if a
material event (e.g., proposed merger, sale of assets, or liquidation) is to
occur affecting an investment on loan, the loan must be called and the
securities voted. Loans of securities made by the Portfolio will comply with all
other applicable regulatory requirements, including the rules of the New York
Stock Exchange and the requirements of the Investment Company Act of 1940 and
the Rules of the Securities and Exchange Commission thereunder.
PIMCO Total Return Bond Portfolio:
Investment Policies:
Borrowing. The Portfolio may borrow for temporary purposes in an amount
not exceeding five percent of the value of its total assets. The Portfolio also
may borrow for investment purposes. Such a practice will result in leveraging of
the Portfolio's assets and may cause the Portfolio to liquidate portfolio
positions when it would not be advantageous to do so. This borrowing may be
unsecured. The Investment Company Act of 1940 requires the Portfolio to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, the Portfolio may be required to sell some of its holdings within three
days to reduce the debt and restore the 300% asset coverage, even though it may
be disadvantageous from an investment standpoint to sell securities at that
time. Borrowing will tend to exaggerate the effect on net asset value of any
increase or decrease in the market value of the Portfolio. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. The Portfolio also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
The Portfolio also may enter into "mortgage dollar rolls," which are
similar to reverse repurchase agreements in certain respects. In a "dollar roll"
transaction the Portfolio sells a mortgage-related security (such as a GNMA
security) to a dealer and simultaneously agrees to repurchase a similar security
(but not the same security) in the future at a pre-determined price. A "dollar
roll" can be viewed, like a reverse repurchase agreement, as a collateralized
borrowing in which the Portfolio pledges a mortgage-related security to a dealer
to obtain cash. Unlike in the case of reverse repurchase agreements, the dealer
with which the Portfolio enters into a dollar roll transaction is not obligated
to return the same securities as those originally sold by the Portfolio, but
only securities which are "substantially identical." To be considered
"substantially identical, " the securities returned to the Portfolio generally
must: (1) be collateralized by the same types of underlying mortgages; (2) be
issued by the same agency and be part of the same program; (3) have a similar
original stated maturity; (4) have identical net coupon rates; (5) have similar
maturity: (4) have identical net coupon rates; (5) have similar market yields
(and therefore price); and (6) satisfy "good delivery" requirements, meaning
that the aggregate principal amounts of the securities delivered and received
back must be within 2.5% of the initial amount delivered.
Dollar roll transactions involve the risk that the market value of the
securities sold may decline below the repurchase price of those securities. The
securities that are repurchased will be collateralized with different pools of
mortgages with different prepayment histories, and as a result, the borrower is
subject to a greater degree of prepayment related uncertainty.
The Portfolio's obligations under a dollar roll agreement must be
covered by cash or high quality debt securities equal in value to the securities
subject to repurchase by the Portfolio, maintained in a segregated account. To
the extent that the Portfolio collateralized its obligations under a dollar roll
agreement, the asset coverage requirements of the Investment Company Act of 1940
will not apply to such transactions. Furthermore, because dollar roll
transactions may be for terms ranging between one and six months, dollar roll
transactions may be deemed "illiquid" and subject to the Portfolio's overall
limitations on investments in illiquid securities.
Corporate Debt Securities. The Portfolio's investments in U.S. dollar-
or foreign currency-denominated corporate debt securities of domestic or foreign
issuers are limited to corporate debt securities (corporate bonds, debentures,
notes and other similar corporate debt instruments, including convertible
securities) which meet the minimum ratings criteria set forth for the Portfolio,
or, if unrated, are in the Sub-advisor's opinion comparable in quality to
corporate debt securities in which the Portfolio may invest. The rate of return
or return of principal on some debt obligations may be linked or indexed to the
level of exchange rates between the U.S. dollar and a foreign currency or
currencies.
Among the corporate bonds in which the Portfolio may invest are
convertible securities. A convertible security is a bond, debenture, note, or
other security that entitles the holder to acquire common stock or other equity
securities of the same or a different issuer. A convertible security generally
entitles the holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities. Convertible securities rank senior to common stock in a
corporation's capital structure and, therefore, generally entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed-income security.
A convertible security may be subject to redemption at the option of
the issuer at a predetermined price. If a convertible security held by the
Portfolio is called for redemption, the Portfolio will be required to permit the
issuer to redeem the security and convert it to underlying common stock, or will
sell the convertible security to a third party. The Portfolio generally would
invest in convertible securities for their favorable price characteristics and
total return potential and would normally not exercise an option to convert.
Investments in securities rated below investment grade that are
eligible for purchase by the Portfolio (i.e., rated B or better by Moody's or
S&P) are described as "speculative" by both Moody's and S&P. Investment in
lower-rated corporate debt securities ("high yield securities") generally
provides greater income and increased opportunity for capital appreciation than
investments in higher quality securities, but they also typically entail greater
price volatility and principal and income risk. These high yield securities are
regarded as high risk and predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The market for these
securities is relatively new, and many of the outstanding high yield securities
have not endured a major business recession. A long-term track record on default
rates, such as that for investment grade corporate bonds, does not exist for
this market. Analysis of the creditworthiness of issuers of debt securities that
are high yield may be more complex than for issuers of higher quality debt
securities.
High yield, high risk securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions than investment
grade securities. The price of high yield securities have been found to be less
sensitive to interest-rate adverse economic downturns or individual corporate
developments. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in high yield security prices
because the advent of a recession could lessen the ability of a highly leveraged
company to make principal and interest payments on its debt securities. If an
issuer of high yield securities defaults, in addition to risking payment of all
or a portion of interest and principal, the Portfolio may incur additional
expenses to seek recovery. In the case of high yield securities structured as
zero-coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes, and therefore tend to be more volatile
than securities which pay interest periodically and in cash.
The secondary market on which high yield, high risk securities are
traded may be less liquid than the market for higher grade securities. Less
liquidity in the secondary trading market could adversely affect the price at
which the Portfolio could sell a high yield security, and could adversely affect
the daily net asset value of the shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities especially in a thinly-traded
market. When secondary markets for high yield securities are less liquid than
the market for higher grade securities, it may be more difficult to value the
securities because such valuation may require more research, and elements of
judgment may play a greater role in the valuation because there is less
reliable, objective data available. The Sub-advisor seeks to minimize the risks
of investing in all securities through diversification, in-depth credit analysis
and attention to current developments in interest rates and market conditions.
For an additional discussion of certain risks involved in lower-rated
debt securities, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Objectives."
Participation on Creditors Committees. The Portfolio may from time to
time participate on committees formed by creditors to negotiate with the
management of financially troubled issuers of securities held by the Portfolio.
Such participation may subject the Portfolio to expenses such as legal fees and
may make the Portfolio an "insider" of the issuer for purposes of the federal
securities laws, and therefore may restrict the Portfolio's ability to trade in
or acquire additional positions in a particular security when it might otherwise
desire to do so. Participation by the Portfolio on such committees also may
expose the Portfolio to potential liabilities under the federal bankruptcy laws
or other laws governing the rights of creditors and debtors. The Portfolio will
participate on such committees only when the Sub-advisor believes that such
participation is necessary or desirable to enforce the Portfolio's rights as a
creditor or to protect the value of securities held by the Portfolio.
Mortgage-Related and Other Asset-Backed Securities. Mortgage-related
securities are interests in pools of mortgage loans made to residential home
buyers, including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations (see "Mortgage Pass-Through Securities"). The Portfolio
may also invest in debt securities which are secured with collateral consisting
of mortgage-related securities (see "Collateralized Mortgage Obligations"), and
in other types of mortgage-related securities.
Mortgage Pass-Through Securities. The Portfolio may invest in
mortgage-backed securities. For an additional discussion of mortgage-backed
securities and certain risks involved therein, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Interests in pools of mortgage-related securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential or commercial mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owned on the mortgage
pool, net of certain fees, at the scheduled payment dates regardless of whether
or not the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
United States Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the United States Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-though securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PC's") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-though pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such nongovernmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Trust's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. The Portfolio may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, the Sub-advisor determines that the securities meet the Trust's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Portfolio will not purchase mortgage-related securities or any
other assets which in the Sub-advisor's opinion are illiquid if, as a result,
more than 15% of the value of the Portfolio's total assets will be illiquid.
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the
Portfolios' industry concentration restrictions, set forth below under
"Investment Restrictions," by virtue of the exclusion from that test available
to all U.S. Government securities. In the case of privately issued
mortgage-related securities do not represent interests in any particular
"industry" or group of industries. The assets underlying such securities may be
represented by the Portfolio of first lien residential mortgages (including both
whole mortgage loans and mortgage participation interests) or portfolios of
mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC.
Mortgage loans underlying a mortgage-related security may in turn be insured or
guaranteed by the Federal Housing Administration or the Department of Veterans
Affairs. In the case of private issue mortgage-related securities whose
underlying assets are neither U.S. Government securities nor U.S.
Government-insured mortgages, to the extent that real properties securing such
assets may be located in the same geographical region, the security may be
subject to a greater risk of default that other comparable securities in the
event of adverse economic, political or business developments that may affect
such region and ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
or principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of the CMO bonds ("Bonds"). Proceeds of the Bond
offering are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt
obligations of FHLMC issued in multiple classes having different maturity dates
which are secured by the pledge of a pool of conventional mortgage loans
purchased by FHLMC. Unlike FHLMC PCs, payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals. CMO residuals are derivative mortgage securities issued
by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks
and special purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of
CMOs is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities -- Stripped Mortgage-Backed Securities." In
addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual will also be
extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances the Portfolio may fail to
recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended. CMO
residuals, whether or not registered under such Act, may be subject to certain
restrictions on transferability, and may be deemed "illiquid" and subject to the
Portfolio's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities ("SMBS") are derivative multi-class mortgage securities. SMBS may be
issued by agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, which the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments ( including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on the Portfolio's yield to maturity from these securities. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the security is in one of the highest rating
categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Portfolio's limitations on investment in illiquid securities.
Other Asset-Backed Securities. Similarly, the Sub-advisor expects that
other asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities may be offered
to investors, including Certificates for Automobile Receivables. For a
discussion of automobile receivables, see this Statement under "Certain Risk
Factors and Investment Methods." Consistent with the Portfolio's investment
objectives and policies, the Sub-advisor also may invest in other types of
asset-backed securities.
Foreign Securities. The Portfolio may invest in U.S. dollar- or foreign
currency-denominated corporate debt securities of foreign issuers (including
preferred or preference stock), certain foreign bank obligations (see "Bank
Obligations") and U.S. dollar- or foreign currency-denominated obligations of
foreign governments or their subdivisions, agencies and instrumentalities,
international agencies and supranational entities. The Portfolio may invest up
to 20% of its assets in securities denominated in foreign currencies, and may
invest beyond this limit in U.S. dollar-denominated securities of foreign
issuers. The Portfolio will limit its foreign investments to securities of
issuers based in developed countries (which include Newly Industrialized
Countries ("NICs") such as Mexico, Taiwan and South Korea). Investing in the
securities of foreign issuers involves special risks and considerations not
typically associated with investing in U.S. companies. For a discussion of
certain risks involved in foreign investments, see the Trust's Prospectus and
this Statement under "Certain Risk Factors and Investment Methods."
The Portfolio also may purchase and sell foreign currency options and
foreign currency futures contracts and related options (see ""Derivative
Instruments"), and enter into forward foreign currency exchange contracts in
order to protect against uncertainty in the level of future foreign exchange
rates in the purchase and sale of securities.
A forward foreign currency contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the tine of the contract. These contracts may be bought or sold to protect the
Portfolio against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar or, open positions
in forward contracts are covered by the segregation with the Trust's custodian
of high quality short-term investments are marked to market daily. Although such
contracts are intended to minimize the risk of loss due to a decline on the
value of the hedged currencies, at the same time, they tend to limit any
potential gain which might result should the value of such currencies increase.
Brady Bonds. The Portfolio may invest in Brady Bonds. Brady Bonds are
securities created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented in several countries, including in Argentina, Bulgaria,
Costa Rica, the Dominican Republic, Jordan, Mexico, Nigeria, the Philippines,
Uruguay, and Venezuela. In addition, Brazil has concluded a Brady-like plan.
Ecuador has reached an agreement with its lending banks, but the full
consummation of Ecuador's Brady Plan is still pending. It is expected that other
countries will undertake a Brady Plan in the future, including Panama, Peru, and
Poland.
Brady Bonds have been issued only recently, and accordingly do not have
a long payment history. Brady Bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the U.S. dollar) and are actively
traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal by U.S. Treasury zero-coupon bonds having the same maturity
as the Brady Bonds. Interest payments on these Brady Bonds generally are
collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk").
Most Mexican Brady Bonds issued to date have principal repayments at
final maturity fully collateralized by U.S. Treasury zero-coupon bonds (or
comparable collateral denominated in other currencies) and interest coupon
payments collateralized on an 18-month rolling-forward basis by funds held in
escrow by an agent for the bondholders. A significant portion of the Venezuelan
Brady Bonds and the Argentine Brady Bonds issued to date have principal
repayments at final maturity collateralized by U.S. Treasury zero-coupon bonds
(or comparable collateral denominated in other currencies) and/or interest
coupon payments collateralized on a 14-month (for Venezuela) or 12-month (for
Argentina) rolling-forward basis by securities held by the Federal Reserve Bank
of New York as collateral agent.
Brady Bonds involve various risk factors including residual risk and
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds. There can be no assurance
that Brady Bonds in which the Portfolio may invest will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Portfolio to suffer a loss of interest or principal on any of its holdings.
Bank Obligations. Bank obligations in which the Portfolios invest
include certificates of deposit, bankers' acceptances, and fixed time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. The Portfolio will not invest in fixed time deposits which
(1) are not subject to prepayment or (2) provide for withdrawal penalties upon
prepayment (other an overnight deposits) if, in the aggregate, more than 15% of
its assets would be invested in such deposits, repurchase agreements maturing in
more than seven days and other illiquid assets.
The Portfolio will limit its investments in United States bank
obligations to obligation of United States bank (including foreign branches)
which have more than $1 billion in total assets at the time of investment and
are member of the Federal Reserve System or are examined by the Comptroller of
the Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation. The Portfolio also may invest in certificates of deposit of savings
and loan associations (federally or state chartered and federally insured)
having total assets in excess $1 billion.
The Portfolio will limit its investments in foreign bank obligations to
United States dollar- or foreign currency-denominated obligations of foreign
banks (including United States branches of foreign banks) which at the time of
investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches or agencies ( limited purpose
offices which do not offer all banking services) in the United States; and (iv)
in the opinion of the Sub-advisor, are of an investment quality comparable to
obligations of United States banks in which the Portfolio may invest. Subject to
the Portfolio's limitation on concentration of no more than 25% of its assets in
the securities of issuers in particular industry, there is no limitation on the
amount of the Portfolio's assets which may be invested in obligations of foreign
banks which meet the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment
risks than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not generally subject to examination by any United
States Government agency or instrumentality.
Derivative Instruments. In pursuing its individual objective, the
Portfolio may, as described in the Prospectus, purchase and sell (write) both
put options and call options on securities, securities indexes, and foreign
currencies, and enter into interest rate, foreign currency and index futures
contracts and purchase and sell options on such futures contracts ("future
options") for hedging purposes. The Portfolio also may enter into swap
agreements with respect to foreign currencies, interest rates and indexes of
securities. If other types of financial instruments, including other types of
options, futures contracts, or futures options are traded in the future, the
Portfolio may also use those instruments, provided that the Trust's Board of
Trustees determines that their use is consistent with the Portfolio's investment
objective, and provided that their use is consistent with restrictions
applicable to options and futures contracts currently eligible for use by the
Trust (i.e., that written call or put options will be "covered" or "secured" and
that futures and futures options will be used only for hedging purposes).
Options on Securities and Indexes. The Portfolio may purchase and sell
both put and call options on debt or other securities or indexes in standardized
contracts traded on foreign or national securities exchanges, boards of trade,
or similar entities, or quoted on NASDAQ or on a regulated foreign
over-the-counter market, and agreements sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer.
The Portfolio will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are placed in a segregated account by its custodian) upon conversion
or exchange of other securities held by the Portfolio. For a call option on an
index, the option is covered if the Portfolio maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if the Portfolio holds a call on the same security or index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise ice of the call written, or (ii) greater than the exercise price of the
call written, provided the difference is maintained by the Portfolio in cash or
cash equivalents in a segregated account with its custodian. A put option on a
security or an index is "covered" if the Portfolio maintains cash or cash
equivalents equal to the exercise price in a segregated account with its
custodian. A put option is also covered if the Portfolio holds a put on the same
security or index as the put written where the exercise price of the put held is
(i) equal to or greater than the exercise price of the put written, or (ii) less
than the exercise price of the put written, provided the difference is
maintained by the Portfolio in cash or cash equivalents in a segregated account
with its custodian.
If an option written by the Portfolio expires, the Portfolio realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the Portfolio expires unexercised, the Portfolio
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
The Portfolio will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or if it is more, the Portfolio will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Portfolio will realize a capital gain
or, if it is less, the Portfolio will realize a capital loss. The principal
factors affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price of the underlying security or
index in relation to the exercise price of the option, the volatility of the
underlying security or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by the Portfolio is
an asset of the Portfolio. The premium received for a option written by the
Portfolio is recorded as a deferred credit. The value of an option purchased or
written is marked to market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no closing
price is available, at the mean between the last bid and asked prices.
Risks Associated with Options on Securities and Indexes. There are
several risks associated with transactions in options on securities and on
indexes. For a discussion of certain risks involved in options, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Foreign Currency Options. The Portfolio may buy or sell put and call
options on foreign currencies either on exchanges or in the over-the-counter
market. A put option on a foreign currency gives the purchaser of the option the
right to sell a foreign currency at the exercise price until the option expires.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Portfolio to reduce foreign currency
risk using such options. Over-the-counter options differ from traded options in
that they are two-party contracts with price and other terms negotiated between
buyer and seller, and generally do not have as much market liquidity as
exchange-traded options.
Futures Contracts and Options on Futures Contracts. The Portfolio may
use interest rate, foreign currency or index futures contracts, as specified for
the Portfolio in the Prospectus. An interest rate, foreign currency or index
futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument, foreign
currency or the cash value of an index at a specified price and time. A futures
contract on an index is an agreement pursuant to which two parties agree to take
or make delivery of an amount of cash equal to the difference between the value
of the index at the close of the last trading day of the contract and the price
at which the index contract was originally written. Although the value of an
index might be a function of the value of certain specified securities, no
physical delivery of these securities is made.
The Portfolio may purchase and write call and put futures options.
Futures options possess many of the same characteristics as options on
securities and indexes (discussed above). A futures option gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
To comply with applicable rules of the Commodity Futures Trading
Commission under which the Trust and the Portfolio avoid being deemed a
"commodity pool" or a "commodity pool operator," the Portfolio intends generally
to limit its use of futures contracts and futures options to "bona fide hedging"
transactions, as such term is defined in applicable regulations, interpretations
and practice. For example, the Portfolio might use futures contracts to hedge
against anticipated changes in interest rates that might adversely affect either
the value of the Portfolio's securities or the price of the securities which the
Portfolio intends to purchase. The Portfolio's hedging activities may include
sales of futures contracts as an offset against the effect or expected increases
in interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce that Portfolio's exposure to interest rate fluctuations, the
Portfolio may be able to hedge its exposure more effectively and perhaps at a
lower cost by using futures contracts and futures options.
The Portfolio will only enter into futures contracts and futures
options which are standardized and traded on a U.S. or foreign exchange, board
of trade, or similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by the Portfolio,
the Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each Portfolio expects to earn interest income on its initial margin
deposits. A futures contract held by the Portfolio is valued daily at the
official settlement price of the exchange on which it is traded. Each day the
Portfolio pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as "market to
market." Variation margin does not represent a borrowing or loan by the
Portfolio but is instead a settlement between the Portfolio and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, each Portfolio will mark to market its open futures
positions.
The Portfolio is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Portfolio.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Portfolio realizes a
capital gain, or if it is more, the Portfolio realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Portfolio realizes a capital gain, or if it is less, the Portfolio
realizes a capital loss. The transaction costs must also be included in these
calculations.
Limitations on Use of Futures and Futures Options. In general, the
Portfolios intend to enter into positions in futures contracts and related
options only for "bona fide hedging" purposes. With respect to positions in
futures and related options that do not constitute bona fide hedging positions,
the Portfolio will not enter into a futures contract or futures option contract
if, immediately thereafter, the aggregate initial margin deposits relating to
such positions plus premiums paid by it for open futures option positions, less
the amount by which any such options are "in-the-money," would exceed 5% of the
Portfolio's total assets. A call option is "in-the-money" if the value of the
futures contract that is the subject of the option exceeds the exercise price. A
put option is "in-the-money" if the exercise price exceeds the value of the
futures contract that is the subject of the option.
When purchasing a futures contract, the Portfolio will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, are equal to the
market value of the futures contract. Alternatively, the Portfolio may "cover"
its position by purchasing a put option on the same futures contract with a
strike price as high or higher than the price of the contract held by the
Portfolio.
When selling a futures contract, the Portfolio will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amount deposited with a futures commission merchant as margin, are equal
to the market value of the instruments underlying the contract. Alternatively,
the Portfolio may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, the Portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Portfolio to
purchase the same futures contract at a price no higher than the price of the
contract written by the Portfolio (or at a higher price if the difference is
maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, the Portfolio will
maintain with its custodian (and mark-to-market on a daily basis) cash, U.S.
Government securities, or other highly liquid debt securities that, when added
to the amounts deposited with a futures commission merchant as margin, equal the
total market value of the futures contract underlying the call option.
Alternatively, the Portfolio may cover its position by entering into a long
position in the same futures contract at a price no higher than the strike price
of the call option, by owning the instruments underlying the futures contract,
or by holding a separate call option permitting the Portfolio to purchase the
same futures contract at a price not higher than the strike price of the call
option sold by the Portfolio.
When selling a put option on a futures contract, the Portfolio will
maintain with its custodian (and mark-to market on a daily basis) cash, U.S.
Government securities, or other highly liquid debt securities that equal the
purchase price of the futures contract, less any margin on deposit.
Alternatively, the Portfolio may cover the position either by entering into a
short position in the same futures contract, or by owning a separate put option
permitting it to sell the same futures contract so long as the strike price of
the purchased put option is the same or higher than the strike price of the put
option sold by the Portfolio.
Swap Agreements. The Portfolios may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded that desired return. For a
discussion of swap agreements, see the Trust's Prospectus under "Investment
Objectives and Policies." The Portfolio's obligations under a swap agreement
will be accrued daily (offset against any amounts owing to the Portfolio) and
any accrued but unpaid net amounts owed to a swap counterpart will be covered by
the maintenance of a segregated account consisting of cash, U.S. Government
securities, or high grade debt obligations, to avoid any potential leveraging of
the Portfolio's portfolio. The Portfolio will not enter into a swap agreement
with any single party if the net amount owned or to be received under existing
contracts with that party would exceed 5% of the Portfolio's assets.
Whether the Portfolio's use of swap agreements will be successful in
furthering its investment objective of total return will depend on the
Sub-advisor's ability correctly to predict whether certain types of investments
are likely to produce greater returns than other investments. Because they are
two party contracts and because they may have terms of greater than seven days,
swap agreements may be considered to be illiquid. Moreover, the Portfolio bears
the risk of loss of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement counterpart. The
Sub-advisor will cause the Portfolio to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Portfolio's repurchase agreement guidelines. Certain
restrictions imposed on the Portfolios by the Internal Revenue Code may limit
the Portfolios' ability to use swap agreements. The swaps market is a relatively
new market and is largely unregulated. It is possible that developments in the
swaps market, including potential government regulation, could adversely affect
the Portfolio's ability to terminate existing swap agreements or to realize
amounts to be received under such agreements.
Certain swap agreements are exempt from most provisions of the
Commodity Exchange Act ("CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the Commodity Futures Trading Commission ("CFTC"). To qualify for this
exemption, a swap agreement must be entered into by "eligible participants,"
which includes the following, provided the participants' total assets exceed
established levels: a bank or trust company, savings association or credit
union, insurance company, investment company subject to regulation under the
Investment Company Act of 1940, commodity pool, corporation, partnership,
proprietorship, organization, trust or other entity, employee benefit plan,
governmental entity, broker-dealer, futures commission merchant, natural person,
or regulated foreign person. To be eligible, natural persons and most other
entities must have total assets exceeding $10 million; commodity pools and
employee benefit plans must have assets exceeding $5 million. In addition, an
eligible swap transaction must meet three conditions. First, the swap agreement
may not be part of a fungible class of agreements that are standardized as to
their material economic terms. Second, the creditworthiness of parties with
actual or potential obligations under the swap agreement must be a material
consideration in entering into or determining the terms of the swap agreement,
including pricing, cost or credit enhancement terms. Third, swap agreements may
not be entered into and traded on or through a multilateral transaction
execution facility.
This exemption is not exclusive, and partnerships may continue to rely
on existing exclusions for swaps, such as the Policy Statement issued in July
1989 which recognized a safe harbor for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that (1) have
individual tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
Foreign Currency Exchange-Related Securities. The Portfolio may invest
in foreign currency warrants, principal exchange rate linked securities and
performance indexed paper. For a description of these instruments, see this
Statement under "Certain Risk Factor and Investment Methods."
Warrants to Purchase Securities. The Portfolio may invest in or acquire
warrants to purchase equity or fixed-income securities. Bonds with warrants
attached to purchase equity securities have many characteristics of convertible
bonds and their prices may, to some degree, reflect the performance of the
underlying stock. Bonds also may be issued with warrants attached to purchase
additional fixed-income securities at the same coupon rate. A decline in
interest rates would permit the Portfolio to buy additional bonds at the
favorable rate or to sell the warrants at a profit. If interest rates rise, the
warrants would generally expire with no value. The Portfolio will not invest
more than 5% of its net assets, valued at the lower cost or market, in warrants
to purchase securities. Included within that amount, but not to exceed 2% of the
Portfolio's net assets, may be warrants that rare not listed on the New York or
American Stock Exchanges. Warrants acquired in units or attached to securities
will be deemed to be without value for purposes of this restriction.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable only to the PIMCO Total Return Bond
Portfolio. The following investment policies may be changed by the Trustees
without shareholder approval.
1. The Portfolio will not invest more than 15% of the assets of the
Portfolio (taken at market value at the time of the investment) in "illiquid
securities," illiquid securities being defined to include securities subject to
legal or contractual restrictions on resale (which may include private
placements), repurchase agreements maturing in more than seven days, certain
options traded over the counter that the Portfolio has purchased, securities
being used to cover options a Portfolio has written, securities for which market
quotations are not readily available, or other securities which legally or in
the Sub-advisor's option may be deemed illiquid.
2. The Portfolio will not invest in a security if, as a result of such
investment more than 5% of its total assets (taken at market value at the time
of such investment) would be invested in securities of issuers (other than
issuers of Federal agency obligations) having a record, together with
predecessors or unconditional guarantors, of less than three years of continuous
operation.
3. The Portfolio will not purchase securities for the Portfolio from,
or sell portfolio securities to, any of the officers and directors or Trustees
of the Trust or of the Investment Manager or of the Sub-advisor.
4. The Portfolio will not invest more than 5% of the assets of the
Portfolio (taken at market value at the time of investment) in any combination
of interest only, principal only, or inverse floating rate securities.
PIMCO Limited Maturity Bond Portfolio:
Investment Policies:
Borrowing. The Portfolio may borrow for temporary purposes in an amount
not exceeding five percent of the value of its total assets. The Portfolio also
may borrow for investment purposes. Such a practice will result in leveraging of
the Portfolio's assets and may cause the Portfolio to liquidate portfolio
positions when it would not be advantageous to do so. This borrowing may be
unsecured. The Investment Company Act of 1940 requires the Portfolio to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, the Portfolio may be required to sell some of its portfolio holdings
within three days to reduce the debt and restore the 300% asset coverage, even
though it may be disadvantageous from an investment standpoint to sell
securities at that time. Borrowing will tend to exaggerate the effect on net
asset value of any increase or decrease in the market value of the Portfolio's
securities. Money borrowed will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased. The Portfolio also
may be required to maintain minimum average balances in connection with such
borrowing or to pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.
Among the forms of borrowing in which the Portfolio may engage is the
entry into reverse repurchase agreements. A reverse repurchase agreement
involves the sale of the Portfolio-eligible security by the Portfolio, coupled
with its agreement to repurchase the instrument at a specified time and price.
The Portfolio will maintain a segregated account with its Custodian consisting
of cash, U.S. Government securities or high quality debt securities equal (on a
daily mark-to-market basis) to its obligations under reverse repurchase
agreements with broker-dealers (but not banks). However, reverse repurchase
agreements involve the risk that the market value of securities retained by the
Portfolio may decline below the repurchase price of the securities sold by the
Portfolio which it is obligated to repurchase. To the extent that the Portfolio
collateralizes its obligations under a reverse repurchase agreement, the asset
coverage requirements of the Investment Company Act of 1940 will not apply.
The Portfolio also may enter into "mortgage dollar rolls," which are
similar to reverse repurchase agreements in certain respects. In a "dollar roll"
transaction the Portfolio sells a mortgage-related security (such as a GNMA
security) to a dealer and simultaneously agrees to repurchase a similar security
(but not the same security) in the future at a pre-determined price. A "dollar
roll" can be viewed, like a reverse repurchase agreement, as a collateralized
borrowing in which the Portfolio pledges a mortgage-related security to a dealer
to obtain cash. Unlike in the case of reverse repurchase agreements, the dealer
with which the Portfolio enters into a dollar roll transaction is not obligated
to return the same securities as those originally sold by the Portfolio, but
only securities which are "substantially identical." To be considered
"substantially identical," the securities returned to the Portfolio generally
must: (1) be collateralized by the same types of underlying mortgages; (2) be
issued by the same agency and be part of the same program; (3) have a similar
original stated maturity; (4) have identical net coupon rates; (5) have similar
market yields (and therefore price); and (6) satisfy "good delivery"
requirements, meaning that the aggregate principal amounts of the securities
delivered and received back must be within 2.5% of the initial amount delivered.
Dollar roll transactions involve the risk that the market value of the
securities sold may decline below the repurchase price of those securities. The
securities that are repurchased will be collateralized with different pools of
mortgages with different prepayment histories, and as a result, the borrower is
subject to a greater degree of prepayment related uncertainty.
The Portfolio's obligations under a dollar roll agreement must be
covered by cash or high quality debt securities equal in value to the securities
subject to repurchase by the Portfolio, maintained in a segregated account. To
the extent that the Portfolio collateralizes its obligations under a dollar roll
agreement, the asset coverage requirements of the Investment Company Act of 1940
will not apply to such transactions. Furthermore, because dollar roll
transactions may be for terms ranging between one and six months, dollar roll
transactions may be deemed "illiquid" and subject to the Portfolio's overall
limitations on investments in illiquid securities.
Corporate Debt Securities. The Portfolio's investments in U.S. dollar-
or foreign currency-denominated corporate debt securities of domestic or foreign
issuers are limited to corporate debt securities (corporate bonds, debentures,
notes and other similar corporate debt instruments, including convertible
securities) which meet the minimum ratings criteria set forth for the Portfolio,
or, if unrated, are in the Sub-advisor's opinion comparable in quality to
corporate debt securities in which the Portfolio may invest. The rate of return
or return of principal on some debt obligations may be linked or indexed to the
level of exchange rates between the U.S. dollar and a foreign currency or
currencies.
Among the corporate bonds in which the Portfolio may invest are
convertible securities. A convertible security is a bond, debenture, note, or
other security that entitles the holder to acquire common stock or other equity
securities of the same or a different issuer. A convertible security generally
entitles the holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities. Convertible securities rank senior to common stock in a
corporation's capital structure and, therefore, generally entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed-income security.
A convertible security may be subject to redemption at the option of
the issuer at a predetermined price. If a convertible security held by the
Portfolio is called for redemption, the Portfolio would be required to permit
the issuer to redeem the security and convert it to underlying common stock, or
would sell the convertible security to a third party. The Portfolio generally
would invest in convertible securities for their favorable price characteristics
and total return potential and would normally not exercise an option to convert.
Investments in securities rated below investment grade that are
eligible for purchase by the Portfolio (i.e., rated B or better by Moody's or
S&P), are described as "speculative" by both Moody's and S&P. Investment in
lower-rated corporate debt securities ("high yield securities") generally
provides greater income and increased opportunity for capital appreciation than
investments in higher quality securities, but they also typically entail greater
price volatility and principal and income risk. These high yield securities are
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. The market for these securities
is relatively new, and many of the outstanding high yield securities have not
endured a major business recession. A long-term track record on default rates,
such as that for investment grade corporate bonds, does not exist for this
market. Analysis of the creditworthiness of issuers of debt securities that are
high yield may be more complex than for issuers of higher quality debt
securities.
High yield securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of high yield securities have been found to be less
sensitive to interest-rate changes than higher-rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield security prices because the advent
of a recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If an issuer of high
yield securities defaults, in addition to risking payment of all or a portion of
interest and principal, the Portfolio may incur additional expenses to seek
recovery. In the case of high yield securities structured as zero-coupon or
pay-in-kind securities, their market prices are affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than securities
which pay interest periodically and in cash.
The secondary market on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Portfolio
could sell a high yield security, and could adversely affect the daily net asset
value of the shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of high
yield securities especially in a thinly-traded market. When secondary markets
for high yield securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
The Sub-advisor seeks to minimize the risks of investing in all securities
through diversification, in-depth credit analysis and attention to current
developments in interest rates and market conditions.
For a discussion of the risks involved in lower-rated debt securities,
see this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
Participation on Creditors Committees. The Portfolio may from time to
time participate on committees formed by creditors to negotiate with the
management of financially troubled issuers of securities held by the Portfolio.
Such participation may subject the Portfolio to expenses such as legal fees and
may make the Portfolio an "insider" of the issuer for purposes of the federal
securities laws, and therefore may restrict the Portfolio's ability to trade in
or acquire additional positions in a particular security when it might otherwise
desire to do so. Participation by the Portfolio on such committees also may
expose the Portfolio to potential liabilities under the federal bankruptcy laws
or other laws governing the rights of creditors and debtors. The Portfolio would
participate on such committees only when the Adviser believed that such
participation was necessary or desirable to enforce the Portfolio's rights as a
creditor or to protect the value of securities held by the Portfolio.
Mortgage-Related and Other Asset-Backed Securities. Mortgage-related
securities are interests in pools of residential or commercial mortgage loans,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations (see "Mortgage Pass-Through Securities"). The Portfolio
may also invest in debt securities which are secured with collateral consisting
of mortgage-related securities (see "Collateralized Mortgage Obligations"), and
in other types of mortgage-related securities.
Mortgage Pass-Through Securities. The Portfolio may invest in
mortgage-backed securities. For an additional discussion of mortgage-backed
securities and certain risks involved therein, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Interests in pools of mortgage-related securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential or commercial mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, at the scheduled payment dates regardless of whether
or not the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
United States Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the United States Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Trust's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. The Fixed-Income
Portfolio may buy mortgage-related securities without insurance or guarantees
if, through an examination of the loan experience and practices of the
originator/servicers and poolers, the Adviser determines that the securities
meet the Trust's quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. No Portfolio will purchase mortgage-related
securities or any other assets which in the Adviser's opinion are illiquid if,
as a result, more than 15% of the value of the Portfolio's total assets will be
illiquid.
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Portfolio'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from that test available to all U.S.
Government securities. In the case of privately issued mortgage-related
securities, the Portfolio take the position that mortgage-related securities do
not represent interests in any particular "industry" or group of industries. The
assets underlying such securities may be represented by the Portfolio of first
lien residential mortgages (including both whole mortgage loans and mortgage
participation interests) or portfolios of mortgage pass-through securities
issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the Federal
Housing Administration or the Department of Veterans Affairs. In the case of
private issue mortgage-related securities whose underlying assets are neither
U.S. Government securities nor U.S. Government-insured mortgages, to the extent
that real properties securing such assets may be located in the same
geographical region, the security may be subject to a greater risk of default
than other comparable securities in the event of adverse economic, political or
business developments that may affect such region and, ultimately, the ability
of residential homeowners to make payments of principal and interest on the
underlying mortgages.
Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt
obligations of FHLMC issued in multiple classes having different maturity dates
which are secured by the pledge of a pool of conventional mortgage loans
purchased by FHLMC. Unlike FHLMC PCs, payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO residuals are derivative mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of
CMOs is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities -- Stripped Mortgage-Backed Securities." In
addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual will also be
extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances the Portfolio may fail to
recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended. CMO
residuals, whether or not registered under such Act, may be subject to certain
restrictions on transferability, and may be deemed "illiquid" and subject to the
Portfolio's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities ("SMBS") are derivative multi-class mortgage securities. SMBS may be
issued by agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the Portfolio's yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the security is in one of the highest rating
categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Portfolio's limitations on investment in illiquid securities.
Other Asset-Backed Securities. Similarly, the Sub-advisor expects that
other asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities maybe offered
to investors, including Certificates for Automobile Receivables. For a
discussion of automobile receivables, see this Statement under "Certain Risk
Factors and Investment Methods."
Foreign Securities. The Portfolio may invest in U.S. dollar- or foreign
currency-denominated corporate debt securities of foreign issuers (including
preferred or preference stock), certain foreign bank obligations (see "Bank
Obligations") and U.S. dollar- or foreign currency-denominated obligations of
foreign governments or their subdivisions, agencies and instrumentalities,
international agencies and supranational entities. The Portfolio will limit its
foreign investments to securities of issuers based in developed countries (which
include Newly Industrialized Countries ("NICs") such as Mexico, Taiwan and South
Korea). Investing in the securities of foreign issuers involves special risks
and considerations not typically associated with investing in U.S. companies.
The Portfolio also may purchase and sell foreign currency options and foreign
currency futures contracts and related options (see "Derivative Instruments"),
and enter into forward foreign currency exchange contracts in order to protect
against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities.
A forward foreign currency contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts may be bought or sold to protect the
Portfolio against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar or to increase
exposure to a particular foreign currency. Open positions in forward contracts
are covered by the segregation with the Trust's custodian of high quality
short-term investments and are marked to market daily. Although such contracts
are intended to minimize the risk of loss due to a decline in the value of the
hedged currencies, at the same time, they tend to limit any potential gain which
might result should the value of such currencies increase.
Bank Obligations. Bank obligations in which the Portfolio invests
include certificates of deposit, bankers' acceptances, and fixed time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. The Portfolio will not invest in fixed time deposits which
(1) are not subject to prepayment or (2) provide for withdrawal penalties upon
prepayment (other than overnight deposits) if, in the aggregate, more than 15%
of its assets would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets.
The Portfolio will limit its investments in United States bank
obligations to obligations of United States banks (including foreign branches)
which have more than $1 billion in total assets at the time of investment and
are members of the Federal Reserve System or are examined by the Comptroller of
the Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation. The Portfolio also may invest in certificates of deposit of savings
and loan associations (federally or state chartered and federally insured)
having total assets in excess of $1 billion.
The Portfolio will limit its investments in foreign bank obligations to
United States dollar- or foreign currency-denominated obligations of foreign
banks (including United States branches of foreign banks) which at the time of
investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches or agencies (limited purpose
offices which do not offer all banking services) in the United States; and (iv)
in the opinion of the Sub-advisor, are of an investment quality comparable to
obligations of United States banks in which the Portfolio may invest. Subject to
the Trust's limitation on concentration of no more than 25% of its assets in the
securities of issuers in a particular industry, there is no limitation on the
amount of the Portfolio's assets which may be invested in obligations of foreign
banks which meet the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment
risks than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not generally subject to examination by any United
States Government agency or instrumentality.
Short Sales. The Portfolio may make short sales of securities as part
of their overall portfolio management strategies involving the use of derivative
instruments and to offset potential declines in long positions in similar
securities. A short sale is a transaction in which the Portfolio sells a
security it does not own in anticipation that the market price of that security
will decline.
When the Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. The Portfolio may have to pay a fee to borrow particular securities and is
often obligated to pay over any accrued interest on such borrowed securities.
If the price of the security sold short increases between the time of
the short sale and the time and the Portfolio replaces the borrowed security,
the Portfolio will incur a loss; conversely, if the price declines, the
Portfolio will realize a capital gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. The successful use of short
selling may be adversely affected by imperfect correlation between movements in
the price of the security sold short and the securities being hedged.
To the extent that the Portfolio engages in short sales, it will
provide collateral to the broker-dealer and (except in the case of short sales
"against the box") will maintain additional asset coverage in the form of cash,
U.S. Government securities or high grade debt obligations in a segregated
account. The Portfolio does not intend to enter into short sales (other than
those "against the box") if immediately after such sale the aggregate of the
value of all collateral plus the amount in such segregated account exceeds
one-third of the value of the Portfolio's net assets. This percentage may be
varied by action of the Trust's Board of Trustees. A short sale is "against the
box" to the extent that the Portfolio contemporaneously owns, or has the right
to obtain at no added cost, securities identical to those sold short. The
Portfolio will engage in short selling to the extent permitted by the Investment
Company Act of 1940 and rules and interpretations thereunder.
Derivative Instruments. In pursuing its objective, the Portfolio may,
as described in the Prospectus, purchase and sell (write) both put options and
call options on securities, securities indexes, and foreign currencies, and
enter into interest rate, foreign currency and index futures contracts and
purchase and sell options on such futures contracts ("futures options") for
hedging purposes. The Portfolio also may purchase and sell foreign currency
options for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one country to another. The
Portfolio also may enter into swap agreements with respect to foreign
currencies, interest rates and indexes of securities. If other types of
financial instruments, including other types of options, futures contracts, or
futures options are traded in the future, the Portfolio may also use those
instruments, provided that the Trust's Board of Trustees determines that their
use is consistent with the Portfolio's investment objective, and provided that
their use is consistent with restrictions applicable to options and futures
contracts currently eligible for use by the Trust (i.e., that written call or
put options will be "covered" or "secured" and that futures and futures options
will be used only for hedging purposes).
Options on Securities and Indexes. The Portfolio may purchase and sell
both put and call options on debt or other securities or indexes in standardized
contracts traded on foreign or national securities exchanges, boards of trade,
or similar entities, or quoted on NASDAQ or on a regulated foreign
over-the-counter market, and agreements, sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer.
The Portfolio will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are placed in a segregated account by its custodian) upon conversion
or exchange of other securities held by the Portfolio. For a call option on an
index, the option is covered if the Portfolio maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if the Portfolio holds a call on the same security or index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written, provided the difference is maintained by the Portfolio in cash
or cash equivalents in a segregated account with its custodian. A put option on
a security or an index is "covered" if the Portfolio maintains cash or cash
equivalents equal to the exercise price in a segregated account with its
custodian. A put option is also covered if the Portfolio holds a put on the same
security or index as the put written where the exercise price of the put held is
(i) equal to or greater than the exercise price of the put written, or (ii) less
than the exercise price of the put written, provided the difference is
maintained by the Portfolio in cash or cash equivalents in a segregated account
with its custodian.
If an option written by the Portfolio expires, the Portfolio realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the Portfolio expires unexercised, the Portfolio
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
The Portfolio will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Portfolio will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Portfolio will realize a capital gain
or, if it is less, the Portfolio will realize a capital loss. The principal
factors affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price of the underlying security or
index in relation to the exercise price of the option, the volatility of the
underlying security or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by the Portfolio is
an asset of the Portfolio. The premium received for an option written by the
Portfolio is recorded as a deferred credit. The value of an option purchased or
written is marked to market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no closing
price is available, at the mean between the last bid and asked prices.
Risks Associated with Options on Securities and Indexes. There are
several risks associated with transactions in options on securities and on
indexes. For a discussion of certain risks involved in options, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Foreign Currency Options. The Portfolio may buy or sell put and call
options on foreign currencies either on exchanges or in the over-the-counter
market. A put option on a foreign currency gives the purchaser of the option the
right to sell a foreign currency at the exercise price until the option expires.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Portfolio to reduce foreign currency
risk using such options. Over-the-counter options differ from traded options in
that they are two-party contracts with price and other terms negotiated between
buyer and seller, and generally do not have as much market liquidity as
exchange-traded options.
Futures Contracts and Options on Futures Contracts. The Portfolio may
use interest rate, foreign currency or index futures contracts. An interest
rate, foreign currency or index futures contract provides for the future sale by
one party and purchase by another party of a specified quantity of a financial
instrument, foreign currency or the cash value of an index at a specified price
and time. A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of these securities is made.
The Portfolio may purchase and write call and put futures options.
Futures options possess many of the same characteristics as options on
securities and indexes (discussed above). A futures option gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
To comply with applicable rules of the Commodity Futures Trading
Commission under which the Trust and the Portfolio avoid being deemed a
"commodity pool" or a "commodity pool operator," the Portfolio intends generally
to limit its use of futures contracts and futures options to "bona fide hedging"
transactions, as such term is defined in applicable regulations, interpretations
and practice. For example, the Portfolio might use futures contracts to hedge
against anticipated changes in interest rates that might adversely affect either
the value of the Portfolio's securities or the price of the securities which the
Portfolio intends to purchase. The Portfolio's hedging activities may include
sales of futures contracts as an offset against the effect of expected increases
in interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce that Portfolio's exposure to interest rate fluctuations, the
Portfolio may be able to hedge its exposure more effectively and perhaps at a
lower cost by using futures contracts and futures options.
The Portfolio will only enter into futures contracts and futures
options which are standardized and traded on a U.S. or foreign exchange, board
of trade, or similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by the Portfolio,
the Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Portfolio expects to earn interest income on its initial margin
deposits. A futures contract held by the Portfolio is valued daily at the
official settlement price of the exchange on which it is traded. Each day the
Portfolio pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Portfolio but is instead a settlement between the Portfolio and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, the Portfolio will mark to market its open futures
positions.
The Portfolio is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Portfolio.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Portfolio realizes a
capital gain, or if it is more, the Portfolio realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Portfolio realizes a capital gain, or if it is less, the Portfolio
realizes a capital loss. The transaction costs must also be included in these
calculations.
Limitations on Use of Futures and Futures Options. In general, the
Portfolio intends to enter into positions in futures contracts and related
options only for "bona fide hedging" purposes. With respect to positions in
futures and related options that do not constitute bona fide hedging positions,
the Portfolio will not enter into a futures contract or futures option contract
if, immediately thereafter, the aggregate initial margin deposits relating to
such positions plus premiums paid by it for open futures option positions, less
the amount by which any such options are "in-the-money," would exceed 5% of the
Portfolio's total net assets. A call option is "in-the-money" if the value of
the futures contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price exceeds the value of
the futures contract that is the subject of the option.
When purchasing a futures contract, the Portfolio will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, are equal to the
market value of the futures contract. Alternatively, the Portfolio may "cover"
its position by purchasing a put option on the same futures contract with a
strike price as high or higher than the price of the contract held by the
Portfolio.
When selling a futures contract, the Portfolio will maintain with its
custodian (and mark-to-market on a daily basis) liquid assets that, when added
to the amount deposited with a futures commission merchant as margin, are equal
to the market value of the instruments underlying the contract. Alternatively,
the Portfolio may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, the Portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Portfolio to
purchase the same futures contract at a price no higher than the price of the
contract written by the Portfolio (or at a higher price if the difference is
maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, the Portfolio will
maintain with its custodian (and mark-to-market on a daily basis) cash, U.S.
Government securities, or other highly liquid debt securities that, when added
to the amounts deposited with a futures commission merchant as margin, equal the
total market value of the futures contract underlying the call option.
Alternatively, the Portfolio may cover its position by entering into a long
position in the same futures contract at a price no higher than the strike price
of the call option, by owning the instruments underlying the futures contract,
or by holding a separate call option permitting the Portfolio to purchase the
same futures contract at a price not higher than the strike price of the call
option sold by the Portfolio.
When selling a put option on a futures contract, the Portfolio will
maintain with its custodian (and mark-to-market on a daily basis) cash, U.S.
Government securities, or other highly liquid debt securities that equal the
purchase price of the futures contract, less any margin on deposit.
Alternatively, the Portfolio may cover the position either by entering into a
short position in the same futures contract, or by owning a separate put option
permitting it to sell the same futures contract so long as the strike price of
the purchased put option is the same or higher than the strike price of the put
option sold by the Portfolio.
Risks in Futures Contracts and Related Options. For a discussion of the
risks involved in futures contracts and related options, see the Trust's
Prospectus and this Statement under "Certain Factors and Investment Methods."
Swap Agreements. The Portfolio may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded that desired return. For a
discussion of swap agreements, see the Trust's Prospectus under "Investment
Objectives and Policies." The Portfolio's obligations (or rights) under a swap
agreement will generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the "net amount"). The Portfolio's obligations under a
swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government securities, or high grade debt obligations, to avoid any
potential leveraging of the Portfolio's portfolio. The Portfolio will not enter
into a swap agreement with any single party if the net amount owed or to be
received under existing contracts with that party would exceed 5% of the
Portfolio's assets.
Whether the Portfolio's use of swap agreements will be successful in
furthering its investment objective of total return will depend on the
Sub-advisor's ability correctly to predict whether certain types of investments
are likely to produce greater returns than other investments. Because they are
two party contracts and because they may have terms of greater than seven days,
swap agreements may be considered to be illiquid. Moreover, the Portfolio bears
the risk of loss of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement counterparty. The
Sub-advisor will cause the Portfolio to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Portfolio' repurchase agreement guidelines. Certain
restrictions imposed on the Portfolio by the Internal Revenue Code may limit the
Portfolio' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect the
Portfolio's ability to terminate existing swap agreements or to realize amounts
to be received under such agreements.
Certain swap agreements are exempt from most provisions of the
Commodity Exchange Act ("CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the Commodity Futures Trading Commission ("CFTC"). To qualify for this
exemption, a swap agreement must be entered into by "eligible participants,"
which includes the following, provided the participants' total assets exceed
established levels: a bank or trust company, savings association or credit
union, insurance company, investment company subject to regulation under the
Investment Company Act of 1940, commodity pool, corporation, partnership,
proprietorship, organization, trust or other entity, employee benefit plan,
governmental entity, broker-dealer, futures commission merchant, natural person,
or regulated foreign person. To be eligible, natural persons and most other
entities must have total assets exceeding $10 million; commodity pools and
employee benefit plans must have assets exceeding $5 million. In addition, an
eligible swap transaction must meet three conditions. First, the swap agreement
may not be part of a fungible class of agreements that are standardized as to
their material economic terms. Second, the creditworthiness of parties with
actual or potential obligations under the swap agreement must be a material
consideration in entering into or determining the terms of the swap agreement,
including pricing, cost or credit enhancement terms. Third, swap agreements may
not be entered into and traded on or through a multilateral transaction
execution facility.
This exemption is not exclusive, and participants may continue to rely
on existing exclusions for swaps, such as the Policy Statement issued in July
1989 which recognized a safe harbor for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
Foreign Currency Exchange Related Securities. The Portfolio may also
invest in foreign currency warrants, principal exchange rate linked securities
and performance indexed paper. For a discussion of these, see this Statement
under "Certain Risk Factors and Investment Methods."
Warrants to Purchase Securities. The Portfolio may invest in or acquire
warrants to purchase equity or fixed-income securities. Bonds with warrants
attached to purchase equity securities have many characteristics of convertible
bonds and their prices may, to some degree, reflect the performance of the
underlying stock. Bonds also may be issued with warrants attached to purchase
additional fixed-income securities at the same coupon rate. A decline in
interest rates would permit the Portfolio to buy additional bonds at the
favorable rate or to sell the warrants at a profit. If interest rates rise, the
warrants would generally expire with no value.
The Portfolio will not invest more than 5% of its net assets, valued at
the lower of cost or market, in warrants to purchase securities. Included within
that amount, but not to exceed 2% of the Portfolio's net assets, may be warrants
that are not listed on the New York or American Stock Exchanges. Warrants
acquired in units or attached to securities will be deemed to be without value
for purposes of this restriction.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the PIMCO Limited Maturity Bond
Portfolio. The following investment policies may be changed by the Trustees
without shareholder approval. The Portfolio may not:
1. Invest more than 15% of the assets of the Portfolio (taken at market
value at the time of the investment) in "illiquid securities", illiquid
securities being defined to include securities subject to legal or contractual
restrictions on resale (which may include private placements), repurchase
agreements maturing in more than seven days, certain options traded over the
counter that a Portfolio has purchased, securities being used to cover such
options a Portfolio has written, securities for which market quotations are not
readily available, or other securities which legally or in the Sub-advisor's
opinion may be deemed illiquid.
2. Invest in a security if, as a result of such investment, more than
5% of its total assets (taken at market value at the time of such investment)
would be invested in securities of issuers (other than issuers of Federal agency
obligations) having a record, together with predecessors or unconditional
guarantors, of less than three years of continuous operation.
3. Invest more than 5% of the assets of the Portfolio (taken at market
value at the time of investment) in any combination of interest only, principal
only, or inverse floating rate securities.
The Staff of the Securities and Exchange Commission has taken the
position that purchased OTC options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Portfolio has adopted an
investment policy pursuant to which the Portfolio will not purchase or sell OTC
options if, as a result of such transactions, the sum of the market value of OTC
options currently outstanding which are held by the Portfolio, the market value
of the underlying securities covered by OTC call options currently outstanding
which were sold by the Portfolio and margin deposits on the Portfolio's existing
OTC options on futures contracts exceeds 15% of the total assets of the
Portfolio, taken at market value, together with all other assets of the
Portfolio which are illiquid or are otherwise not readily marketable. However,
if an OTC option is sold by the Portfolio to a primary U.S. Government
securities dealer recognized by the Federal Reserve Bank of New York and if the
Portfolio has the unconditional contractual right to repurchase such OTC option
from the dealer at a predetermined price, then the Portfolio will treat as
illiquid such amount of the underlying securities equal to the repurchase price
less the amount by which the option is "in-the-money" (i.e., current market
value of the underlying securities minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money."
Berger Capital Growth Portfolio:
Investment Policies:
Index Options. An option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index on which the option is based is less than (in the case of a put)
or a greater than (in the case of a call) the exercise price of the options.
This amount of cash is equal to the difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the purchase price (the "premium") paid to him, to make delivery of
this amount. Options are traded on a number of different indices.
Hedging. The Portfolio will purchase put and call options on stock
indices for the purpose of hedging and not for speculation. Hedging may be
employed to cushion the Portfolio against possible declines in the market value
of its securities, or to establish a position in an equity equivalent as a
temporary substitute for the purchase of individual stocks. To hedge a Portfolio
against a decline in value, the Portfolio may buy a put on a stock index. To
protect the Portfolio against an increase in the price of equities at a time
when the Portfolio has a substantial cash equivalent position, the Portfolio may
buy a call on a stock index pending investment in equities.
When the Sub-advisor believes the trend of stock prices may be
downward, particularly over a short period of time, the Portfolio may hedge
through the purchase of a put on a stock index to cushion the anticipated
decline in value of the Portfolio's holdings. This is an alternative to the sale
and possible subsequent repurchase of stocks, which might involve significant
transaction costs. Conversely, the purchase of a call option on a stock index
may allow the Portfolio to quickly obtain exposure to common stock equivalents
in a rising market, thus permitting the Portfolio to purchase stocks gradually
over the option period in a manner designed to minimize adverse price movements,
and with more thorough evaluation of investment alternatives. The purpose of
purchasing put and call options on stock indices is therefore not to generate
gains, but to hedge. Successful hedging activities are not designed to produce a
net gain to a Portfolio. Any gain in the price of a put option is likely to be
offset by lower prices of stocks owned by the Portfolio and any gain in the
price of a call option is likely to be offset by the higher prices the Portfolio
must pay in rising markets as it increases its holdings of common stocks.
Restricted Securities. The Portfolio expects that any restricted
securities would be acquired either from institutional investors who originally
acquired the securities in private placements or directly from the issuers of
the securities in private placements. Restricted securities are generally
subject to legal or contractual delays on resale. Restricted securities and
securities that are not readily marketable may sell at a discount from the price
they would bring if freely marketable. For a discussion of illiquid or
restricted securities and certain risks involved therein, see the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to illiquid securities.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements through which an investor (such as the Portfolio) purchases a
security (known as the "underlying security") from a well-established securities
dealer or a bank which is a member of the Federal Reserve System. Any such
dealer or bank will be on Sub-advisor's approved list and have a credit rating
with respect to its short-term debt of at least A1 by Standard & Poor's
Corporation, P1 by Moody's Investors Service, Inc., or the equivalent rating by
Sub-advisor. At that time, the bank or securities dealer agrees to repurchase
the underlying security at the same price, plus specified interest. Repurchase
agreements are generally for a short period of time, often less than a week.
Repurchase agreements which do not provide for payment within seven days will be
considered illiquid. The Portfolio will only enter into repurchase agreements
where (i) the underlying securities are of the type (excluding maturity
limitations) which the Portfolio's investment guidelines would allow it to
purchase directly, (ii) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying security is made only
upon physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Portfolio could experience
both delays in liquidating the underlying securities and losses, including: (a)
possible decline in the value of the underlying security during the period while
the Portfolio seeks to enforce its rights thereto; (b) possible subnormal levels
of income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Investment Policies Which May Be Changed Without Shareholder Approval.
Set forth below are "non-fundamental" investment restrictions applicable only to
the Berger Capital Growth Portfolio, which may be changed without shareholder
approval:
1. The Portfolio may purchase put and call options on stock indexes for
the purpose of hedging, but no more than 1% of the Portfolio's total net assets
at the time of purchase of such an option may be invested in put and call
options.
2. The Portfolio may not purchase or sell any interest in an oil, gas
or mineral development or exploration program, including investments in oil, gas
or mineral leases.
3. The Portfolio's investment in warrants, valued at the lower of cost
or market, may not exceed 5% of the value of the Portfolio's net assets.
Included within that amount, but not to exceed 2% of the value of the
Portfolio's net assets, may be warrants that are not listed on the New York
Stock Exchange or American Stock Exchange.
4. The Portfolio does not currently intend to purchase any security,
including any repurchase agreement maturing in more than seven days, which is
not readily marketable, if more than 15% of the net assets of the Portfolio
taken at market value at the time of purchase would be invested in such
securities.
Robertson Stephens Value + Growth Portfolio:
Investment Objective: The investment objective of the Robertson
Stephens Value + Growth Portfolio is to seek capital appreciation.
Investment Policies:
Options. The Portfolio may purchase and sell put and call options on
its securities to enhance performance and to protect against changes in market
prices.
Covered Call Options. The Portfolio may write covered call
options on its securities to realize a greater current return through the
receipt of premiums than it would realize on its securities alone. Such option
transactions may also be used as a limited form of hedging against a decline in
the price of securities owned by the Portfolio.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call
option, the Portfolio gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The Portfolio retains the risk of loss should the price
of such securities decline. If the option expires unexercised, the Portfolio
realizes a gain equal to the premium, which may be offset by a decline in price
of the underlying security. If the option is exercised, the Portfolio realizes a
gain or loss equal to the difference between the Portfolio's cost for the
underlying security and the proceeds of sale (exercise price minus commissions)
plus the amount of the premium.
The Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. The Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Portfolio.
Covered Put Options. The Portfolio may write covered put
options in order to enhance its current return. Such options transactions may
also be used as a limited form of hedging against an increase in the price of
securities that the Portfolio plans to purchase. A put option gives the holder
the right to sell, and obligates the writer to buy, a security at the exercise
price at any time before the expiration date. A put option is "covered" if the
writer segregates cash and high-grade short-term debt obligations or other
permissible collateral equal to the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
The Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
Purchasing Put and Call Options. The Portfolio may also
purchase put options to protect portfolio holdings against a decline in market
value. This protection lasts for the life of the put option because the
Portfolio, as a holder of the option, may sell the underlying security at the
exercise price regardless of any decline in its market price. In order for a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Portfolio must pay. These costs will reduce any
profit the Portfolio might have realized had it sold the underlying security
instead of buying the put option.
The Portfolio may purchase call options to hedge against an increase in
the price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Portfolio
might have realized had it bought the underlying security at the time it
purchased the call option.
The Portfolio may also purchase put and call options to attempt to
enhance its current return.
Options on Foreign Securities. The Portfolio may purchase and
sell options on foreign securities if the Sub-advisor believes that the
investment characteristics of such options, including the risks of investing in
such options, are consistent with the Portfolio's investment objectives. It is
expected that risks related to such options will not differ materially from
risks related to options on U.S. securities. However, position limits and other
rules of foreign exchanges may differ from those in the U.S. In addition,
options markets in some countries, many of which are relatively new, may be less
liquid than comparable markets in the U.S.
Risks Associated with Options. See this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods" for a
description of certain risks involved in options transactions.
Special Expiration Price Options. The Portfolio may purchase
over-the-counter ("OTC") puts and calls with respect to specified securities
("special expiration price options") pursuant to which the Portfolio in effect
may create a custom index relating to a particular industry or sector that the
Sub-advisor believes will increase or decrease in value generally as a group. In
exchange for a premium, the counterparty, whose performance is guaranteed by a
broker-dealer, agrees to purchase (or sell) a specified number of shares of a
particular stock at a specified price and further agrees to cancel the option at
a specified price that decreases straight line over the term of the option.
Thus, the value of the special expiration price option is comprised of the
market value of the applicable underlying security relative to the option
exercise price and the value of the remaining premium. However, if the value of
the underlying security increases (or decreases) by a prenegotiated amount, the
special expiration price option is canceled and becomes worthless. A portion of
the dividends during the term of the option are applied to reduce the exercise
price if the options are exercised. Brokerage commissions and other transaction
costs will reduce the Portfolio's profits if the special expiration price
options are exercised. The Portfolio will not purchase special expiration price
options with respect to more than 25% of the value of its net assets, and will
limit premiums paid for such options in accordance with state securities laws.
LEAPs and BOUNDs. The Portfolio may purchase certain long-term
exchange-traded equity options called Long-Term Equity Anticipation Securities
("LEAPs") and Buy-Right Options Unitary Derivatives ("BOUNDs"). LEAPs provide a
holder the opportunity to participate in the underlying securities' appreciation
in excess of a fixed dollar amount. BOUNDs provide a holder the opportunity to
retain dividends on the underlying security while potentially participating in
the underlying securities' capital appreciation up to a fixed dollar amount. The
Portfolio will not purchase these options with respect to more than 25% of the
value of its net assets, and will limit the premiums paid for purchasing such
options in accordance with the most restrictive applicable state securities
laws.
LEAPs are long-term call options that allow holders the opportunity to
participate in the underlying securities' appreciation in excess of a specified
strike price, without receiving payments equivalent to any cash dividends
declared on the underlying securities. A LEAP holder will be entitled to receive
a specified number of shares of the underlying stock upon payment of the
exercise price, and therefore the LEAP will be exercisable at any time the price
of the underlying stock is above the strike price. However, if at expiration the
price of the underlying stock is at or below the strike price, the LEAP will
expire worthless.
BOUNDs are long-term options which are expected to have the same
economic characteristics as covered call options, with the added benefits that
BOUNDs can be traded in a single transaction and are not subject to early
exercise. Covered call writing is a strategy by which an investor sells a call
option while simultaneously owning the number of shares of the stock underlying
the call. BOUND holders are able to participate in a stock's price appreciation
up to but not exceeding a specified strike price while receiving payments
equivalent to any cash dividends declared on the underlying stock. At
expiration, a BOUND holder will receive a specified number of shares of the
underlying stock for each BOUND held if, on the last day of trading, the
underlying stock closes at or below the strike price. However, if at expiration
the underlying stock closes above the strike price, the BOUND holder will
receive a payment equal to a multiple of the BOUND's strike price for each BOUND
held. The terms of a BOUND are not adjusted because of cash distributions to the
shareholders of the underlying security. BOUNDs are subject to the position
limits for equity options imposed by the exchanges on which they are traded.
The settlement mechanism for BOUNDs operates in conjunction with that
of the corresponding LEAPs. For example, if at expiration the underlying stock
closes at or below the strike price, the LEAP will expire worthless, and the
holder of a corresponding BOUND will receive a specified number of shares of
stock from the writer of the BOUND. If, on the other hand, the LEAP is "in the
money" at expiration, the holder of the LEAP is entitled to receive a specified
number of shares of the underlying stock from the LEAP writer upon payment of
the strike price, and the holder of a BOUND on such stock is entitled to the
cash equivalent of a multiple of the strike price from the writer of the BOUND.
An investor holding both a LEAP and a corresponding BOUND, where the underlying
stock closes above the strike price at expiration, would be entitled to receive
a multiple of the strike price from the writer of the BOUND and, upon exercise
of the LEAP, would be obligated to pay the same amount to receive shares of the
underlying stock. LEAPs are American-style options (exercisable at any time
prior to expiration), whereas BOUNDs are European-style options (exercisable
only on the expiration date).
Futures Contracts.
Index Futures Contracts and Options. The Portfolio may buy and
sell futures contracts and related options for hedging purposes or to attempt to
increase investment return. The Portfolio currently expects that it will only
purchase and sell stock index futures contracts and related options. A stock
index futures contract is a contract to buy or sell units of a stock index at a
specified future date at a price agreed upon when the contract is made. A unit
is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100
Index") is composed of 100 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 100 Index assigns relative weightings to
the common stocks included in the Index, and the Index fluctuates with changes
in the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. For example, if the Portfolio enters into a futures contract to
buy 100 units of the S&P 100 Index at a specified future date at a contract
price of $180 and the S&P 100 Index is at $184 on that future date, the
Portfolio will gain $400 (100 units x gain of $4). If the Portfolio enters into
a futures contract to sell 100 units of the stock index at a specified future
date at a contract price of $180 and the S&P 100 Index is at $182 on that future
date, the Portfolio will lose $200 (100 units x loss of $2).
The Portfolio may purchase or sell futures contracts with respect to
any securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge its investments successfully using futures contracts
and related options, the Portfolio must invest in futures contracts with respect
to indexes or sub-indexes the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the Portfolio's
securities.
Options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
As an alternative to purchasing and selling call and put options on
index futures contracts, the Portfolio may purchase and sell call and put
options on the underlying indexes themselves to the extent that such options are
traded on national securities exchanges. Index options are similar to options on
individual securities in that the purchaser of an index option acquires the
right to buy (in the case of a call) or sell (in the case of a put), and the
writer undertakes the obligation to sell or buy (as the case may be), units of
an index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of an
index option has the right to receive a cash "exercise settlement amount." This
amount is equal to the amount 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 the exercise, multiplied by
a fixed "index multiplier."
The Portfolio may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. The Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to the Portfolio
because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.
Margin Payments. When the Portfolio purchases or sells a
futures contract, it is required to deposit with its custodian an amount of
cash, U.S. Treasury bills, or other permissible collateral equal to a small
percentage of the amount of the futures contract. This amount is known as
"initial margin." The nature of initial margin is different from that of margin
in security transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to the Portfolio upon termination of the
contract, assuming the Portfolio satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when the Portfolio sells a futures contract and the price of the
underlying index rises above the delivery price, the Portfolio's position
declines in value. The Portfolio then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the value of the index underlying the futures contract. Conversely, if the price
of the underlying index falls below the delivery price of the contract, the
Portfolio's futures position increases in value. The broker then must make a
variation margin payment equal to the difference between the delivery price of
the futures contract and the value of the index underlying the futures contract.
When the Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
Special Risks of Transactions in Futures Contracts and Related Options.
See this Statement and the Trust's Prospectus under "Certain Risk Factors and
Investment Methods" for a description of certain risks involved in transactions
in futures contracts and related options.
Indexed Securities. The Portfolio may purchase securities whose prices
are indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
whose price characteristics are similar to a put option on the underlying
currency. Currency-indexed securities also may have prices that depend on the
values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, commodity or other instrument to which
they are indexed, and also may be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
Government agencies.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements. A repurchase agreement is a contract under which the Portfolio
acquires a security for a relatively short period (usually not more than one
week) subject to the obligation of the seller to repurchase and the Portfolio to
resell such security at a fixed time and price (representing the Portfolio's
cost plus interest). It is the Portfolio's present intention to enter into
repurchase agreements only with member banks of the Federal Reserve System and
securities dealers which the Sub-advisor deems to be creditworthy, pursuant to
guidelines established by the Trust's Board of Trustees, and only with respect
to obligations of the U.S. government or its agencies or instrumentalities or
other high-quality, short-term debt obligations. Repurchase agreements may also
be viewed as loans made by the Portfolio which are collateralized by the
securities subject to repurchase. The Sub-advisor will monitor such transactions
to ensure that the value of the underlying securities will be at least equal at
all times to the total amount of the repurchase obligation, including the
interest factor. For a discussion of repurchase agreements and the risks
involved therein, see the Trust's Prospectus under "Certain Risk Factors and
Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Portfolio Securities Lending. The Portfolio may lend its securities,
provided: (1) the loan is secured continuously by collateral consisting of U.S.
Government securities, cash, or cash equivalents adjusted daily to have market
value at least equal to the current market value of the securities loaned; (2)
the Portfolio may at any time call the loan and regain the securities loaned;
(3) the Portfolio will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed one-third (or such other limit as the Trust's Board of Trustees
may establish) of the total assets of the Portfolio. In addition, it is
anticipated that the Portfolio may share with the borrower some of the income
received on the collateral for the loan or that it will be paid a premium for
the loan.
Before the Portfolio enters into a loan, the Sub-advisor considers all
relevant facts and circumstances, including the creditworthiness of the
borrower. The risks in lending portfolio securities, as with other extensions of
credit, consist of possible delay in recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially. Although
voting rights or rights to consent with respect to the loaned securities pass to
the borrower, the Portfolio retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the Portfolio if the holders of such securities are asked to vote upon or
consent to matters materially affecting the investment. The Portfolio will not
lend portfolio securities to borrowers affiliated with the Portfolio.
Short Sales. The Portfolio may seek to hedge investments or realize
additional gains through short sales. Short sales are transactions in which the
Portfolio sells a security it does not own, in anticipation of a decline in the
market value of that security. To complete such a transaction, the Portfolio
must borrow the security to make delivery to the buyer. The Portfolio then is
obligated to replace the security borrowed by purchasing it at the market price
at or prior to the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Portfolio. Until the
security is replaced, the Portfolio is required to repay the lender any
dividends or interest that accrue during the period of the loan. To borrow the
security, the Portfolio also may be required to pay a premium, which would
increase the cost of the security sold. The net proceeds of the short sale will
be retained by the broker (or by the Portfolio's custodian in a special custody
account), to the extent necessary to meet margin requirements, until the short
position is closed out. The Portfolio also will incur transaction costs in
effecting short sales.
The Portfolio will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale and the date
on which the Portfolio replaces the borrowed security. The Portfolio will
realize a gain if the security declines in price between those dates. The amount
of any gain will be decreased, and the amount of any loss increased, by the
amount of the premium, dividends, interest or expenses the Portfolio may be
required to pay in connection with a short sale.
Foreign Investments. The Portfolio may invest in foreign securities,
securities denominated in or indexed to foreign currencies, and certificates of
deposit issued by United States branches of foreign banks and foreign branches
of United States banks. For a discussion of the risks involved in foreign
currency fluctuations and investing in foreign securities, in general, see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
The considerations associated with foreign investments generally are
intensified for investments in developing countries. For a discussion of the
risks involved therein, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Foreign Currency Transactions. The Portfolio may engage in currency
exchange transactions to protect against uncertainty in the level of future
foreign currency exchange rates and to increase current return. The Portfolio
may engage in both "transaction hedging" and "position hedging".
When it engages in transaction hedging, the Portfolio enters into
foreign currency transactions with respect to specific receivables or payables
of the Portfolio generally arising in connection with the purchase or sale of
its portfolio securities. The Portfolio will engage in transaction hedging when
it desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging, the Portfolio will
attempt to protect against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold or
on which the dividend or interest payment is declared, and the date on which
such payments are made or received.
The Portfolio may purchase or sell a foreign currency on a spot (i.e.,
cash) basis at the prevailing spot rate in connection with transaction hedging.
The Portfolio may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase and sell foreign
currency futures contracts.
For transaction hedging purposes, the Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Portfolio the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Portfolio the
right to sell a currency at a specified exercise price until the expiration of
the option. A call option on a futures contract gives the Portfolio the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives the Portfolio the right to purchase a
currency at the exercise price until the expiration of the option. The Portfolio
will engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of the
Sub-advisor, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.
When it engages in position hedging, the Portfolio enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Portfolio are denominated or
are quoted in their principle trading markets or an increase in the value of
currency for securities which the Portfolio expects to purchase. In connection
with position hedging, the Portfolio may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. The Portfolio may also
purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of the
Portfolio's securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency the Portfolio is obligated to deliver and if
a decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of the Portfolio if the market value of such security or securities
exceeds the amount of foreign currency the Portfolio is obligated to deliver.
To offset some of the costs to the Portfolio of hedging against
fluctuations in currency exchange rates, the Portfolio may write covered call
options on those currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
the value of such currency.
The Portfolio may also seek to increase its current return by
purchasing and selling foreign currency on a spot basis, by purchasing and
selling options on foreign currencies and on foreign currency futures contracts,
and by purchasing and selling foreign currency forward contracts.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the Commodity Futures Trading Commission (the "CFTC"), such as the
New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Portfolio may
either accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Portfolio will normally
purchase or sell foreign currency futures contracts and related options only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or option or at any particular
time. In such event, it may not be possible to close a futures or related option
position and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin on its
futures positions.
Foreign Currency Options. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when the Sub-advisor believes that a liquid secondary market exists for such
options. There can be no assurance that a liquid secondary market will exist for
a particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence exchange rates and investments
generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last-sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio
at one rate, while offering a lesser rate of exchange should the Portfolio
desire to resell that currency to the dealer.
Zero-Coupon Debt Securities and Pay-in-Kind Securities. The Portfolio
may invest in zero-coupon securities. Zero-coupon securities allow an issuer to
avoid the need to generate cash to meet current interest payments. For a
discussion of zero-coupon debt securities and the risks involved therein, see
this Statement under "Certain Risk Factors and Investment Methods."
The Portfolio also may purchase pay-in-kind securities. Pay-in-kind
securities pay all or a portion of their interest or dividends in the form of
additional securities.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following investment restrictions, applicable only to the Robertson Stephens
Value + Growth Portfolio, are not "fundamental" restrictions and may be changed
without shareholder approval. The Portfolio may not:
1. Invest in warrants (other than warrants acquired by the Portfolio as
a part of a unit or attached to securities at the time of purchase) if, as a
result, such investment (valued at the lower of cost or market value) would
exceed 5% of the value of the Portfolio's net assets, provided that not more
than 2% of the Portfolio's net assets may be invested in warrants not listed on
the New York or American Stock Exchanges;
2. Purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase or sell financial futures contracts, options on financial
futures contracts, and futures contracts, forward contracts, and options with
respect to foreign currencies, and may enter into swap transactions;
3. Purchase securities restricted as to resale if, as a result, (i)
more than 10% of the Portfolio's total assets would be invested in such
securities, or (ii) more than 5% of the Portfolio's total assets (excluding any
securities eligible for resale under Rule 144A under the Securities Act of 1933)
would be invested in such securities;
4. Invest in (a) securities which at the time of such investment are
not readily marketable, (b) securities restricted as to resale, and (c)
repurchase agreements maturing in more than seven days, if, as a result, more
than 15% of the Portfolio's net assets (taken at current value) would then be
invested in the aggregate in securities described in (a), (b), and (c) above;
5. Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of its total assets (taken
at current value) would be invested in such securities, or except as part of a
merger, consolidation, or other acquisition;
6. Invest in real estate limited partnerships;
7. Purchase any security if, as a result, the Portfolio would then have
more than 5% of its total assets (taken at current value) invested in securities
of companies (including predecessors) less than three years old;
8. Purchase or sell real estate or interests in real estate, including
real estate mortgage loans, although it may purchase and sell securities which
are secured by real estate and securities of companies, including limited
partnership interests, that invest or deal in real estate and it may purchase
interests in real estate investment trusts. (For purposes of this restriction,
investments by the Portfolio in mortgage-backed securities and other securities
representing interests in mortgage pools shall not constitute the purchase or
sale of real estate or interests in real estate or real estate mortgage loans.);
9. Make investments for the purpose of exercising control or
management;
10. Invest in interests in oil, gas or other mineral exploration or
development programs or leases, although it may invest in the common stocks of
companies that invest in or sponsor such programs;
11. Acquire more than 10% of the voting securities of any issuer;
12. Invest more than 15%, in the aggregate, of its total assets in the
securities of issuers which, together with any predecessors, have a record of
less than three years continuous operation and securities restricted as to
resale (including any securities eligible for resale under Rule 144A under the
Securities Act of 1933); or
13. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, if, as a result, the aggregate amount of premiums paid or
received by the Portfolio in respect of any such transactions then outstanding
would exceed 5% of its total assets.
In addition, the Portfolio will only sell short securities that are
traded on a national securities exchange in the U.S. (including the National
Association of Securities Dealers' Automated Quotation National Market System)
or in the country where the principal trading market in the securities is
located. (This limitation does not apply to short sales against the box).
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment.
Twentieth Century International Growth Portfolio:
Investment Objective: The investment objective of the Twentieth Century
International Growth Portfolio is to seek capital growth.
Investment Policies:
In general, within the restrictions outlined herein, the Portfolio has
broad powers with respect to investing funds or holding them uninvested.
Investments are varied according to what is judged advantageous under changing
economic conditions. It will be the Sub-advisor's policy to retain maximum
flexibility in management without restrictive provisions as to the proportion of
one or another class of securities that may be held, subject to the investment
restrictions described below. It is the Sub-advisor's intention that the
Portfolio will generally consist of common stocks. However, the Sub-advisor may
invest the assets of the Portfolio in varying amounts in other instruments and
in senior securities, such as bonds, debentures, preferred stocks and
convertible issues, when such a course is deemed appropriate in order to attempt
to attain its financial objective.
Forward Currency Exchange Contracts. The Portfolio conducts its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward currency exchange contracts to purchase or sell foreign currencies.
The Portfolio expects to use forward contracts under two circumstances:
(1) when the Sub-advisor wishes to "lock in" the U.S. dollar price of a security
when the Portfolio is purchasing or selling a security denominated in a foreign
currency, the Portfolio would be able to enter into a forward contract to do so;
(2) when the Sub-advisor believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, the Portfolio
would be able to enter into a forward contract to sell foreign currency for a
fixed U.S. dollar amount approximating the value of some or all of the
Portfolio's securities either denominated in, or whose value is tied to, such
foreign currency.
As to the first circumstance, when the Portfolio enters into a trade
for the purchase or sale of a security denominated in a foreign currency, it may
be desirable to establish (lock in) the U.S. dollar cost or proceeds. By
entering into forward contracts in U.S. dollars for the purchase or sale of a
foreign currency involved in an underlying security transaction, the Portfolio
will be able to protect itself against a possible loss between trade and
settlement dates resulting from the adverse change in the relationship between
the U.S. dollar and the subject foreign currency.
Under the second circumstance, when the Sub-advisor believes that the
currency of a particular country may suffer a substantial decline relative to
the U.S. dollar, the Portfolio could enter into a forward contract to sell for a
fixed dollar amount the amount in foreign currencies approximating the value of
some or all of its portfolio securities either denominated in, or whose value is
tied to, such foreign currency. The Portfolio will place cash or high-grade
liquid securities in a separate account with its custodian in an amount
sufficient to cover its obligation under the contract entered into under the
second circumstance. If the value of the securities placed in the separate
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account equals the amount of the
Portfolio's commitments with respect to such contracts.
The precise matching of forward contracts in the amounts and values of
securities involved would not generally be possible since the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. Normally, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
respect to overall diversification strategies. However, the Sub-advisor believes
that it is important to have flexibility to enter into such forward contracts
when it determines that the Portfolio's best interests may be served.
Generally, the Portfolio will not enter into a forward contract with a
term of greater than one year. At the maturity of the forward contract, the
Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate the obligation to
deliver the foreign currency by purchasing an "offsetting" forward contract with
the same currency trader obligating the Portfolio to purchase, on the same
maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the forward contract. Accordingly,
it may be necessary for the Portfolio to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency the Portfolio is obligated to deliver. For an
additional discussion of forward currency exchange contracts and the risks
involved therein, see this Statement and the Trust's Prospectus under "Certain
Risk Factors and Investment Methods."
Short Sales. The Portfolio may engage in short sales if, at the time of
the short sale, the Portfolio owns or has the right to acquire an equal amount
of the security being sold short at no additional cost.
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. To make delivery to the purchaser, the executing broker borrows the
securities being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If the Portfolio engages in a short sale the collateral account will be
maintained by the Portfolio's custodian. While the short sale is open the
Portfolio will maintain in a segregated custodial account an amount of
securities convertible into or exchangeable for such equivalent securities at no
additional cost. These securities would constitute the Portfolio's long
position.
The Portfolio may make a short sale, as described above, when it wants
to sell the security it owns at a current attractive price, but also wishes to
defer recognition of gain or loss for federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In such a case, any future losses in
the Portfolio's long position should be reduced by a gain in the short position.
The extent to which such gains or losses are reduced would depend upon the
amount of the security sold short relative to the amount the Portfolio owns.
There will be certain additional transaction costs associated with short sales,
but the Portfolio will endeavor to offset these costs with income from the
investment of the cash proceeds of short sales.
Portfolio Turnover. The Sub-advisor will purchase and sell securities
without regard to the length of time the security has been held and,
accordingly, it can be expected that the rate of portfolio turnover may be
substantial.
The Sub-advisor intends to purchase a given security whenever the
Sub-advisor believes it will contribute to the stated objective of the
Portfolio, even if the same security has only recently been sold. The Portfolio
will sell a given security, no matter for how long or for how short a period it
has been held, and no matter whether the sale is at a gain or at a loss, if the
Sub-advisor believes that such security is not fulfilling its purpose, either
because, among other things, it did not live up to the Sub-advisor's
expectations, or because it may be replaced with another security holding
greater promise, or because it has reached its optimum potential, or because of
a change in the circumstances of a particular company or industry or in general
economic conditions, or because of some combination of such reasons.
When a general decline in security prices is anticipated, the Portfolio
may decrease or eliminate entirely its equity position and increase its cash
position, and when a rise in price levels is anticipated, the Portfolio may
increase its equity position and decrease its cash position. However, it should
be expected that the Portfolio will, under most circumstances, be essentially
fully invested in equity securities.
Since investment decisions are based on the anticipated contribution of
the security in question to the Portfolio's objectives, the rate of portfolio
turnover is irrelevant when the Sub-advisor believes a change is in order to
achieve those objectives, and the Portfolio's annual portfolio turnover rate
cannot be anticipated and may be comparatively high. Since the Sub-advisor does
not take portfolio turnover rate into account in making investment decisions,
(1) the Sub-advisor has no intention of accomplishing any particular rate of
portfolio turnover, whether high or low, and (2) the portfolio turnover rates
should not be considered as a representation of the rates that will be attained
in the future.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the Twentieth Century International
Growth Portfolio. As a matter of non-fundamental policy, which may be changed
without shareholder approval, the Portfolio will not:
1. Invest more than 15% of its assets in illiquid investments;
2. Invest in the securities of companies that, including predecessors,
have a record of less than three years of continuous operation;
3. Buy securities on margin or sell short (unless it owns or by virtue
of its ownership of other securities has the right to obtain securities
equivalent in kind and amount to the securities sold); however, the Portfolio
may make margin deposits in connection with the use of any financial instrument
or any transaction in securities permitted under its investment policies;
4. Invest in the securities of other investment companies except in
compliance with the Investment Company Act of 1940 and applicable state law.
Duplicate fees may result from such purchases;
5. Invest in oil, gas or other mineral leases, or in warrants, except
that the Portfolio may purchase securities with warrants attached; or
6. Invest for control or for management.
Twentieth Century Strategic Balanced Portfolio:
Investment Objective: The investment objective of the Twentieth Century
Strategic Balanced Portfolio is to seek capital growth and current income.
Investment Policies:
In general, within the restrictions outlined herein, the Sub-advisor
has broad powers with respect to investing funds or holding them uninvested.
Investments are varied according to what is judged advantageous under changing
economic conditions. It will be the policy of the Sub-advisor to retain maximum
flexibility in management without restrictive provisions as to the proportion of
one or another class of securities that may be held subject to the investment
restrictions described below. However, the Sub-advisor may invest the assets of
the Portfolio in varying amounts in other instruments and in senior securities,
such as bonds, debentures, preferred stocks and convertible issues, when such a
course is deemed appropriate in order to attempt to attain its financial
objectives. Senior securities that, in the opinion of the Sub-advisor, are
high-grade issues may also be purchased for defensive purposes.
The above statement of investment policy gives the Sub-advisor
authority to invest in securities other than common stocks and traditional debt
and convertible issues. The Sub-advisor may invest in master limited
partnerships (other than real estate partnerships) and royalty trusts which are
traded on domestic stock exchanges when such investments are deemed appropriate
for the attainment of the Portfolio's investment objectives.
The Sub-advisor will invest approximately 60% of the Portfolio in
common stocks and the balance in fixed income securities. Common stock
investments are described above. The fixed income assets will be invested
primarily in investment grade securities. The Portfolio may invest in securities
of the United States government and its agencies and instrumentalities,
corporate, sovereign government, municipal, mortgage-backed, and other
asset-backed securities. It can be expected that the Sub-advisor will invest
from time to time in bonds and preferred stock convertible into common stock.
Forward Currency Exchange Contracts. The Portfolio conducts its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward foreign currency exchange contracts to purchase or sell foreign
currencies.
The Portfolio expects to use forward contracts under two circumstances:
(1) when the Sub-advisor wishes to "lock in" the U.S. dollar price of a security
when the Portfolio is purchasing or selling a security denominated in a foreign
currency, the Portfolio would be able to enter into a forward contract to do so;
(2) when the Sub-advisor believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, the Portfolio
would be able to enter into a forward contract to sell foreign currency for a
fixed U.S. dollar amount approximating the value of some or all of the Portfolio
's securities either denominated in, or whose value is tied to, such foreign
currency.
As to the first circumstance, when the Portfolio enters into a trade
for the purchase or sale of a security denominated in a foreign currency, it may
be desirable to establish (lock in) the U.S. dollar cost or proceeds. By
entering into forward contracts in U.S. dollars for the purchase or sale of a
foreign currency involved in an underlying security transaction, the Portfolio
will be able to protect itself against a possible loss between trade and
settlement dates resulting from the adverse change in the relationship between
the U.S. dollar at the subject foreign currency.
Under the second circumstance, when the Sub-advisor believes that the
currency of a particular country may suffer a substantial decline relative to
the U.S. dollar, the Portfolio could enter into a foreign contract to sell for a
fixed dollar amount the amount in foreign currencies approximating the value of
some or all of its portfolio securities either denominated in, or whose value is
tied to, such foreign currency. The Portfolio will place cash or high-grade
liquid securities in a separate account with its custodian in an amount
sufficient to cover its obligation under the contract. If the value of the
securities placed in the separate account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account equals the amount of the Portfolio's commitments with respect to
such contracts.
The precise matching of forward contracts in the amounts and values of
securities involved would not generally be possible since the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. The Sub-advisor does not intend to enter into such
contracts on a regular basis. Normally, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with respect to overall diversification strategies. However, the
Sub-advisor believes that it is important to have flexibility to enter into such
forward contracts when it determines that the Portfolio 's best interests may be
served.
Generally, the Portfolio will not enter into a forward contract with a
term of greater than one year. At the maturity of the forward contract, the
Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate the obligation to
deliver the foreign currency by purchasing an "offsetting" forward contract with
the same currency trader obligating the Portfolio to purchase, on the same
maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value
of the Portfolio's securities at the expiration of the forward contract.
Accordingly, it may be necessary for the Portfolio to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Portfolio is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency the Portfolio is obligated to deliver.
For an additional discussion of forward currency exchange contracts and certain
risks involved therein, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
Futures Contracts. As described in the Prospectus, the Portfolio may
enter into futures contracts. Unlike when the Portfolio purchases securities, no
purchase price for the underlying securities is paid by the Portfolio at the
time it purchases a futures contract. When a futures contract is entered into,
both the buyer and seller of the contract are required to deposit with a futures
commission merchant ("FCM") cash or high-grade debt securities in an amount
equal to a percentage of the contract's value, as set by the exchange on which
the contract is traded. This amount is known as "initial margin" and is held by
the Portfolio's custodian for the benefit of the FCM in the event of any default
by the Portfolio in the payment of any future obligations.
The value of a futures contract is adjusted daily to reflect the
fluctuation of the value of the underlying securities. This is a process known
as marking the contract to market. If the value of a party's position declines,
that party is required to make additional "variation margin" payments to the FCM
to settle the change in value. The party that has a gain is generally entitled
to receive all or a portion of this amount.
The Portfolio maintains from time to time a percentage of its assets in
cash or high-grade liquid securities to provide for redemptions or to hold for
future investment in securities consistent with the Portfolio's investment
objectives. The Portfolio may enter into index futures contracts as an efficient
means to expose the Portfolio's cash position to the domestic equity market. The
Sub-advisor believes that the purchase of futures contracts is an efficient
means to effectively be fully invested in equity securities.
The Portfolio intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" adopted by
the Commodity Futures Trading Commission ("CFTC") and the National Futures
Association, which regulate trading in the futures markets. To do so, the
aggregate initial margin required to establish such positions may not exceed 5%
of the fair market value of the Portfolio's net assets, after taking into
account unrealized profits and unrealized losses on any contracts it has entered
into.
The principal risks generally associated with the use of futures
include: (i) the possible absence of a liquid secondary market for any
particular instrument may make it difficult or impossible to close out a
position when desired (liquidity risk); (ii) the risk that the counter party to
the contract may fail to perform its obligations or the risk of bankruptcy of
the FCM holding margin deposits (counter-party risk); (iii) the risk that the
securities to which the futures contract relates may go down in value (market
risk); and (iv) adverse price movements in the underlying securities can result
in losses substantially greater than the value of the Portfolio's investment in
that instrument because only a fraction of a contract's value is required to be
deposited as initial margin (leverage risk); provided, however, that the
Portfolio may not purchase leveraged futures, so there is no leverage risk
involved in the Portfolio's use of futures.
A liquid secondary market is necessary to close out a contract. The
Portfolio may seek to manage liquidity risk by investing in exchange-traded
futures. Exchange-traded futures pose less risk that there will not be a liquid
secondary market than privately negotiated instruments. Through their clearing
corporations, the futures exchanges guarantee the performance of the contracts.
Futures contracts are generally settled within a day from the date they
are closed out, as compared to three days for most types of equity securities.
As a result, futures contracts can provide more liquidity than an investment in
the actual underlying securities. Nevertheless, there is no assurance that a
liquid secondary market will exist for any particular futures contract at any
particular time. Liquidity may also be influenced by an exchange-imposed daily
price fluctuation limit, which halts trading if a contract's price moves up or
down more than the established limit on any given day. On volatile trading days
when the price fluctuation limit is reached, it may be impossible for the
Portfolio to enter into new positions or close out existing positions. If the
secondary market for a futures contract is not liquid because of price
fluctuation limits or otherwise, the Portfolio may not be able to promptly
liquidate unfavorable futures positions and potentially could be required to
continue to hold a futures position until liquidity in the market is
re-established. As a result, the Portfolio's access to other assets held to
cover its futures positions also could be impaired until liquidity in the market
is re-established.
The Portfolio manages counter-party risk by investing in
exchange-traded index futures. In the event of the bankruptcy of the FCM that
holds margin on behalf of the Portfolio, the Portfolio may be entitled to the
return of margin owed to the Portfolio only in proportion to the amount received
by the FCM's other customers. The Sub-advisor will attempt to minimize the risk
by monitoring the creditworthiness of the FCMs with which the Portfolio does
business.
Short Sales. The Portfolio may engage in short sales if, at the time of
the short sale, the Portfolio owns or has the right to acquire an equal amount
of the security being sold short at no additional cost.
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. To make delivery to the purchaser, the executing broker borrows the
securities being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If the Portfolio engages in a short sale, the collateral account will
be maintained by the Portfolio's custodian. While the short sale is open, the
Portfolio will maintain in a segregated custodial account an amount of
securities convertible into, or exchangeable for, such equivalent securities at
no additional cost. These securities would constitute the Portfolio's long
position.
The Portfolio may make a short sale, as described above, when it wants
to sell the security it owns at a current attractive price, but also wishes to
defer recognition of gain or loss for federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In such a case, any future losses in
the Portfolio's long position should be reduced by a gain in the short position.
The extent to which such gains or losses are reduced would depend upon the
amount of the security sold short relative to the amount the Portfolio owns.
There will be certain additional transaction costs associated with short sales,
but the Portfolio will endeavor to offset these costs with income from the
investment of the cash proceeds of short sales.
Portfolio Turnover. The Sub-advisor will purchase and sell securities
without regard to the length of time the security has been held and,
accordingly, it can be expected that the rate of portfolio turnover may be
substantial.
The Sub-advisor intends to purchase a given security whenever the
Sub-advisor believes it will contribute to the stated objective of the
Portfolio, even if the same security has only recently been sold. The Portfolio
will sell a given security, no matter for how long or for how short a period it
has been held, and no matter whether the sale is at a gain or at a loss, if the
Sub-advisor believes that it is not fulfilling its purpose, either because,
among other things, it did not live up to the Sub-advisor's expectations, or
because it may be replaced with another security holding greater promise, or
because it has reached its optimum potential, or because of a change in the
circumstances of a particular company or industry or in general economic
conditions, or because of some combination of such reasons.
When a general decline in security prices is anticipated, the equity
portion of the Portfolio may decrease or eliminate entirely its equity position
and increase its cash position, and when a rise in price levels is anticipated,
it may increase its equity position and decrease its cash position. However, it
should be expected that the Portfolio will, under most circumstances, be
essentially fully invested in equity securities.
Since investment decisions are based on the anticipated contribution of
the security in question to the Portfolio's objectives, the rate of portfolio
turnover is irrelevant when the Sub-advisor believes a change is in order to
achieve those objectives, and the Portfolio's annual portfolio turnover rate
cannot be anticipated and may be comparatively high. Since the Sub-advisor does
not take portfolio turnover rate into account in making investment decisions,
(1) the Sub-advisor has no intention of accomplishing any particular rate of
portfolio turnover, whether high or low, and (2) the portfolio turnover rates in
the past should not be considered as a representation of the rates which will be
attained in the future.
Interest Rate Futures Contracts and Related Options. The Portfolio may
buy and sell interest rate futures contracts relating to debt securities ("debt
futures," i.e., futures relating to debt securities, and "bond index futures,"
i.e., futures relating to indexes on types or groups of bonds) and write and buy
put and call options relating to interest rate futures contracts.
The Portfolio will not purchase or sell futures contracts and options
thereon for speculative purposes but rather only for the purpose of hedging
against changes in the market value of its portfolio securities or changes in
the market value of securities that the Sub-advisor anticipates it may wish to
include in the Portfolio. The Portfolio may sell a future or write a call or
purchase a put on a future if the Sub-advisor anticipates that a general market
or market sector decline may adversely affect the market value of any or all of
the Portfolio's holdings. The Portfolio may buy a future or purchase a call or
sell a put on a future if the Sub-advisor anticipates a significant market
advance in the type of securities it intends to purchase for the Portfolio at a
time when the Portfolio is not invested in debt securities to the extent
permitted by its investment policies. The Portfolio may purchase a future or a
call option thereon as a temporary substitute for the purchase of individual
securities which may then be purchased in an orderly fashion. As securities are
purchased, corresponding futures positions would be terminated by offsetting
sales.
The "sale" of a debt future means the acquisition by the Portfolio of
an obligation to deliver the related debt securities (i.e., those called for by
the contract) at a specified price on a specified date. The "purchase" of a debt
future means the acquisition by the Portfolio of an obligation to acquire the
related debt securities at a specified time on a specified date. The "sale" of a
bond index future means the acquisition by the Portfolio of an obligation to
deliver an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of the last trading day of the
future and the price at which the future is originally struck. No physical
delivery of the bonds making up the index is expected to be made. The "purchase"
of a bond index future means the acquisition by the Portfolio of an obligation
to take delivery of such an amount of cash.
Unlike when the Portfolio purchases or sells a bond, no price is paid
or received by the Portfolio upon the purchase or sale of the future. Initially,
the Portfolio will be required to deposit an amount of cash or securities equal
to a varying specified percentage of the contract amount. This amount is known
as initial margin. Cash held in the margin account is not income producing.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying debt securities or index
fluctuates, making the future more or less valuable, a process known as mark to
the market. Changes in variation margin are recorded by the Portfolio as
unrealized gains or losses. At any time prior to expiration of the future, the
Portfolio may elect to close the position by taking an opposite position that
will operate to terminate its position in the future. A final determination of
variation margin is then made; additional cash is required to be paid by or
released to the Portfolio and the Portfolio realizes a loss or a gain.
When the Portfolio writes an option on a futures contract it becomes
obligated, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the term of the
option. If the Portfolio has written a call, it becomes obligated to assume a
"long" position in a futures contract, which means that it is required to take
delivery of the underlying securities. If it has written a put, it is obligated
to assume a "short" position in a futures contract, which means that it is
required to deliver the underlying securities. When the Portfolio purchases an
option on a futures contract it acquires a right in return for the premium it
pays to assume a position in a futures contract.
If the Portfolio writes an option on a futures contract it will be
required to deposit initial and variation margin pursuant to requirements
similar to those applicable to futures contracts. Premiums received from the
writing of an option on a future are included in the initial margin deposit.
For options sold, the Portfolio will segregate cash or high-quality
debt securities equal to the value of securities underlying the option unless
the option is otherwise covered.
The Portfolio will deposit in a segregated account with its custodian
bank high-quality debt obligations maturing in one year or less, or cash, in an
amount equal to the fluctuating market value of long futures contracts it has
purchased less any margin deposited on its long position. It may hold cash or
acquire such debt obligations for the purpose of making these deposits.
Changes in variation margin are recorded by the Portfolio as unrealized
gains or losses. Initial margin payments will be deposited in the Portfolio's
custodian bank in an account registered in the broker's name; access to the
assets in that account may be made by the broker only under specified
conditions. At any time prior to expiration of a futures contract or an option
thereon, the Portfolio may elect to close the position by taking an opposite
position that will operate to terminate its position in the futures contract or
option. A final determination of variation margin is made at that time;
additional cash is required to be paid by or released to it and it realizes a
loss or gain.
Although futures contracts by their terms call for the actual delivery
or acquisition of the underlying securities or cash, in most cases the
contractual obligation is so fulfilled without having to make or take delivery.
The Sub-advisor does not intend to make or take delivery of the underlying
obligation. All transactions in futures contracts and options thereon are made,
offset or fulfilled through a clearinghouse associated with the exchange on
which the instruments are traded. Although the Sub-advisor intends to buy and
sell futures contracts only on exchanges where there appears to be an active
secondary market, there is no assurance that a liquid secondary market will
exist for any particular future at any particular time. In such event, it may
not be possible to close a futures contract position.
Similar market liquidity risks occur with respect to options.
The use of futures contracts and options thereon to attempt to protect
against the market risk of a decline in the value of portfolio securities is
referred to as having a "short futures position." The use of futures contracts
and options thereon to attempt to protect against the market risk that the
Portfolio might not be fully invested at a time when the value of the securities
in which it invests is increasing is referred to as having a "long futures
position." The Portfolio must operate within certain restrictions as to long and
short positions in futures contracts and options thereon under a rule (CFTC
Rule) adopted by the Commodity Futures Trading Commission (CFTC) under the
Commodity Exchange Act (CEA) to be eligible for the exclusion provided by the
CFTC Rule from registration by the Portfolio with the CFTC as a "commodity pool
operator" (as defined under the CEA), and must represent to the CFTC that it
will operate within such restrictions. Under these restrictions the Portfolio
will not, as to any positions, whether long, short or a combination thereof,
enter into futures contracts and options thereon for which the aggregate initial
margins and premiums exceed 5% of the fair market value of the Portfolio's
assets after taking into account unrealized profits and losses on options the
Portfolio has entered into; in the case of an option that is "in-the-money" (as
defined under the CEA), the in-the-money amount may be excluded in computing
such 5%. (In general, a call option on a futures contract is in-the-money if the
value of the future exceeds the strike, i.e., exercise, price of the call; a put
option on a futures contract is in-the-money if the value of the futures
contract that is the subject of the put is exceeded by the strike price of the
put.) Under the restrictions, the Portfolio also must, as to short positions,
use futures contracts and options thereon solely for bona fide hedging purposes
within the meaning and intent of the applicable provisions under the CEA. As to
its long positions that are used as part of the Portfolio's strategy and are
incidental to the Portfolio's activities in the underlying cash market, the
"underlying commodity value" (see below) of the Portfolio's futures contract and
options thereon must not exceed the sum of (i) cash set aside in an identifiable
manner, or short-term U.S. debt obligations or other U.S. dollar-denominated,
high-quality, short-term money market instruments so set aside, plus any funds
deposited as margin; (ii) cash proceeds from existing investments due in 30
days; and (iii) accrued profits held at the futures commission merchant.
There are described above the segregated accounts that the Portfolio
must maintain with its custodian bank as to its options and futures contracts
activities due to Securities and Exchange Commission (SEC) requirements. The
Portfolio will, as to its long positions, be required to abide by the more
restrictive of these SEC and CFTC requirements. The underlying commodity value
of a futures contract is computed by multiplying the size (dollar amount) of the
futures contract by the daily settlement price of the futures contract. For an
option on a futures contract, that value is the underlying commodity value of
the future underlying the option.
Since futures contracts and options thereon can replicate movements in
the cash markets for the securities in which the Portfolio invests without the
large cash investments required for dealing in such markets, they may subject
the Portfolio to greater and more volatile risks than might otherwise be the
case. The principal risks related to the use of such instruments are (i) the
offsetting correlation between movements in the market price of the portfolio
investments (held or intended) being hedged and in the price of the futures
contract or option may be imperfect; (ii) possible lack of a liquid secondary
market for closing out futures or options positions; (iii) the need for
additional portfolio management skills and techniques; (iv) losses due to
unanticipated market price movements; and (v) the bankruptcy or failure of a
futures commission merchant holding margin deposits made by the Portfolio and
the Portfolio's inability to obtain repayment of all or part of such deposits.
For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security being hedged. Such
equal price changes are not always possible because the investment underlying
the hedging instrument may not be the same investment that is being hedged. The
Sub-advisor will attempt to create a closely correlated hedge, but hedging
activity may not be completely successful in eliminating market value
fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to the differences in the natures of those markets, are subject to
the following factors which may create distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into off-setting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest trends by the Sub-advisor may
still not result in a successful transaction. The Sub-advisor may be incorrect
in its expectations as to the extent of various interest rate movements or the
time span within which the movements take place.
The risk of imperfect correlation between movements in the price of a
bond index future and movements in the price of the securities that are the
subject of the hedge increases as the composition of the Portfolio diverges from
the securities included in the applicable index. The price of the bond index
future may move more than or less than the price of the securities being hedged.
If the price of the bond index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective, but if the price of the securities being hedged has moved in an
unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
security, the Portfolio will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the bond index futures, the Portfolio may buy or sell
bond index futures in a greater dollar amount than the dollar amount of
securities being hedged if the historical volatility of the prices of such
securities being hedged is less than the historical volatility of the bond
index. It is also possible that, where the Portfolio has sold futures contracts
to hedge its securities against a decline in the market, the market may advance
and the value of securities held in the portfolio may decline. If this occurred,
the Portfolio would lose money on the futures contract and also experience a
decline in value in its portfolio securities. However, while this could occur
for a brief period or to a very small degree, over time the value of a portfolio
of debt securities will tend to move in the same direction as the market indexes
upon which the futures contracts are based.
Where bond index futures are purchased to hedge against a possible
increase in the price of bonds before the Portfolio is able to invest in
securities in an orderly fashion, it is possible that the market may decline
instead; if the Portfolio then concludes not to invest in securities at that
time because of concern as to possible further market decline or for other
reasons, it will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities it had anticipated purchasing.
The risks of investment in options on bond indexes may be greater than
options on securities. Because exercises of bond index options are settled in
cash, when the Portfolio writes a call on a bond index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. The Portfolio can offset some of the risk of its writing
position by holding a portfolio of bonds similar to those on which the
underlying index is based. However, the Portfolio cannot, as a practical matter,
acquire and hold a portfolio containing exactly the same securities as the
underlying index and, as a result, bears a risk that the value of the securities
held will vary from the value of the index. Even if the Portfolio could assemble
a portfolio that exactly reproduced the composition of the underlying index, it
still would not be fully covered from a risk standpoint because of the "timing
risk" inherent in writing index options. When an index option is exercised, the
amount of cash that the holder is entitled to receive is determined by the
difference between the exercise price and the closing index level on the date
when the option is exercised. As with other kinds of options, the Portfolio, as
the call writer, will not learn that it has been assigned until the next
business day at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security because there, the writer's obligation is to deliver the
underlying security, not to pay its value as of a fixed time in the past. So
long as the writer already owns the underlying security, it can satisfy its
settlement obligations by simply delivering it, and the risk that its value may
have declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds securities that exactly
match the composition of the underlying index, it will not be able to satisfy
its assignment obligations by delivering those securities against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value of the exercise date; and by the time it learns that it
has been assigned, the index may have declined with a corresponding decline in
the value of its portfolio. This "timing risk" is an inherent limitation on the
ability of index call writers to cover their risk exposure by holding securities
positions.
If the Portfolio has purchased an index option and exercises it before
the closing index value for that day is available, it runs the risk that the
level of the underlying index may subsequently change. If such a change causes
the exercised option to fall out-of-the-money, the Portfolio must pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the Twentieth Century Strategic
Balanced Portfolio. As a matter of non-fundamental policy, which may be
changed without shareholder approval, the Portfolio will not:
1. Invest more than 15% of its assets in illiquid investments;
2. Invest in the securities of companies that, including predecessors,
have a record of less than three years of continuous operation;
3. Buy securities on margin or sell short (unless it owns, or by virtue
of its ownership of, other securities has the right to obtain securities
equivalent in kind and amount to the securities sold); however, the Portfolio's
funds may make margin deposits in connection with the use of any financial
instrument or any transaction in securities permitted under its investment
policies;
4. Invest in the securities of other investment companies except in
compliance with the Investment Company Act of 1940 and applicable state law.
Duplicate fees may result from such purchases; or
5. Invest for control or for management.
AST Putnam Value Growth & Income Portfolio:
Investment Objective: The primary investment objective of the AST Putnam Value
Growth & Income Portfolio is to seek capital growth. Current income is a
secondary investment objective.
Investment Policies:
Short-Term Trading. In seeking the Portfolio's objectives, the
Sub-advisor will buy or sell portfolio securities whenever the Sub-advisor
believes it appropriate to do so. In deciding whether to sell a portfolio
security, the Sub-advisor does not consider how long the Portfolio has owned the
security. From time to time the Sub-advisor will buy securities intending to
seek short-term trading profits. A change in the securities held by the
Portfolio is known as "portfolio turnover" and generally involves some expense
to the Portfolio. This expense may include brokerage commissions or dealer
markups and other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. As a result of the Portfolio's
investment policies, under certain market conditions the Portfolio turnover rate
may be higher than that of other mutual funds. Portfolio turnover rate for a
fiscal year is the ratio of the lesser of purchases or sales of portfolio
securities to the monthly average of the value of portfolio securities excluding
securities whose maturities at acquisition were one year or less. The Portfolio
turnover rate is not a limiting factor when the Sub-advisor considers a change
in the Portfolio.
Lower-Rated Fixed-Income Securities. The Portfolio may invest in
lower-rated fixed-income securities (commonly known as "junk bonds"). The lower
ratings of certain securities held by the Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by the Portfolio more volatile and could limit the Portfolio's ability to
sell its securities at prices approximating the values the Portfolio had placed
on such securities. In the absence of a liquid trading market for securities
held by it, the Portfolio at times may be unable to establish the fair value of
such securities. For an additional discussion of certain risks involved in
lower-rated securities, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
The Portfolio will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. However, the
Sub-advisor will monitor the investment to determine whether its retention will
assist in meeting the Portfolio's investment objective. At times, a substantial
portion of the Portfolio's assets may be invested in securities as to which the
Portfolio, by itself or together with other mutual funds and accounts managed by
the Sub-advisor and its affiliates, holds all or a major portion. Although the
Sub-advisor generally considers such securities to be liquid because of the
availability of an institutional market for such securities, it is possible
that, under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the Portfolio could find it
more difficult to sell these securities when the Sub-advisor believes it
advisable to do so or may be able to sell the securities only at prices lower
than if they were more widely held. Under these circumstances, it may also be
more difficult to determine the fair value of such securities for purposes of
computing the Portfolio's net asset value. In order to enforce its rights in the
event of a default under such securities, the Portfolio may be required to
participate in various legal proceedings or take possession of and manage assets
securing the issuer's obligations on such securities. This could increase the
Portfolio's operating expenses and adversely affect the Portfolio's net asset
value.
To the extent the Portfolio invests in securities in the lower rating
categories, the achievement of the Portfolio's goals is more dependent on the
Sub-advisor's investment analysis than would be the case if the Portfolio were
investing in securities in the higher rating categories.
Zero Coupon Bonds and Payment-in-Kind Bonds. The Portfolio may invest
without limit in zero coupon and payment-in-kind bonds. Zero coupon bonds are
issued at a significant discount from their principal amount in lieu of paying
interest periodically. Payment-in-kind bonds allow the issuer, at its option, to
make current interest payments on the bonds either in cash or in additional
bonds. Because zero coupon and payment-in-kind bonds do not pay current interest
in cash, their value is subject to greater fluctuation in response to changes in
market interest rates than bonds that pay interest currently. Both zero coupon
and payment-in-kind bonds allow an issuer to avoid the need to generate cash to
meet current interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently in cash. For an additional
discussion of zero coupon bonds and certain risks involved therein, see this
Statement under "Certain Risk Factors and Investment Methods."
Restricted Securities. The Portfolio may invest in restricted
securities. For a discussion of restricted securities and certain risks involved
therein, see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Mortgage Related Securities. The Portfolio may invest in
mortgage-backed securities, including collateralized mortgage obligations
("CMOs") and certain stripped mortgage-backed securities. CMOs and other
mortgage-backed securities represent a participation in, or are secured by,
mortgage loans.
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt securities,
which may pay a fixed rate of interest until maturity, when the entire principal
amount comes due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the scheduled repayment
of principal, repayments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. If property owners
make unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities. In that
event the Portfolio may be unable to invest the proceeds from the early payment
of the mortgage-related securities in an investment that provides as high a
yield as the mortgage-related securities. Consequently, early payment associated
with mortgage-related securities may cause these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. During periods of rising interest rates, the rate
of mortgage prepayments usually decreases, thereby tending to increase the life
of mortgage-related securities. If the life of a mortgage-related security is
inaccurately predicted, the Portfolio may not be able to realize the rate of
return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term interest rates. One
reason is the need to reinvest prepayments of principal; another is the
possibility of significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at lower rates. As
a result, these securities may have less potential for capital appreciation
during periods of declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in market value
during periods of rising interest rates.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
U.S. government or its agencies or instrumentalities, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any other person or
entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes of
securities, each having different maturities, interest rates and payment
schedules, and with the principal and interest on the underlying mortgages
allocated among the several classes in various ways. Payment of interest or
principal on some classes or series of CMOs may be subject to contingencies or
some classes or series may bear some or all of the risk of default on the
underlying mortgages. CMOs of different classes or series are generally retired
in sequence as the underlying mortgage loans in the mortgage pool are repaid. If
enough mortgages are repaid ahead of schedule, the classes or series of a CMO
with the earliest maturities generally will be retired prior to their
maturities. Thus, the early retirement of particular classes or series of a CMO
held by the Portfolio would have the same effect as the prepayment of mortgages
underlying other mortgage-backed securities.
The secondary market for stripped mortgage-backed securities may be
more volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the Portfolio's ability to buy or sell those securities at
any particular time. For an additional discussion of mortgage related securities
and certain risks involved therein, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Lending Portfolio Securities. The Portfolio may make secured loans of
its securities, on either a short-term or long-term basis, thereby realizing
additional income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
As a matter of policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by collateral
consisting of cash or short-term debt obligations at least equal at all times to
the value of the securities on loan, "marked-to-market" daily. The borrower pays
to the Portfolio an amount equal to any dividends or interest received on
securities lent. The Portfolio retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the borrower.
Although voting rights, or rights to consent, with respect to the loaned
securities may pass to the borrower, the Portfolio retains the right to call the
loans at any time on reasonable notice, and it will do so to enable the
Portfolio to exercise voting rights on any matters materially affecting the
investment. The Portfolio may also call such loans in order to sell the
securities.
Forward Commitments. The Portfolio may enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if the Portfolio holds, and maintains until the
settlement date in a segregated account, cash or liquid securities in an amount
sufficient to meet the purchase price, or if the Portfolio enters into
offsetting contracts for the forward sale of other securities it owns. In the
case of to-be-announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the Portfolio enters into a
contract, with the actual principal amount being within a specified range of the
estimate. Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition to the risk of decline
in the value of the Portfolio's other assets. Where such purchases are made
through dealers, the Portfolio relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the Portfolio of an
advantageous yield or price. Although the Portfolio will generally enter into
forward commitments with the intention of acquiring securities for the Portfolio
or for delivery pursuant to options contracts it has entered into, the Portfolio
may dispose of a commitment prior to settlement if the Sub-advisor deems it
appropriate to do so. The Portfolio may realize short-term profits or losses
upon the sale of forward commitments.
The Portfolio may enter into TBA sale commitments to hedge its
portfolio positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are held as
"cover" for the transaction. Unsettled TBA sale commitments are valued at
current market value of the underlying securities. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
Portfolio realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Portfolio delivers
securities under the commitment, the Portfolio realizes a gain or loss from the
sale of the securities based upon the unit price established at the date the
commitment was entered into.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements. A repurchase agreement is a contract under which the Portfolio
acquires a security for a relatively short period (usually not more than one
week) subject to the obligation of the seller to repurchase and the Portfolio to
resell such security at a fixed time and price (representing the Portfolio's
cost plus interest). It is the Portfolio's present intention to enter into
repurchase agreements only with commercial banks and registered broker-dealers
and only with respect to obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as loans made by the
Portfolio which are collateralized by the securities subject to repurchase. The
Sub-advisor will monitor such transactions to ensure that the value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. For an additional
discussion of repurchase agreements and certain risks involved therein, see the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Writing Covered Options. The Portfolio may write covered call options
and covered put options on optionable securities held in the portfolio, when in
the opinion of the Sub-advisor such transactions are consistent with the
Portfolio's investment objective and policies. Call options written by the
Portfolio give the purchaser the right to buy the underlying securities from the
Portfolio at a stated exercise price; put options give the purchaser the right
to sell the underlying securities to the Portfolio at a stated price.
The Portfolio may write only covered options, which means that, so long
as the Portfolio is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities satisfying
the cover requirements of securities exchanges). In the case of put options, the
Portfolio will hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition, the Portfolio will
be considered to have covered a put or call option if and to the extent that it
holds an option that offsets some or all of the risk of the option it has
written. The Portfolio may write combinations of covered puts and calls on the
same underlying security.
If the Portfolio writes a call option but does not own the underlying
security, and when it writes a put option, the Portfolio may be required to
deposit cash or securities with its broker as "margin," or collateral, for its
obligation to buy or sell the underlying security. As the value of the
underlying security varies, the Portfolio may have to deposit additional margin
with the broker. Margin requirements are complex and are fixed by individual
brokers, subject to minimum requirements currently imposed by the Federal
Reserve Board and by stock exchanges and other self-regulatory organizations.
For an additional discussion of options transactions, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Purchasing Put Options. The Portfolio may purchase put options to
protect its holdings in an underlying security against a decline in market
value. Such protection is provided during the life of the put option since the
Portfolio, as holder of the option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. In order for a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs. By using put options in this manner,
the Portfolio will reduce any profit it might otherwise have realized from
appreciation of the underlying security by the premium paid for the put option
and by transaction costs.
Purchasing Call Options. The Portfolio may purchase call options to
hedge against an increase in the price of securities that the Portfolio wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Portfolio, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs.
Risk Factors in Options Transactions. The successful use of the
Portfolio's options strategies depends on the ability of the Sub-advisor to
forecast correctly interest rate and market movements. The effective use of
options also depends on the Portfolio's ability to terminate option positions at
times when the Sub-advisor deems it desirable to do so. There is no assurance
that the Portfolio will be able to effect closing transactions at any particular
time or at an acceptable price.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions. For
example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options market were to
become unavailable, the Portfolio as a holder of an option would be able to
realize profits or limit losses only by exercising the option, and the
Portfolio, as option writer, would remain obligated under the option until
expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the Portfolio could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options on that
security is normally halted as well. As a result, the Portfolio as purchaser or
writer of an option will be unable to close out its positions until options
trading resumes, and it may be faced with considerable losses if trading in the
security reopens at a substantially different price. In addition, the Options
Clearing Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the option
has also been halted, the Portfolio as purchaser or writer of an option will be
locked into its position until one of the two restrictions has been lifted. If
the Options Clearing Corporation were to determine that the available supply of
an underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options. The Portfolio, as holder of such a put option, could
lose its entire investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time differences
between the United States and various foreign countries, and because different
holidays are observed in different countries, foreign options markets may be
open for trading during hours or on days when U.S. markets are closed. As a
result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Over-the-counter ("OTC") options purchased by the Portfolio and assets
held to cover OTC options written by the Portfolio may, under certain
circumstances, be considered illiquid securities for purposes of any limitation
on the Portfolio's ability to invest in illiquid securities. For an additional
discussion of certain risks involved in options transactions, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Futures Contracts and Related Options. Subject to applicable law, the
Portfolio may invest without limit in the types of futures contracts and related
options identified in the Prospectus for hedging and non-hedging purposes. The
use of futures and options transactions for purposes other than hedging entails
greater risks. A financial futures contract sale creates an obligation by the
seller to deliver the type of financial instrument called for in the contract in
a specified delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery of the type of
financial instrument called for in the contract in a specified delivery month at
a stated price. The specific instruments delivered or taken, respectively, at
settlement date are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the futures
contract sale or purchase was made. Futures contracts are traded in the United
States only on commodity exchanges or boards of trade -- known as "contract
markets" -- approved for such trading by the Commodity Futures Trading
Commission (the "CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant contract market.
The Portfolio may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the Portfolio. The Portfolio may close its
positions by taking opposite positions which will operate to terminate the
Portfolio's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs. For an additional discussion
of futures contracts and related options, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Options on Futures Contracts. The Portfolio may purchase and write call
and put options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on future contracts give the purchaser the right in return for the
premium paid to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The Portfolio may
use options on futures contracts in lieu of writing or buying options directly
on the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
securities, the Portfolio may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the
Portfolio may purchase call options or write put options on futures contracts as
a substitute for the purchase of futures contracts to hedge against a possible
increase in the price of securities which the Portfolio expects to purchase.
Such options generally operate in the same manner as options purchased or
written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected. For an additional
discussion of options on futures contracts, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Risks of Transactions in Futures Contracts and Related Options.
Successful use of futures contracts by the Portfolio is subject to the
Sub-advisor's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase or sale
of futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Portfolio because the maximum amount at risk
is the premium paid for the options (plus transaction costs). However, there may
be circumstances when the purchase of a call or put option on a futures contract
would result in a loss to the Portfolio when the purchase or sale of a futures
contract would not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts. For an
additional discussion of certain risks involved in futures contracts and related
options, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Index Futures Contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. The Portfolio may enter into stock index
futures contracts, debt index futures contracts, or other index futures
contracts appropriate to its objective. The Portfolio may also purchase and sell
options on index futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price Index
("S&P 500") is composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange. The S&P 500 assigns relative weightings to the
common stocks included in the Index, and the value fluctuates with changes in
the market values of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one
contract would be worth $75,000 (500 units x $150). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if the Portfolio enters into a futures contract to buy 500 units of
the S&P 500 at a specified future date at a contract price of $150 and the S&P
500 is at $154 on that future date, the Portfolio will gain $2,000 (500 units x
gain of $4). If the Portfolio enters into a futures contract to sell 500 units
of the stock index at a specified future date at a contract price of $150 and
the S&P 500 is at $152 on that future date, the Portfolio will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the Portfolio of
index futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices of
securities which are the subject of the hedge. The Sub-advisor will, however,
attempt to reduce this risk by buying or selling, to the extent possible,
futures on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the securities sought to
be hedged.
Successful use of index futures by the Portfolio is also subject to the
Sub-advisor's ability to predict movements in the direction of the market. For
example, it is possible that, where the Portfolio has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Portfolio may
decline. If this occurred, the Portfolio would lose money on the futures and
also experience a decline in value in its portfolio securities. It is also
possible that, if the Portfolio has hedged against the possibility of a decline
in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Portfolio will lose part or all of the
benefit of the increased value of those securities it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index futures
and the portion of the Portfolio being hedged, the prices of index futures may
not correlate perfectly with movements in the underlying index due to certain
market distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market does.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Sub-advisor may still not result in a
profitable position over a short time period.
Options on Stock Index Futures. Options on index futures are similar to
options on securities except that options on index futures give the purchaser
the right, in return for the premium paid, to assume a position in an index
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
future. If an option is exercised on the last trading day prior to its
expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of the
index on which the future is based on the expiration date. Purchasers of options
who fail to exercise their options prior to the exercise date suffer a loss of
the premium paid.
Options on Indices. As an alternative to purchasing call and put
options on index futures, the Portfolio may purchase and sell call and put
options on the underlying indices themselves. Such options would be used in a
manner identical to the use of options on index futures. For an additional
discussion of options on indices and certain risks involved therein, see this
Statement under "Certain Risk Factors and Investment Methods."
Foreign Securities. The Portfolio may invest up to 20% of its total
assets in securities denominated in foreign currency. Eurodollar certificates of
deposit are excluded for purposes of this limitation. For a discussion of
certain risks involved in foreign investing, in general, and the special risks
involved in investing in developing countries or "emerging markets," see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Foreign Currency Transactions. The Portfolio may engage without limit
in currency exchange transactions, including purchasing and selling foreign
currency, foreign currency options, foreign currency forward contracts and
foreign currency futures contracts and related options, to protect against
uncertainty in the level of future currency exchange rates. In addition, the
Portfolio may write covered call and put options on foreign currencies for the
purpose of increasing its current return.
Generally, the Portfolio may engage in both "transaction hedging" and
"position hedging." When it engages in transaction hedging, the Portfolio enters
into foreign currency transactions with respect to specific receivables or
payables, generally arising in connection with the purchase or sale of portfolio
securities. The Portfolio will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the Portfolio will attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is earned, and the date on which such payments are
made or received.
The Portfolio may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency. The
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes the Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Portfolio the right to assume a short position in the futures contract
until the expiration of the option. A put option on a currency gives the
Portfolio the right to sell the currency at an exercise price until the
expiration of the option. A call option on a futures contract gives the
Portfolio the right to assume a long position in the futures contract until the
expiration of the option. A call option on a currency gives the Portfolio the
right to purchase the currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the Portfolio enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated (or an
increase in the value of currency for securities which the Portfolio expects to
purchase). In connection with position hedging, the Portfolio may purchase put
or call options on foreign currency and on foreign currency futures contracts
and buy or sell forward contracts and foreign currency futures contracts. The
Portfolio may also purchase or sell foreign currency on a spot basis.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
value of such currency. See "Risk Factors in Options Transactions" above.
The Portfolio may seek to increase its current return or to offset some
of the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign currencies. The
Portfolio receives a premium from writing a call or put option, which increases
the Portfolio's current return if the option expires unexercised or is closed
out at a net profit. The Portfolio may terminate an option that it has written
prior to its expiration by entering into a closing purchase transaction in which
it purchases an option having the same terms as the option written.
The Portfolio's currency hedging transactions may call for the delivery
of one foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. The Sub-advisor will engage in such "cross hedging" activities when
it believes that such transactions provide significant hedging opportunities for
the Portfolio. Cross hedging transactions by the Portfolio involve the risk of
imperfect correlation between changes in the values of the currencies to which
such transactions relate and changes in the value of the currency or other asset
or liability which is the subject of the hedge.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic factors applicable
to the issuing country. In addition, the exchange rates of foreign currencies
(and therefore the values of foreign currency options, forward contracts and
futures contracts) may be affected significantly, fixed, or supported directly
or indirectly by U.S. and foreign government actions. Government intervention
may increase risks involved in purchasing or selling foreign currency options,
forward contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects relative
values of two currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the exercise of
foreign currency options, forward contracts and futures contracts, investors may
be disadvantaged by having to deal in an odd-lot market for the underlying
foreign currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign currencies.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the interbank market and thus may not reflect exchange
rates for smaller odd-lot transactions (less than $1 million) where rates may be
less favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the options markets. For an additional discussion of foreign currency
transactions and certain risks involved therein, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Currency Forward and Futures Contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a price
set at the time of the contract. Foreign currency futures contracts traded in
the United States are designed by and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Portfolio either
may accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market in such
contracts. Although the Portfolio intends to purchase or sell foreign currency
futures contracts only on exchanges or boards of trade where there appears to be
an active secondary market, there is no assurance that a secondary market on an
exchange or board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
Foreign Currency Options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of the risks
described above. Foreign currency options are traded primarily in the
over-the-counter market, although options on foreign currencies are also listed
on several exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit ("ECU"). The ECU is
composed of amounts of a number of currencies, and is the official medium of
exchange of the European Community's European Monetary System.
The Portfolio will only purchase or write foreign currency options when
the Sub-advisor believes that a liquid secondary market exists for such options.
There can be no assurance that a liquid secondary market will exist for a
particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investments generally.
Settlement Procedures. Settlement procedures relating to the
Portfolio's investments in foreign securities and to the Portfolio's foreign
currency exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may involve
certain risks not present in the Portfolio's domestic investments. For example,
settlement of transactions involving foreign securities or foreign currencies
may occur within a foreign country, and the Portfolio may be required to accept
or make delivery of the underlying securities or currency in conformity with any
applicable U.S. or foreign restrictions or regulations, and may be required to
pay any fees, taxes or charges associated with such delivery. Such investments
may also involve the risk that an entity involved in the settlement may not meet
its obligations.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Putnam Value Growth & Income
Portfolio. As a matter of non-fundamental policy, which may be changed without
shareholder approval, the Portfolio will not:
1. Invest in (a) securities which at the time of such investment are
not readily marketable, (b) securities restricted as to resale, excluding
securities determined by the Trustees of the Trust (or the person designated by
the Trustees of the Trust to make such determinations) to be readily marketable,
and (c) repurchase agreements maturing in more than seven days, if, as a result,
more than 15% of the Trust's net assets (taken at current value) would be
invested in securities described in (a), (b) and (c) above;
2. Invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if, as a
result, such investments (valued at the lower of cost or market) would exceed 5%
of the value of the Portfolio's net assets; provided that not more than 2% of
the Trust's net assets may be invested in warrants not listed on the New York or
American Stock Exchanges;
3. Buy or sell oil, gas or other mineral leases, rights or royalty
contracts;
4. Invest in the securities of other investment companies except in
compliance with the Investment Company Act of 1940 and applicable state law.
Duplicate fees may result from such purchases;
5. Make short sales of securities or maintain a short position for the
account of the Trust unless at all times when a short position is open it owns
an equal amount of such securities or owns securities which, without payment of
any further consideration, are convertible into or exchangeable for securities
of the same issue as, and in equal amount to, the securities sold short; or
6. Invest in securities of any issuer, if, to the knowledge of the
Portfolio, officers and Trustees of the Trust and officers and directors of the
Investment Manager and the Sub-advisor who beneficially own more than 0.5% of
the securities of that issuer together own more than 5% of such securities.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
AST Putnam International Equity Portfolio:
Investment Objective: The investment objective of the AST Putnam International
Equity Portfolio is to seek capital appreciation.
Investment Policies:
The Portfolio is designed for investors seeking capital appreciation
through a diversified portfolio of equity securities of companies located in a
country other than the United States.
Short-Term Trading. In seeking the Portfolio's objectives, the
Sub-advisor will buy or sell portfolio securities whenever the Sub-advisor
believes it appropriate to do so. In deciding whether to sell a portfolio
security, the Sub-advisor does not consider how long the Portfolio has owned the
security. From time to time the Sub-advisor will buy securities intending to
seek short-term trading profits. A change in the securities held by the
Portfolio is known as "portfolio turnover" and generally involves some expense
to the Portfolio. This expense may include brokerage commissions or dealer
markups and other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. As a result of the Portfolio's
investment policies, under certain market conditions the Portfolio turnover rate
may be higher than that of other mutual funds. Portfolio turnover rate for a
fiscal year is the ratio of the lesser of purchases or sales of portfolio
securities to the monthly average of the value of portfolio securities excluding
securities whose maturities at acquisition were one year or less. The Portfolio
turnover rate is not a limiting factor when the Sub-advisor considers a change
in the Portfolio.
Restricted Securities. The Portfolio may invest in restricted
securities. For a discussion of restricted securities and certain risks involved
therein, see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Lending Portfolio Securities. The Portfolio may make secured loans of
its securities, on either a short-term or long-term basis, thereby realizing
additional income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
As a matter of policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by collateral
consisting of cash or short-term debt obligations at least equal at all times to
the value of the securities on loan, "marked-to-market" daily. The borrower pays
to the Portfolio an amount equal to any dividends or interest received on
securities lent. The Portfolio retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the borrower.
Although voting rights, or rights to consent, with respect to the loaned
securities may pass to the borrower, the Portfolio retains the right to call the
loans at any time on reasonable notice, and it will do so to enable the
Portfolio to exercise voting rights on any matters materially affecting the
investment. The Portfolio may also call such loans in order to sell the
securities.
Forward Commitments. The Portfolio may enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if the Portfolio holds, and maintains until the
settlement date in a segregated account, cash or liquid securities in an amount
sufficient to meet the purchase price, or if the Portfolio enters into
offsetting contracts for the forward sale of other securities it owns. In the
case of to-be-announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the Portfolio enters into a
contract, with the actual principal amount being within a specified range of the
estimate. Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition to the risk of decline
in the value of the Portfolio's other assets. Where such purchases are made
through dealers, the Portfolio relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the Portfolio of an
advantageous yield or price. Although the Portfolio will generally enter into
forward commitments with the intention of acquiring securities for the Portfolio
or for delivery pursuant to options contracts it has entered into, the Portfolio
may dispose of a commitment prior to settlement if the Sub-advisor deems it
appropriate to do so. The Portfolio may realize short-term profits or losses
upon the sale of forward commitments.
The Portfolio may enter into TBA sale commitments to hedge its
portfolio positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are held as
"cover" for the transaction. Unsettled TBA sale commitments are valued at
current market value of the underlying securities. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
Portfolio realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Portfolio delivers
securities under the commitment, the Portfolio realizes a gain or loss from the
sale of the securities based upon the unit price established at the date the
commitment was entered into.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements. A repurchase agreement is a contract under which the Portfolio
acquires a security for a relatively short period (usually not more than one
week) subject to the obligation of the seller to repurchase and the Portfolio to
resell such security at a fixed time and price (representing the Portfolio's
cost plus interest). It is the Portfolio's present intention to enter into
repurchase agreements only with commercial banks and registered broker-dealers
and only with respect to obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as loans made by the
Portfolio which are collateralized by the securities subject to repurchase. The
Sub-advisor will monitor such transactions to ensure that the value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. For an additional
discussion of repurchase agreements and certain risks involved therein, see the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Writing Covered Options. The Portfolio may write covered call options
and covered put options on optionable securities held in the portfolio, when in
the opinion of the Sub-advisor such transactions are consistent with the
Portfolio's investment objective and policies. Call options written by the
Portfolio give the purchaser the right to buy the underlying securities from the
Portfolio at a stated exercise price; put options give the purchaser the right
to sell the underlying securities to the Portfolio at a stated price.
The Portfolio may write only covered options, which means that, so long
as the Portfolio is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities satisfying
the cover requirements of securities exchanges). In the case of put options, the
Portfolio will hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition, the Portfolio will
be considered to have covered a put or call option if and to the extent that it
holds an option that offsets some or all of the risk of the option it has
written. The Portfolio may write combinations of covered puts and calls on the
same underlying security.
If the Portfolio writes a call option but does not own the underlying
security, and when it writes a put option, the Portfolio may be required to
deposit cash or securities with its broker as "margin," or collateral, for its
obligation to buy or sell the underlying security. As the value of the
underlying security varies, the Portfolio may have to deposit additional margin
with the broker. Margin requirements are complex and are fixed by individual
brokers, subject to minimum requirements currently imposed by the Federal
Reserve Board and by stock exchanges and other self-regulatory organizations.
For an additional discussion of options transactions, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Purchasing Put Options. The Portfolio may purchase put options to
protect its holdings in an underlying security against a decline in market
value. Such protection is provided during the life of the put option since the
Portfolio, as holder of the option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. In order for a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs. By using put options in this manner,
the Portfolio will reduce any profit it might otherwise have realized from
appreciation of the underlying security by the premium paid for the put option
and by transaction costs.
Purchasing Call Options. The Portfolio may purchase call options to
hedge against an increase in the price of securities that the Portfolio wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Portfolio, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs.
Risk Factors in Options Transactions. The successful use of the
Portfolio's options strategies depends on the ability of the Sub-advisor to
forecast correctly interest rate and market movements. The effective use of
options also depends on the Portfolio's ability to terminate option positions at
times when the Sub-advisor deems it desirable to do so. There is no assurance
that the Portfolio will be able to effect closing transactions at any particular
time or at an acceptable price.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions. For
example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options market were to
become unavailable, the Portfolio as a holder of an option would be able to
realize profits or limit losses only by exercising the option, and the
Portfolio, as option writer, would remain obligated under the option until
expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the Portfolio could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options on that
security is normally halted as well. As a result, the Portfolio as purchaser or
writer of an option will be unable to close out its positions until options
trading resumes, and it may be faced with considerable losses if trading in the
security reopens at a substantially different price. In addition, the Options
Clearing Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the option
has also been halted, the Portfolio as purchaser or writer of an option will be
locked into its position until one of the two restrictions has been lifted. If
the Options Clearing Corporation were to determine that the available supply of
an underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options. The Portfolio, as holder of such a put option, could
lose its entire investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time differences
between the United States and various foreign countries, and because different
holidays are observed in different countries, foreign options markets may be
open for trading during hours or on days when U.S. markets are closed. As a
result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Over-the-counter ("OTC") options purchased by the Portfolio and assets
held to cover OTC options written by the Portfolio may, under certain
circumstances, be considered illiquid securities for purposes of any limitation
on the Portfolio's ability to invest in illiquid securities. For an additional
discussion of certain risks involved in options transactions, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Futures Contracts and Related Options. Subject to applicable law, the
Portfolio may invest without limit in the types of futures contracts and related
options identified in the Prospectus for hedging and non-hedging purposes. The
use of futures and options transactions for purposes other than hedging entails
greater risks. A financial futures contract sale creates an obligation by the
seller to deliver the type of financial instrument called for in the contract in
a specified delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery of the type of
financial instrument called for in the contract in a specified delivery month at
a stated price. The specific instruments delivered or taken, respectively, at
settlement date are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the futures
contract sale or purchase was made. Futures contracts are traded in the United
States only on commodity exchanges or boards of trade -- known as "contract
markets" -- approved for such trading by the Commodity Futures Trading
Commission (the "CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant contract market.
The Portfolio may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or eliminate a position
then currently held by the Portfolio. The Portfolio may close its positions by
taking opposite positions which will operate to terminate the Portfolio's
position in the futures contracts. Final determinations of variation margin are
then made, additional cash is required to be paid by or released to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs. For an additional discussion
of futures contracts and related options, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Options on Futures Contracts. The Portfolio may purchase and write call
and put options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on future contracts give the purchaser the right in return for the
premium paid to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The Portfolio may
use options on futures contracts in lieu of writing or buying options directly
on the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
securities, the Portfolio may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the
Portfolio may purchase call options or write put options on futures contracts as
a substitute for the purchase of futures contracts to hedge against a possible
increase in the price of securities which the Portfolio expects to purchase.
Such options generally operate in the same manner as options purchased or
written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected. For an additional
discussion of options on futures contracts, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Risks of Transactions in Futures Contracts and Related Options.
Successful use of futures contracts by the Portfolio is subject to the
Sub-advisor's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase or sale
of futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Portfolio because the maximum amount at risk
is the premium paid for the options (plus transaction costs). However, there may
be circumstances when the purchase of a call or put option on a futures contract
would result in a loss to the Portfolio when the purchase or sale of a futures
contract would not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts. For an
additional discussion of certain risks involved in futures contracts and related
options, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
Index Futures Contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. The Portfolio may enter into stock index
futures contracts, debt index futures contracts, or other index futures
contracts appropriate to its objective. The Portfolio may also purchase and sell
options on index futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price Index
("S&P 500") is composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange. The S&P 500 assigns relative weightings to the
common stocks included in the Index, and the value fluctuates with changes in
the market values of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one
contract would be worth $75,000 (500 units x $150). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if the Portfolio enters into a futures contract to buy 500 units of
the S&P 500 at a specified future date at a contract price of $150 and the S&P
500 is at $154 on that future date, the Portfolio will gain $2,000 (500 units x
gain of $4). If the Portfolio enters into a futures contract to sell 500 units
of the stock index at a specified future date at a contract price of $150 and
the S&P 500 is at $152 on that future date, the Portfolio will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the Portfolio of
index futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices of
securities which are the subject of the hedge. The Sub-advisor will, however,
attempt to reduce this risk by buying or selling, to the extent possible,
futures on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the securities sought to
be hedged.
Successful use of index futures by the Portfolio is also subject to the
Sub-advisor's ability to predict movements in the direction of the market. For
example, it is possible that, where the Portfolio has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Portfolio may
decline. If this occurred, the Portfolio would lose money on the futures and
also experience a decline in value in its portfolio securities. It is also
possible that, if the Portfolio has hedged against the possibility of a decline
in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Portfolio will lose part or all of the
benefit of the increased value of those securities it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index futures
and the portion of the Portfolio being hedged, the prices of index futures may
not correlate perfectly with movements in the underlying index due to certain
market distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market does.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Sub-advisor may still not result in a
profitable position over a short time period.
Options on Stock Index Futures. Options on index futures are similar to
options on securities except that options on index futures give the purchaser
the right, in return for the premium paid, to assume a position in an index
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
future. If an option is exercised on the last trading day prior to its
expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of the
index on which the future is based on the expiration date. Purchasers of options
who fail to exercise their options prior to the exercise date suffer a loss of
the premium paid.
Options on Indices. As an alternative to purchasing call and put
options on index futures, the Portfolio may purchase and sell call and put
options on the underlying indices themselves. Such options would be used in a
manner identical to the use of options on index futures. For an additional
discussion of options on indices and certain risks involved therein, see this
Statement under "Certain Risk Factors and Investment Methods."
Index Warrants. The Portfolio may purchase put warrants and call
warrants whose values vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants are generally
issued by banks or other financial institutions and give the holder the right,
at any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the underlying
index at the time of exercise. In general, if the value of the underlying index
rises above the exercise price of the index warrant, the holder of a call
warrant will be entitled to receive a cash payment from the issuer upon exercise
based on the difference between the value of the index and the exercise price of
the warrant; if the value of the underlying index falls, the holder of a put
warrant will be entitled to receive a cash payment from the issuer upon exercise
based on the difference between the exercise price of the warrant and the value
of the index. The holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the exercise price
is greater than the value of the underlying index, or, in the case of a put
warrant, the exercise price is less than the value of the underlying index. If
the Portfolio were not to exercise an index warrant prior to its expiration,
then the Portfolio would lose the amount of the purchase price paid by it for
the warrant.
The Portfolio will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the Portfolio's use of
index warrants are generally similar to those relating to its use of index
options. Unlike most index options, however, index warrants are issued in
limited amounts and are not obligations of a regulated clearing agency, but are
backed only by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than index options.
Although the Portfolio will normally invest only in exchange-listed warrants,
index warrants are not likely to be as liquid as certain index options backed by
a recognized clearing agency. In addition, the terms of index warrants may limit
the Portfolio's ability to exercise the warrants at such time, or in such
quantities, as the Portfolio would otherwise wish to do.
Foreign Securities. The Portfolio will, under normal circumstances,
invest at least 65% of its total assets in issuers located in at least three
different countries other than the United States. Eurodollar certificates of
deposit are excluded for purposes of this limitation. For a discussion of
certain risks involved in foreign investing, in general, and the special risks
involved in investing in developing countries or "emerging markets," see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Foreign Currency Transactions. The Portfolio may engage without limit
in currency exchange transactions, including purchasing and selling foreign
currency, foreign currency options, foreign currency forward contracts and
foreign currency futures contracts and related options, to protect against
uncertainty in the level of future currency exchange rates. In addition, the
Portfolio may write covered call and put options on foreign currencies for the
purpose of increasing its current return.
Generally, the Portfolio may engage in both "transaction hedging" and
"position hedging." When it engages in transaction hedging, the Portfolio enters
into foreign currency transactions with respect to specific receivables or
payables, generally arising in connection with the purchase or sale of portfolio
securities. The Portfolio will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the Portfolio will attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is earned, and the date on which such payments are
made or received.
The Portfolio may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency. The
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes the Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Portfolio the right to assume a short position in the futures contract
until the expiration of the option. A put option on a currency gives the
Portfolio the right to sell the currency at an exercise price until the
expiration of the option. A call option on a futures contract gives the
Portfolio the right to assume a long position in the futures contract until the
expiration of the option. A call option on a currency gives the Portfolio the
right to purchase the currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the Portfolio enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated (or an
increase in the value of currency for securities which the Portfolio expects to
purchase). In connection with position hedging, the Portfolio may purchase put
or call options on foreign currency and on foreign currency futures contracts
and buy or sell forward contracts and foreign currency futures contracts. The
Portfolio may also purchase or sell foreign currency on a spot basis.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
value of such currency. See "Risk Factors in Options Transactions" above.
The Portfolio may seek to increase its current return or to offset some
of the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign currencies. The
Portfolio receives a premium from writing a call or put option, which increases
the Portfolio's current return if the option expires unexercised or is closed
out at a net profit. The Portfolio may terminate an option that it has written
prior to its expiration by entering into a closing purchase transaction in which
it purchases an option having the same terms as the option written.
The Portfolio's currency hedging transactions may call for the delivery
of one foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. The Sub-advisor will engage in such "cross hedging" activities when
it believes that such transactions provide significant hedging opportunities for
the Portfolio. Cross hedging transactions by the Portfolio involve the risk of
imperfect correlation between changes in the values of the currencies to which
such transactions relate and changes in the value of the currency or other asset
or liability which is the subject of the hedge.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic factors applicable
to the issuing country. In addition, the exchange rates of foreign currencies
(and therefore the values of foreign currency options, forward contracts and
futures contracts) may be affected significantly, fixed, or supported directly
or indirectly by U.S. and foreign government actions. Government intervention
may increase risks involved in purchasing or selling foreign currency options,
forward contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects relative
values of two currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the exercise of
foreign currency options, forward contracts and futures contracts, investors may
be disadvantaged by having to deal in an odd-lot market for the underlying
foreign currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign currencies.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the interbank market and thus may not reflect exchange
rates for smaller odd-lot transactions (less than $1 million) where rates may be
less favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the options markets. For an additional discussion of foreign currency
transactions and certain risks involved therein, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Currency Forward and Futures Contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a price
set at the time of the contract. Foreign currency futures contracts traded in
the United States are designed by and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Portfolio either
may accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market in such
contracts. Although the Portfolio intends to purchase or sell foreign currency
futures contracts only on exchanges or boards of trade where there appears to be
an active secondary market, there is no assurance that a secondary market on an
exchange or board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
Foreign Currency Options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of the risks
described above. Foreign currency options are traded primarily in the
over-the-counter market, although options on foreign currencies are also listed
on several exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit ("ECU"). The ECU is
composed of amounts of a number of currencies, and is the official medium of
exchange of the European Community's European Monetary System.
The Portfolio will only purchase or write foreign currency options when
the Sub-advisor believes that a liquid secondary market exists for such options.
There can be no assurance that a liquid secondary market will exist for a
particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investments generally.
Settlement Procedures. Settlement procedures relating to the
Portfolio's investments in foreign securities and to the Portfolio's foreign
currency exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may involve
certain risks not present in the Portfolio's domestic investments. For example,
settlement of transactions involving foreign securities or foreign currencies
may occur within a foreign country, and the Portfolio may be required to accept
or make delivery of the underlying securities or currency in conformity with any
applicable U.S. or foreign restrictions or regulations, and may be required to
pay any fees, taxes or charges associated with such delivery. Such investments
may also involve the risk that an entity involved in the settlement may not meet
its obligations.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable to the AST Putnam International Equity
Portfolio. As a matter of non-fundamental policy, which may be changed without
shareholder approval, the Portfolio will not:
1. Invest in (a) securities which at the time of such investment are
not readily marketable, (b) securities restricted as to resale, excluding
securities determined by the Trustees of the Trust (or the person designated by
the Trustees of the Trust to make such determinations) to be readily marketable,
and (c) repurchase agreements maturing in more than seven days, if, as a result,
more than 15% of the Portfolio's net assets (taken at current value) would be
invested in securities described in (a), (b) and (c) above;
2. Invest in securities of any issuer if the party responsible for
payment, together with any predecessors, has been in operation for less than
three consecutive years and, as a result of the investment, the aggregate of
such investments would exceed 5% of the value of the Portfolio's net assets;
provided, however, that this restriction shall not apply to any obligation of
the United States or its agencies or instrumentalities;
3. Invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if, as a
result, such investments (valued at the lower of cost or market) would exceed
10% of the value of the Portfolio's net assets; provided that not more than 2%
of the Portfolio's net assets may be invested in warrants not listed on any
principal foreign or domestic exchange;
4. Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 15% of its total assets (taken at current value) and then only to
secure permitted borrowings. (The deposit of underlying securities and other
assets in escrow and collateral arrangements with respect to margin for futures
contracts and options are not deemed to be pledges or other encumbrances.);
5. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities, and except
that it may make margin payments in connection with futures contracts and
options;
6. Make short sales of securities or maintain a short sale position for
the account of the Portfolio unless at all times when a short position is open
it owns an equal amount of such securities or owns securities which, without
payment of any further consideration, are convertible into or exchangeable for
securities of the same issue as, and at least equal in amount to, the securities
sold short;
7. Invest in the securities of other investment companies except in
compliance with the Investment Company Act of 1940 and applicable state law.
Duplicate fees may result from such purchases;
8. Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, although it may purchase securities of issuers which deal in,
represent interests in, or are secured by interests in such leases, rights, or
contracts, and it may acquire or dispose of such leases, rights, or contracts
acquired through the exercise of its rights as a holder of debt obligations
secured thereby;
9. Make investments for the purpose of gaining control of a company's
management; or
10. Invest in securities of any issuer if, to the knowledge of the
Portfolio, officers and Trustees of the Trust and officers and directors of the
Investment Manager and the Sub-advisor who beneficially own more than 0.5% of
the shares or securities of that issuer together own more than 5%.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
AST Putnam Balanced Portfolio:
Investment Objective: The investment objective of the AST Putnam Balanced
Portfolio is to provide a balanced investment composed of a well-diversified
portfolio of stocks and bonds which will produce both capital growth and current
income.
Investment Policies:
Lower-Rated Fixed-Income Securities. The Portfolio may invest in
lower-rated fixed-income securities (commonly known as "junk bonds"). The lower
ratings of certain securities held by the Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by the Portfolio more volatile and could limit the Portfolio's ability to
sell its securities at prices approximating the values the Portfolio had placed
on such securities. In the absence of a liquid trading market for securities
held by it, the Portfolio at times may be unable to establish the fair value of
such securities. For an additional discussion of certain risks involved in
lower-rated securities, see this Statement and the Trust's Prospectus under
"Certain Risk Factors and Investment Methods."
The Portfolio will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. However, the
Sub-advisor will monitor the investment to determine whether its retention will
assist in meeting the Portfolio's investment objective. At times, a substantial
portion of the Portfolio's assets may be invested in securities as to which the
Portfolio, by itself or together with other mutual funds and accounts managed by
the Sub-advisor and its affiliates, holds all or a major portion. Although the
Sub-advisor generally considers such securities to be liquid because of the
availability of an institutional market for such securities, it is possible
that, under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the Portfolio could find it
more difficult to sell these securities when the Sub-advisor believes it
advisable to do so or may be able to sell the securities only at prices lower
than if they were more widely held. Under these circumstances, it may also be
more difficult to determine the fair value of such securities for purposes of
computing the Portfolio's net asset value. In order to enforce its rights in the
event of a default under such securities, the Portfolio may be required to
participate in various legal proceedings or take possession of and manage assets
securing the issuer's obligations on such securities. This could increase the
Portfolio's operating expenses and adversely affect the Portfolio's net asset
value.
To the extent the Portfolio invests in securities in the lower rating
categories, the achievement of the Portfolio's goals is more dependent on the
Sub-advisor's investment analysis than would be the case if the Portfolio were
investing in securities in the higher rating categories
Zero Coupon Bonds. The Portfolio may invest without limit in zero
coupon bonds. Zero coupon bonds are issued at a significant discount from their
principal amount in lieu of paying interest periodically. Because zero coupon
bonds do not pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds that pay
interest currently. Zero coupon bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest currently in cash. For
an additional discussion of zero coupon bonds and certain risks involved
therein, see this Statement under "Certain Risk Factors and Investment Methods."
Restricted Securities. The Portfolio may invest in restricted
securities. For a discussion of restricted securities and certain risks involved
therein, see the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Mortgage Related Securities. The Portfolio may invest in
mortgage-backed securities, including collateralized mortgage obligations
("CMOs") and certain stripped mortgage-backed securities. CMOs and other
mortgage-backed securities represent a participation in, or are secured by,
mortgage loans.
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt securities,
which may pay a fixed rate of interest until maturity, when the entire principal
amount comes due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the scheduled repayment
of principal, repayments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. If property owners
make unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities. In that
event the Portfolio may be unable to invest the proceeds from the early payment
of the mortgage-related securities in an investment that provides as high a
yield as the mortgage-related securities. Consequently, early payment associated
with mortgage-related securities may cause these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. During periods of rising interest rates, the rate
of mortgage prepayments usually decreases, thereby tending to increase the life
of mortgage-related securities. If the life of a mortgage-related security is
inaccurately predicted, the Portfolio may not be able to realize the rate of
return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term interest rates. One
reason is the need to reinvest prepayments of principal; another is the
possibility of significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at lower rates. As
a result, these securities may have less potential for capital appreciation
during periods of declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in market value
during periods of rising interest rates.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by the
U.S. government or its agencies or instrumentalities, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any other person or
entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes of
securities, each having different maturities, interest rates and payment
schedules, and with the principal and interest on the underlying mortgages
allocated among the several classes in various ways. Payment of interest or
principal on some classes or series of CMOs may be subject to contingencies or
some classes or series may bear some or all of the risk of default on the
underlying mortgages. CMOs of different classes or series are generally retired
in sequence as the underlying mortgage loans in the mortgage pool are repaid. If
enough mortgages are repaid ahead of schedule, the classes or series of a CMO
with the earliest maturities generally will be retired prior to their
maturities. Thus, the early retirement of particular classes or series of a CMO
held by the Portfolio would have the same effect as the prepayment of mortgages
underlying other mortgage-backed securities.
The secondary market for stripped mortgage-backed securities may be
more volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the Portfolio's ability to buy or sell those securities at
any particular time. For an additional discussion of mortgage related securities
and certain risks involved therein, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Lending Portfolio Securities. The Portfolio may make secured loans of
its securities, on either a short-term or long-term basis, thereby realizing
additional income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
As a matter of policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by collateral
consisting of cash or short-term debt obligations at least equal at all times to
the value of the securities on loan, "marked-to-market" daily. The borrower pays
to the Portfolio an amount equal to any dividends or interest received on
securities lent. The Portfolio retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the borrower.
Although voting rights, or rights to consent, with respect to the loaned
securities may pass to the borrower, the Portfolio retains the right to call the
loans at any time on reasonable notice, and it will do so to enable the
Portfolio to exercise voting rights on any matters materially affecting the
investment. The Portfolio may also call such loans in order to sell the
securities.
Forward Commitments. The Portfolio may enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if the Portfolio holds, and maintains until the
settlement date in a segregated account, cash or liquid securities in an amount
sufficient to meet the purchase price, or if the Portfolio enters into
offsetting contracts for the forward sale of other securities it owns. In the
case of to-be-announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the Portfolio enters into a
contract, with the actual principal amount being within a specified range of the
estimate. Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition to the risk of decline
in the value of the Portfolio's other assets. Where such purchases are made
through dealers, the Portfolio relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the Portfolio of an
advantageous yield or price. Although the Portfolio will generally enter into
forward commitments with the intention of acquiring securities for the Portfolio
or for delivery pursuant to options contracts it has entered into, the Portfolio
may dispose of a commitment prior to settlement if the Sub-advisor deems it
appropriate to do so. The Portfolio may realize short-term profits or losses
upon the sale of forward commitments.
The Portfolio may enter into TBA sale commitments to hedge its
portfolio positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are held as
"cover" for the transaction. Unsettled TBA sale commitments are valued at
current market value of the underlying securities. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
Portfolio realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Portfolio delivers
securities under the commitment, the Portfolio realizes a gain or loss from the
sale of the securities based upon the unit price established at the date the
commitment was entered into.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements. A repurchase agreement is a contract under which the Portfolio
acquires a security for a relatively short period (usually not more than one
week) subject to the obligation of the seller to repurchase and the Portfolio to
resell such security at a fixed time and price (representing the Portfolio's
cost plus interest). It is the Portfolio's present intention to enter into
repurchase agreements only with commercial banks and registered broker-dealers
and only with respect to obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as loans made by the
Portfolio which are collateralized by the securities subject to repurchase. The
Sub-advisor will monitor such transactions to ensure that the value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. For an additional
discussion of repurchase agreements and certain risks involved therein, see the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
The Board of Trustees of the Trust has promulgated guidelines with
respect to repurchase agreements.
Writing Covered Options. The Portfolio may write covered call options
and covered put options on optionable securities held in its portfolio, when in
the opinion of the Sub-advisor such transactions are consistent with the
Portfolio's investment objective and policies. Call options written by the
Portfolio give the purchaser the right to buy the underlying securities from the
Portfolio at a stated exercise price; put options give the purchaser the right
to sell the underlying securities to the Portfolio at a stated price.
The Portfolio may write only covered options, which means that, so long
as the Portfolio is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities satisfying
the cover requirements of securities exchanges). In the case of put options, the
Portfolio will hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition, the Portfolio will
be considered to have covered a put or call option if and to the extent that it
holds an option that offsets some or all of the risk of the option it has
written. The Portfolio may write combinations of covered puts and calls on the
same underlying security.
If the Portfolio writes a call option but does not own the underlying
security, and when it writes a put option, the Portfolio may be required to
deposit cash or securities with its broker as "margin," or collateral, for its
obligation to buy or sell the underlying security. As the value of the
underlying security varies, the Portfolio may have to deposit additional margin
with the broker. Margin requirements are complex and are fixed by individual
brokers, subject to minimum requirements currently imposed by the Federal
Reserve Board and by stock exchanges and other self-regulatory organizations.
For an additional discussion of options transactions, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Purchasing Put Options. The Portfolio may purchase put options to
protect its holdings in an underlying security against a decline in market
value. Such protection is provided during the life of the put option since the
Portfolio, as holder of the option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. In order for a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs. By using put options in this manner,
the Portfolio will reduce any profit it might otherwise have realized from
appreciation of the underlying security by the premium paid for the put option
and by transaction costs.
Purchasing Call Options. The Portfolio may purchase call options to
hedge against an increase in the price of securities that the Portfolio wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Portfolio, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs.
Risk Factors in Options Transactions. The successful use of the
Portfolio's options strategies depends on the ability of the Sub-advisor to
forecast correctly interest rate and market movements. The effective use of
options also depends on the Portfolio's ability to terminate option positions at
times when the Sub-advisor deems it desirable to do so. There is no assurance
that the Portfolio will be able to effect closing transactions at any particular
time or at an acceptable price.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions. For
example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options market were to
become unavailable, the Portfolio as a holder of an option would be able to
realize profits or limit losses only by exercising the option, and the
Portfolio, as option writer, would remain obligated under the option until
expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the Portfolio could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options on that
security is normally halted as well. As a result, the Portfolio as purchaser or
writer of an option will be unable to close out its positions until options
trading resumes, and it may be faced with considerable losses if trading in the
security reopens at a substantially different price. In addition, the Options
Clearing Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the option
has also been halted, the Portfolio as purchaser or writer of an option will be
locked into its position until one of the two restrictions has been lifted. If
the Options Clearing Corporation were to determine that the available supply of
an underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options. The Portfolio, as holder of such a put option, could
lose its entire investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time differences
between the United States and various foreign countries, and because different
holidays are observed in different countries, foreign options markets may be
open for trading during hours or on days when U.S. markets are closed. As a
result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Over-the-counter ("OTC") options purchased by the Portfolio and assets
held to cover OTC options written by the Portfolio may, under certain
circumstances, be considered illiquid securities for purposes of any limitation
on the Portfolio's ability to invest in illiquid securities. For an additional
discussion of certain risks involved in options transactions, see this Statement
and the Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Futures Contracts and Related Options. Subject to applicable law, the
Portfolio may invest without limit in the types of futures contracts and related
options identified in the Prospectus for hedging and non-hedging purposes. The
use of futures and options transactions for purposes other than hedging entails
greater risks. A financial futures contract sale creates an obligation by the
seller to deliver the type of financial instrument called for in the contract in
a specified delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery of the type of
financial instrument called for in the contract in a specified delivery month at
a stated price. The specific instruments delivered or taken, respectively, at
settlement date are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the futures
contract sale or purchase was made. Futures contracts are traded in the United
States only on commodity exchanges or boards of trade -- known as "contract
markets" -- approved for such trading by the Commodity Futures Trading
Commission (the "CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant contract market.
The Portfolio may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the Portfolio. The Portfolio may close its
positions by taking opposite positions which will operate to terminate the
Portfolio's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs. For an additional discussion
of futures contracts and related options, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Options on Futures Contracts. The Portfolio may purchase and write call
and put options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on future contracts give the purchaser the right in return for the
premium paid to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The Portfolio may
use options on futures contracts in lieu of writing or buying options directly
on the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
securities, the Portfolio may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the
Portfolio may purchase call options or write put options on futures contracts as
a substitute for the purchase of futures contracts to hedge against a possible
increase in the price of securities which the Portfolio expects to purchase.
Such options generally operate in the same manner as options purchased or
written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected. For an additional
discussion of options on futures contracts, see this Statement and the Trust's
Prospectus under "Certain Risk Factors and Investment Methods."
Risks of Transactions in Futures Contracts and Related Options.
Successful use of futures contracts by the Portfolio is subject to the
Sub-advisor's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase or sale
of futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Portfolio because the maximum amount at risk
is the premium paid for the options (plus transaction costs). However, there may
be circumstances when the purchase of a call or put option on a futures contract
would result in a loss to the Portfolio when the purchase or sale of a futures
contract would not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts. For an
additional discussion of certain risks involved in futures contracts and related
options, see this Statement and the Trust's Prospectus under "Certain Risk
Factors and Investment Methods."
U.S. Treasury Security Futures Contracts and Options. U.S. Treasury
security futures contracts require the seller to deliver, or the purchaser to
take delivery of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security futures
contracts give the purchaser the right in return for the premium paid to assume
a position in a U.S. Treasury security futures contract at the specified option
exercise price at any time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the
Portfolio is subject to the Sub-advisor's ability to predict movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if the Portfolio has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an increase in
interest rates which would adversely affect securities held by the Portfolio,
and the prices of the Portfolio's securities increase instead as a result of a
decline in interest rates, the Portfolio will lose part or all of the benefit of
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily maintenance margin requirements at a time when it may be disadvantageous
to do so. There is also a risk that price movements in U.S. Treasury security
futures contracts and related options will not correlate closely with price
movements in markets for particular securities.
Index Futures Contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. The Portfolio may enter into stock index
futures contracts, debt index futures contracts, or other index futures
contracts appropriate to its objective. The Portfolio may also purchase and sell
options on index futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price Index
("S&P 500") is composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange. The S&P 500 assigns relative weightings to the
common stocks included in the Index, and the value fluctuates with changes in
the market values of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one
contract would be worth $75,000 (500 units x $150). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if the Portfolio enters into a futures contract to buy 500 units of
the S&P 500 at a specified future date at a contract price of $150 and the S&P
500 is at $154 on that future date, the Portfolio will gain $2,000 (500 units x
gain of $4). If the Portfolio enters into a futures contract to sell 500 units
of the stock index at a specified future date at a contract price of $150 and
the S&P 500 is at $152 on that future date, the Portfolio will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the Portfolio of
index futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices of
securities which are the subject of the hedge. The Sub-advisor will, however,
attempt to reduce this risk by buying or selling, to the extent possible,
futures on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the securities sought to
be hedged.
Successful use of index futures by the Portfolio is also subject to the
Sub-advisor's ability to predict movements in the direction of the market. For
example, it is possible that, where the Portfolio has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Portfolio may
decline. If this occurred, the Portfolio would lose money on the futures and
also experience a decline in value in its portfolio securities. It is also
possible that, if the Portfolio has hedged against the possibility of a decline
in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Portfolio will lose part or all of the
benefit of the increased value of those securities it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index futures
and the portion of the Portfolio being hedged, the prices of index futures may
not correlate perfectly with movements in the underlying index due to certain
market distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market does.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Sub-advisor may still not result in a
profitable position over a short time period.
Options on Stock Index Futures. Options on index futures are similar to
options on securities except that options on index futures give the purchaser
the right, in return for the premium paid, to assume a position in an index
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
future. If an option is exercised on the last trading day prior to its
expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of the
index on which the future is based on the expiration date. Purchasers of options
who fail to exercise their options prior to the exercise date suffer a loss of
the premium paid.
Options on Indices. As an alternative to purchasing call and put
options on index futures, the Portfolio may purchase and sell call and put
options on the underlying indices themselves. Such options would be used in a
manner identical to the use of options on index futures. For an additional
discussion of options on indices and certain risks involved therein, see this
Statement under "Certain Risk Factors and Investment Methods."
Foreign Securities. The Portfolio may invest up to 20% of its total
assets in securities denominated in foreign currency. Eurodollar certificates of
deposit are excluded for purposes of this limitation. For a discussion of
certain risks involved in foreign investing, in general, and the special risks
involved in investing in developing countries or "emerging markets," see this
Statement and the Trust's Prospectus under "Certain Risk Factors and Investment
Methods."
Foreign Currency Transactions. The Portfolio may engage without limit
in currency exchange transactions, including purchasing and selling foreign
currency, foreign currency options, foreign currency forward contracts and
foreign currency futures contracts and related options, to protect against
uncertainty in the level of future currency exchange rates. In addition, the
Portfolio may write covered call and put options on foreign currencies for the
purpose of increasing its current return.
Generally, the Portfolio may engage in both "transaction hedging" and
"position hedging." When it engages in transaction hedging, the Portfolio enters
into foreign currency transactions with respect to specific receivables or
payables, generally arising in connection with the purchase or sale of portfolio
securities. The Portfolio will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the Portfolio will attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is earned, and the date on which such payments are
made or received.
The Portfolio may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency. The
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes the Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Portfolio the right to assume a short position in the futures contract
until the expiration of the option. A put option on a currency gives the
Portfolio the right to sell the currency at an exercise price until the
expiration of the option. A call option on a futures contract gives the
Portfolio the right to assume a long position in the futures contract until the
expiration of the option. A call option on a currency gives the Portfolio the
right to purchase the currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the Portfolio enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated (or an
increase in the value of currency for securities which the Portfolio expects to
purchase). In connection with position hedging, the Portfolio may purchase put
or call options on foreign currency and on foreign currency futures contracts
and buy or sell forward contracts and foreign currency futures contracts. The
Portfolio may also purchase or sell foreign currency on a spot basis.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
value of such currency. See "Risk Factors in Options Transactions" above.
The Portfolio may seek to increase its current return or to offset some
of the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign currencies. The
Portfolio receives a premium from writing a call or put option, which increases
the Portfolio's current return if the option expires unexercised or is closed
out at a net profit. The Portfolio may terminate an option that it has written
prior to its expiration by entering into a closing purchase transaction in which
it purchases an option having the same terms as the option written.
The Portfolio's currency hedging transactions may call for the delivery
of one foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. The Sub-advisor will engage in such "cross hedging" activities when
it believes that such transactions provide significant hedging opportunities for
the Portfolio. Cross hedging transactions by the Portfolio involve the risk of
imperfect correlation between changes in the values of the currencies to which
such transactions relate and changes in the value of the currency or other asset
or liability which is the subject of the hedge.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic factors applicable
to the issuing country. In addition, the exchange rates of foreign currencies
(and therefore the values of foreign currency options, forward contracts and
futures contracts) may be affected significantly, fixed, or supported directly
or indirectly by U.S. and foreign government actions. Government intervention
may increase risks involved in purchasing or selling foreign currency options,
forward contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects relative
values of two currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the exercise of
foreign currency options, forward contracts and futures contracts, investors may
be disadvantaged by having to deal in an odd-lot market for the underlying
foreign currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign currencies.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
round-lot transactions in the interbank market and thus may not reflect exchange
rates for smaller odd-lot transactions (less than $1 million) where rates may be
less favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the options markets. For an additional discussion of foreign currency
transactions and certain risks involved therein, see this Statement and the
Trust's Prospectus under "Certain Risk Factors and Investment Methods."
Currency Forward and Futures Contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a price
set at the time of the contract. Foreign currency futures contracts traded in
the United States are designed by and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Portfolio either
may accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market in such
contracts. Although the Portfolio intends to purchase or sell foreign currency
futures contracts only on exchanges or boards of trade where there appears to be
an active secondary market, there is no assurance that a secondary market on an
exchange or board of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close a futures
position and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
Foreign Currency Options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of the risks
described above. Foreign currency options are traded primarily in the
over-the-counter market, although options on foreign currencies are also listed
on several exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit ("ECU"). The ECU is
composed of amounts of a number of currencies, and is the official medium of
exchange of the European Community's European Monetary System.
The Portfolio will only purchase or write foreign currency options when
the Sub-advisor believes that a liquid secondary market exists for such options.
There can be no assurance that a liquid secondary market will exist for a
particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investments generally.
Settlement Procedures. Settlement procedures relating to the
Portfolio's investments in foreign securities and to the Portfolio's foreign
currency exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may involve
certain risks not present in the Portfolio's domestic investments. For example,
settlement of transactions involving foreign securities or foreign currencies
may occur within a foreign country, and the Portfolio may be required to accept
or make delivery of the underlying securities or currency in conformity with any
applicable U.S. or foreign restrictions or regulations, and may be required to
pay any fees, taxes or charges associated with such delivery. Such investments
may also involve the risk that an entity involved in the settlement may not meet
its obligations.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Investment Policies Which May Be Changed Without Shareholder Approval.
The following limitations are applicable only to the AST Putnam Balanced
Portfolio. As a matter of non-fundamental policy, which may be changed without
shareholder approval, the Portfolio will not:
1. Invest for the purpose of exercising control or management;
2. Buy or sell oil, gas, or other mineral leases, rights or royalty
contracts;
3. Engage in puts, calls, straddles, spreads or any combination
thereof, except that the Portfolio may buy and sell put and call options (and
any combination thereof) on securities, on financial futures contracts, and on
securities indices;
4. Invest in the securities of other investment companies except in
compliance with the Investment Company Act of 1940 and applicable state law.
Duplicate fees may result from such purchases;
5. Invest in (a) securities which at the time of such investment are
not readily marketable, (b) securities restricted as to resale, excluding
securities determined by the Trustees of the Trust (or the person designated by
the Trustees of the Trust to make such determinations) to be readily marketable,
and (c) repurchase agreements maturing in more than seven days, if, as a result,
more than 15% of the Portfolio's net assets (taken at current value) would be
invested in securities described in (a), (b) and (c) above;
6. Invest in warrants if, as a result, such investments (valued at the
lower of cost or market) would exceed 5% of the value of the Portfolio's net
assets; provided that not more than 2% of the Portfolio's net assets may be
invested in warrants not listed on the New York or American Stock Exchanges;
7. Invest in securities of an issuer which, together with any
predecessors, controlling persons, general partners and guarantors, have a
record of less than three years' continuous business operation or relevant
business experience, if, as a result, the aggregate of such investments would
exceed 5% of the value of the Portfolio's net assets; provided, however, that
this restriction shall not apply to any obligations of the U.S. government or
its instrumentalities or agencies;
8. Invest in securities of any issuer, if, to the knowledge of the
Portfolio, officers and Trustees of the Trust and officers and directors of the
Investment Manager and the Sub-advisor who beneficially own more than 0.5% of
the securities of that issuer together own more than 5% of such securities;
9. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities, and except
that it may make margin payments in connection with financial futures contracts
or options;
10. Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 33 1/3% of its total assets (taken at cost) in connection with
permitted borrowings; or
11. Make short sales of securities or maintain a short position for the
account of the Portfolio unless at all times when a short position is open it
owns an equal amount of such securities or owns securities which, without
payment of any further consideration, are convertible into or exchangeable for
securities of the same issue as, and in equal amount to, the securities sold
short.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
Investment Objective and Policy Applicable to All Portfolios:
In order to permit the sale of shares of the Trust to separate accounts
of Participating Insurance Companies in certain states, the Trust may make
commitments more restrictive than the restrictions described in the section of
this Statement entitled "Investment Restrictions." Should the Trust determine
that any such commitment is no longer in the best interests of the Trust and its
shareholders it will revoke the commitment and terminate sales of its shares in
the state(s) involved.
The Board of Trustees of the Trust may, from time to time, promulgate
guidelines with respect to the investment policies of the Portfolios.
INVESTMENT RESTRICTIONS:
The investment restrictions set forth below are "fundamental" policies.
See the subsection of this Statement entitled "Investment Objectives and
Policies" for further discussion of "fundamental" policies of the Trust and the
requirements for changing such "fundamental" policies.
Certain investment restrictions apply to all Portfolios of the Trust.
Such investment restrictions are described below. Investment restrictions that
apply to each of these Portfolios separately are also described below.
Investment restrictions that are not "fundamental" may be found in the general
description of the Investment Policies of each Portfolio, as described in the
section of the Trust's Prospectus entitled "Investment Objectives and Policies"
and in the section of this Statement entitled "Investment Objectives and
Policies."
Investment Restrictions Applicable to All of the Portfolios Except the AST
Janus Overseas Growth Portfolio, T. Rowe Price Asset Allocation Portfolio, the
T. Rowe Price International Equity Portfolio, the T. Rowe Price Natural
Resources Portfolio, the T. Rowe Price International Bond Portfolio, the T. Rowe
Price Small Company Value Portfolio, the Founders Passport Portfolio, the
Robertson Stephens Value + Growth Portfolio, the Twentieth Century International
Growth Portfolio, the Twentieth Century Strategic Balanced Portfolio, the AST
Putnam Value Growth & Income Portfolio, the AST Putnam International Equity
Portfolio and the AST Putnam Balanced Portfolio.
1. A Portfolio will not purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market of securities of closed-end
investment companies where no underwriter or dealer's commission or profit,
other than a customary broker's commission, is involved and only if immediately
thereafter not more than 10% of this Portfolio's total assets, at market value,
would be invested in such securities, or by investing no more than 5% of the
Portfolio's total assets in other open-end investment companies or by purchasing
no more than 3% of any one open-end investment company's securities.
2. A Portfolio will not buy any securities or other property on margin
(except for such short-term credits as are necessary for the clearance of
transactions).
3. A Portfolio will not invest in companies for the purpose of
exercising control or management.
4. A Portfolio will not underwrite securities issued by others except
to the extent that the Portfolio may be deemed an underwriter when purchasing or
selling securities.
5. A Portfolio will not purchase or retain securities of any issuer
(other than the shares of such Portfolio) if to the Trust's knowledge, the
officers and Trustees of the Trust and the officers and directors of the
Investment Manager who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than 5% of
such outstanding securities.
6. A Portfolio will not issue senior securities.
Investment Restrictions Applicable Only to the Lord Abbett Growth and Income
Portfolio:
1. The Portfolio will not purchase a security if as a result, that
Portfolio would own more than 10% of the outstanding voting securities of any
issuer.
2. The Portfolio will not lend money or securities to any person except through
entering into short-term repurchase agreements with sellers of securities the
Portfolio has purchased, and through lending Portfolio securities to registered
broker-dealers where the loan is 100% secured by cash or its equivalent as long
as the Portfolio complies with regulatory requirements and the Sub-advisor deems
such loans not to expose the Portfolio to significant risk or adversely affect
the Portfolio's qualification for pass-through tax treatment under the Internal
Revenue Code (investment in repurchase agreements exceeding 7 days and in other
illiquid investments is limited to a maximum of 10% of Portfolio net assets).
3. The Portfolio will not pledge, mortgage, or hypothecate its assets --
however, this provision does not apply to the grant of escrow receipts or the
entry into other similar escrow arrangements arising out of the writing of
covered call options.
4. The Portfolio will not purchase securities of any issuer unless it or its
predecessor has a record of three years' continuous operation, except that the
Portfolio may purchase securities of such issuers through subscription offers or
other rights it receives as a security holder of companies offering such
subscriptions or rights, and such purchases will then be limited in the
aggregate to 5% of the Portfolio's net assets at the time of investment.
5. The Portfolio will not concentrate its investments in any one industry (the
Portfolio's investment policy of keeping its assets in those securities which
are selling at the most reasonable prices in relation to value normally results
in diversification among many industries -- consistent with this, the Portfolio
does not intend to invest more than 25% of its assets in any one industry
classification used by the Sub-advisor for investment purposes, although such
concentration could, under unusual economic and market conditions, amount to 30%
or conceivably somewhat more).
6. The Portfolio will not borrow money except from banks and then in amounts not
in excess of 33 1/3% of its total assets. The Portfolio may borrow at prevailing
interest rates and invest the Portfolios in additional securities. The
Portfolio's borrowings are limited so that immediately after such borrowing the
value of the Portfolio's assets (including borrowings) less its liabilities (not
including borrowings) is at least three times the amount of the borrowings.
Should the Portfolio, for any reason, have borrowings that do not meet the above
test then, within three business days, the Portfolio must reduce such borrowings
so as to meet the necessary test. Under such a circumstance, the Portfolio have
to liquidate securities at a time when it is disadvantageous to do so.
7. The Portfolio will not make short sales except short sales made "against the
box" to defer recognition of taxable gains or losses.
8. The Portfolio will not purchase or sell real estate (although it may purchase
securities secured by real estate interests or interests therein, or issued by
companies or investment trusts which invest in real estate or interests
therein).
9. The Portfolio will not invest directly in oil, gas, or other mineral
exploration or development programs; however, the Portfolio may purchase
securities of issuers whose principal business activities fall within such
areas.
10. The Portfolio will not purchase a security if as a result, more than 5% of
the value of that Portfolio's assets, at market value, would be invested in the
securities of issuers which, with their predecessors, have been in business less
than three years.
Investment Restrictions Applicable Only to the JanCap Growth Portfolio:
1. The Portfolio will not purchase a security if as a result, that Portfolio
would own more than 10% of the outstanding voting securities of any issuer.
2. As to 75% of the value of its total assets, the Portfolio will not invest
more than 5% of its total assets, at market value, in the securities of any one
issuer (except cash items and securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities).
3. The Portfolio will not purchase a security if as a result, more than 25% of
its total assets, at market value, would be invested in the securities of
issuers principally engaged in the same industry (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities).
4. The Portfolio will not purchase or sell real estate (although it may purchase
securities secured by real estate interests or interests therein, or issued by
companies or investment trusts which invest in real estate or interests
therein).
5. The Portfolio will not purchase or sell physical commodities other than
foreign currencies unless acquired as a result of ownership of securities (but
this shall not prevent the Portfolio from purchasing or selling options,
futures, swaps and forward contracts or from investing in securities and other
instruments backed by physical commodities).
6. The Portfolio will not lend any security or make any other loan, if as a
result, more than 25% of its total assets would be lent to other parties (but
this limitation does not apply to purchases of commercial paper, debt securities
or to repurchase agreements).
Investment Restrictions Applicable Only to the AST Janus Overseas Growth
Portfolio:
1. The Portfolio may borrow money for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 33 1/3% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 33 1/3% of the value of the Portfolio's total
assets by reason of a decline in net assets, the Portfolio will reduce its
borrowings within three business days to the extent necessary to comply with the
33 1/3% limitation. This policy shall not prohibit reverse repurchase
agreements, deposits of assets to margin or guarantee positions in futures,
options, swaps or forward contracts, or the segregation of assets in connection
with such contracts.
2. The Portfolio will not, as to 75% of the value of its total assets, own more
than 10% of the outstanding voting securities of any one issuer, or purchase the
securities of any one issuer (except cash items and "government securities" as
defined under the Investment Company Act of 1940, as amended (the "1940 Act")),
if immediately after and as a result of such purchase, the value of the holdings
of the Portfolio in the securities of such issuer exceeds 5% of the value of its
total assets.
3. The Portfolio will not invest more than 25% of the value of its assets in any
particular industry (other than U.S. government securities.
4. The Portfolio will not invest directly in real estate or interests in real
estate; however, the Portfolio may own debt or equity securities issued by
companies engaged in those businesses.
5. The Portfolio will not purchase or sell physical commodities other than
foreign currencies unless acquired as a result of ownership of securities (but
this limitation shall not prevent the Portfolio from purchasing or selling
options, futures, swaps and forward contracts or from investing in securities or
other instruments backed by physical commodities).
6. The Portfolio will not lend any security or make any other loan if, as a
result, more than 25% of the Portfolio's total assets would be lent to other
parties (but this limitation does not apply to purchases of commercial paper,
debt securities or repurchase agreements).
7. The Portfolio will not act as an underwriter of securities issued by others,
except to the extent that the Portfolio may be deemed an underwriter in
connection with the disposition of its securities.
8. The Portfolio will not issue senior securities except in compliance with the
1940 Act.
Investment Restrictions Applicable Only to the AST Money Market Portfolio:
1. The Portfolio will not purchase a security if as a result, the Portfolio
would own more than 10% of the outstanding voting securities of any issuer.
2. As to 75% of the value of its total assets, the Portfolio will not invest
more than 5% of its total assets, at market value, in the securities of any one
issuer (except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities).
3. The Portfolio will not acquire any illiquid securities, such as repurchase
agreements with more than seven days to maturity or fixed time deposits with a
duration of over seven calendar days, if as a result thereof, more than 10% of
the market value of the Portfolio's total assets would be in investments which
are illiquid.
4. The Portfolio will not purchase a security if as a result, more than 25% of
its total assets, at market value, would be invested in the securities of
issuers principally engaged in the same industry (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, negotiable
certificates of deposit, time deposits, and bankers' acceptances of United
States branches of United States banks).
5. The Portfolio will not enter into reverse repurchase agreements exceeding in
the aggregate one-third of the market value of the Portfolio's total assets,
less liabilities other than obligations created by reverse repurchase
agreements.
6. The Portfolio will not borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts not to exceed 10% of the value of
the Portfolio's total assets, taken at cost, at the time of such borrowing. The
Portfolio may not mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not to exceed 10% of the value
of the Portfolio's net assets at the time of such borrowing. The Portfolio will
not purchase securities while borrowings exceed 5% of the Portfolio's total
assets. This borrowing provision is included to facilitate the orderly sale of
securities, for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes and shall not apply to reverse repurchase
agreements.
7. The Portfolio will not make loans, except through purchasing or holding debt
obligations, or entering into repurchase agreements, or loans of Portfolio
securities in accordance with the Portfolio's investment objectives and
policies.
8. The Portfolio will not purchase securities on margin, make short sales of
securities, or maintain a short position, provided that this restriction shall
not be deemed to be applicable to the purchase or sale of when-issued securities
or of securities for delivery at a future date.
9. The Portfolio will not purchase or sell puts, calls, straddles, spreads, or
any combination thereof; real estate; commodities; or commodity contracts or
interests in oil, gas or mineral exploration or development programs. However,
the Portfolio may purchase bonds or commercial paper issued by companies which
invest in real estate or interests therein including real estate investment
trusts.
Investment Restrictions Applicable Only to the Federated Utility Income
Portfolio:
1. The Portfolio will invest at least 25% of its total assets in securities of
utility companies.
2. The Portfolio will not purchase or sell commodities. However, the Portfolio
may purchase options on Portfolio securities and on financial futures contracts
for hedging purposes only.
3. The Portfolio will not purchase or sell real estate, although it may invest
in securities of companies whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
4. The Portfolio will not purchase any securities on margin, other than in
connection with the purchase of put options on financial futures contracts, but
may obtain such short-term credits as may be necessary for the clearance of
transactions.
5. The Portfolio will not sell securities short unless: (i) during the time the
short position is open, it owns an equal amount of securities sold or securities
readily and freely convertible into or exchangeable, without payment of
additional consideration, for securities of the same issue as, and equal in
amount to, the securities sold short; and (ii) not more than 10% of the current
value of the Portfolio's net assets is held as collateral for such sales at any
one time.
6. The Portfolio will not issue senior securities, except that the Portfolio may
borrow money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
7. The Portfolio will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary, extraordinary or
emergency measure to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests when the liquidation of Portfolio
securities is deemed to be inconvenient or disadvantageous. The Portfolio will
not purchase any securities while any such borrowings are outstanding. However,
during the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Portfolio will restrict the purchase of portfolio investments to money
market instruments maturing on or before the expiration date of the reverse
repurchase agreements.
8. The Portfolio may lend Portfolio securities, as long as the value of the
loaned securities does not exceed one-third of the value of the Portfolio's
total assets. This shall not prevent the holding of corporate bonds, debentures,
notes, certificates of indebtedness or other debt securities of an issuer,
repurchase agreements, or other transactions which are permitted by the
Portfolio's Investment Objective and Policies.
9. The Portfolio will not invest more than 10% of its total assets in restricted
securities.
10. The Portfolio will not purchase interests in oil, gas or other mineral
exploration or development programs or leases, although it may purchase
securities of issuers which engage in whole or in part in such activities.
11. The Portfolio will not invest more than 5% of the value of its total assets
in securities of companies, including their predecessors, that have been in
operation for less than three years.
12. The Portfolio will not purchase the securities of any issuer (other than the
U.S. government, its agencies, or instrumentalities or instruments secured by
the securities of such issuers, such as repurchase agreements or cash or cash
items) if, as a result, more than 5% of the value of its total assets would be
invested in the securities of such issuer, or acquire more than 10% of any class
of voting securities of any issuer. For these purposes, all common stock and
preferred stock of an issuer, taken together, will be deemed to be a single
class, regardless of priorities, series, designations, or other differences.
13. The Portfolio will not invest more than 5% of its net assets in warrants,
not more than 2% of which may be warrants not listed on the New York Stock
Exchange or American Stock Exchange.
Investment Restrictions Applicable Only to the Federated High Yield Portfolio:
1. The Portfolio will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions.
2. The Portfolio will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only from banks and only in amounts
not in excess of 5% of the value of its net assets, taken at the lower of cost
or market. In addition, to meet redemption requests without immediately selling
portfolio securities, the Portfolio may borrow up to one-third of the value of
its total assets (including the amount borrowed) less its liabilities (not
including borrowings, but including the current fair market value of any
securities carried in open short positions). This practice is not for investment
leverage but solely to facilitate management of the portfolio by enabling the
Portfolio to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. If, due to market
fluctuations or other reasons, the value of the Portfolio's assets falls below
300% of its borrowings, it will reduce its borrowings within three business
days. No more than 10% of the value of the Portfolio's total assets at the time
of providing such security may be used to secure borrowings.
3. The Portfolio will not invest more than 5% of its total assets in the
securities of any one issuer (except cash and cash instruments, securities
issued or guaranteed by the U.S. government, its agencies, or instrumentalities,
or instruments secured by these money market instruments, such as repurchase
agreements).
4. The Portfolio will not invest more than 5% of the value of its total assets
in securities of companies, including their predecessors, that have been in
operation for less than three years.
5. The Portfolio will not invest more than 5% of the value of its total assets
in foreign securities which are not publicly traded in the United States.
6. The Portfolio will not purchase or sell real estate, although it may invest
in marketable securities secured by real estate or interests in real estate, and
it may invest in the marketable securities of companies investing or dealing in
real estate.
7. The Portfolio will not purchase or sell commodities or commodity contracts or
oil, gas, or other mineral exploration or development programs. However, it may
invest in the marketable securities of companies investing in or sponsoring such
programs.
8. The Portfolio will not make loans, except through the purchase or holding of
securities in accordance with its investment objective, policies, and
limitations and through repurchase agreements. The Portfolio may invest up to 5%
of its total assets in repurchase agreements which mature more than seven days
from the time they are entered into. The Portfolio may lend portfolio securities
if the borrower provides 100% cash collateral in the form of cash or U.S.
government securities. This collateral must be valued daily and should the
market value of the loaned securities increase, the borrower must furnish
additional collateral. The Portfolio retains the right to any dividends,
interest, or other distribution paid on the securities and any increase in their
market value. Loans will be subject to termination at the option of the
Portfolio or the borrower.
9. The Portfolio will not invest more than 10% of its net assets in securities
subject to restrictions on resale under federal securities laws.
10. The Portfolio will not write, purchase, or sell puts, calls, or any
combination thereof.
11. The Portfolio will not make short sales of securities or maintain short
positions, unless: during the time the short position is open, it owns an equal
amount of the securities sold or securities readily and freely convertible into
or exchangeable, without payment of additional consideration, for securities of
the same issue as, and equal in amount to, the securities sold short; and not
more than 10% of the Portfolio's net assets (taken at current value) is held as
collateral for such sales at any one time.
12. The Portfolio will not purchase securities of a company for the purpose of
exercising control or management. However, the Portfolio may invest in up to 10%
of the voting securities of any one issuer and may exercise its voting powers
consistent with the best interests of the Portfolio. From time to time, the
Portfolio, together with other investment companies advised by subsidiaries or
affiliates of Federated Investors, may together buy and hold substantial amounts
of a company's voting stock. All such stock may be voted together. In some such
cases, the Portfolio and the other investment companies might collectively be
considered to be in control of the company in which they have invested. In some
cases, Directors, agents, employees, officers, or others affiliated with or
acting for the Portfolio, its Sub-advisor, or affiliated companies might
possibly become directors of companies in which the Portfolio holds stock.
13. The Portfolio will not invest more than 25% of the value of its total
assets in one industry. However, for temporary defensive purposes, the Portfolio
may at times invest more than that percentage in: cash and cash items;
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; or instruments secured by these money market instruments,
such as repurchase agreements.
Investment Restrictions Only Applicable to the T. Rowe Price Asset Allocation
Portfolio:
The following fundamental policies should be read in connection with
the notes set forth below. The notes are not fundamental policies. As a matter
of fundamental policy, the Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may or may be
deemed to involve a borrowing, in a manner consistent with the Portfolio's
investment objective and policies, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Portfolio's total assets (including
the amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this amount
will be reduced in accordance with applicable law. The Portfolio may borrow from
banks, other Price Portfolios or other persons to the extent permitted by
applicable law;
2. Purchase or sell physical commodities; except that it may enter into futures
contracts and options thereon;
3. Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
4. Make loans, although the Portfolio may (i) purchase money market securities
and enter into repurchase agreements; (ii) acquire publicly- distributed or
privately placed debt securities and purchase debt; (iii) lend portfolio
securities; and (iv) participate in an interfund lending program with other
Price Portfolios provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the Portfolio's
total assets;
5. Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. government, or any of its agencies or instrumentalities;
6. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities);
7. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments back by real estate or securities
of companies engaged in the real estate business);
8. Issue senior securities except in compliance with the Investment Company Act
of 1940; or
9. Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
Notes: The following notes should be read in connection with the above
described fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions (1) and (4), the Portfolio will
not borrow or lend to any other fund unless it applies for and receives an
exemptive order from the SEC, if so required, or the SEC issues rules permitting
such transactions. The Portfolio has no current intention of engaging in any
such activity and there is no assurance the SEC would grant any order requested
by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction (2), the Portfolio does not
consider currency contracts on hybrid investments to be commodities.
For the purposes of investment restriction (3), United States federal,
state or local governments, or related agencies and instrumentalities, are not
considered an industry. Foreign governments are considered an industry.
For purposes of investment restriction (4), the Portfolio will consider
the acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Investment Restrictions Only Applicable to the T. Rowe Price International
Equity Portfolio:
The following fundamental policies should be read in connection with
the notes set forth below. The notes are not fundamental policies. As a matter
of fundamental policy, the Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may or may be
deemed to involve a borrowing, in a manner consistent with the Portfolio's
investment objective and policies, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Portfolio's total assets (including
the amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this amount
will be reduced in accordance with applicable law. The Portfolio may borrow from
banks, other Price Portfolios or other persons to the extent permitted by
applicable law;
2. Purchase or sell physical commodities; except that the Portfolio may enter
into futures contracts and options thereon;
3. Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
4. Make loans, although the Portfolio may (i) purchase money market securities
and enter into repurchase agreements; (ii) acquire publicly-distributed or
privately placed debt securities and purchase debt; (iii) lend portfolio
securities; and (iv) participate in an interfund lending program with other
Price Portfolios provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the Portfolio's
total assets;
5. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities);
6. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities);
7. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments back by real estate or securities
of companies engaged in the real estate business);
8. Issue senior securities except in compliance with the Investment Company Act
of 1940; or
9. Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
Notes: The following notes should be read in connection with the above
described fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions (1) and (4), the Portfolio will
not borrow or lend to any other fund unless it applies for and receives an
exemptive order from the SEC, if so required, or the SEC issues rules permitting
such transactions. The Portfolio has no current intention of engaging in any
such activity and there is no assurance the SEC would grant any order requested
by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction (2), the Portfolio does not
consider currency contracts or hybrid investments to be commodities.
For the purposes of investment restriction (3), United States federal,
state or local governments, or related agencies and instrumentalities, are not
considered an industry. Foreign governments are considered an industry.
For purposes of investment restriction (4), the Portfolio will consider
the acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Investment Restrictions Applicable Only to the T. Rowe Price Natural Resources
Portfolio:
The following fundamental policies should be read in connection with
the notes set forth below. The notes are not fundamental policies. As a matter
of fundamental policy, the Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may involve a
borrowing, in a manner consistent with the Portfolio's investment objective and
program, provided that the combination of (i) and (ii) shall not exceed 33 1/3%
of the value of the Portfolio's total assets (including the amount borrowed)
less liabilities (other than borrowings) or such other percentage permitted by
law. Any borrowings which come to exceed this amount will be reduced in
accordance with applicable law. The Portfolio may borrow from banks, other Price
Portfolios or other persons to the extent permitted by applicable law;
2. Purchase or sell physical commodities; except that it may enter into futures
contracts and options thereon;
3. Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
4. Make loans, although the Portfolio may (i) lend portfolio securities and
participate in an interfund lending program with other Price Portfolio provided
that no such loan may be made if, as a result, the aggregate of such loans would
exceed 33 1/3% of the value of the Portfolio's total assets; (ii) purchase money
market securities and enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase debt;
5. Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities;
6. Purchase a security if, as a result, with respect to 75% of the
value of the Portfolio's total assets, more than 10% of the outstanding voting
securities of any issuer would be held by the Portfolio (other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities);
7. Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by real
estate or in securities of companies engaged in the real estate business);
8. Issue senior securities except in compliance with the Investment
Company Act of 1940; or
9. Underwrite securities issued by other persons, except to the extent
that the Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
Notes: The following notes should be read in connection with the
above-described fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions (1) and (4), the Portfolio will
not borrow from or lend to any other fund unless it applies for and receives an
exemptive order from the SEC, if so required, or the SEC issues rules permitting
such transactions. The Portfolio has no current intention of engaging in any
such activity and there is no assurance the SEC would grant any order requested
by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction (2), the Portfolio does not
consider currency contracts or hybrid investments to be commodities.
For purposes of investment restriction (3), U.S., state or local
governments, or related agencies or instrumentalities, are not considered an
industry. Industries are determined by reference to the classifications of
industries set forth in the Portfolio's semi-annual and annual reports.
For purposes of investment restriction (4), the Portfolio will consider
the acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Investment Restrictions Applicable Only to the T. Rowe Price International Bond
Portfolio:
As a matter of fundamental policy, the Portfolio may not:
1. Borrow money, except as a temporary measure for extraordinary or emergency
purposes or except in connection with reverse repurchase agreements provided
that the Portfolio maintains asset coverage of 300% for all borrowings;
2. Purchase or sell real estate (except that the Portfolio may invest in (i)
securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein, and that the Portfolio
reserves freedom of action to hold and to sell real estate acquired as a result
of the Portfolio's ownership of securities) or purchase or sell physical
commodities or contracts relating to physical commodities;
3. Act as underwriter of securities issued by others, except to the extent that
it may be deemed an underwriter in connection with the disposition of portfolio
securities of the Portfolio;
4. Make loans to other persons, except (a) loans of portfolio securities, and
(b) to the extent the entry into repurchase agreements and the purchase of debt
securities in accordance with its investment objectives and investment policies
may be deemed to be loans;
5. Issue senior securities except in compliance with the Investment Company Act
of 1940; or
6. Purchase any securities which would cause more than 25% of the market value
of its total assets at the time of such purchase to be invested in the
securities of one or more issuers having their principal business activities in
the same industry, provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (for the purposes of this restriction, telephone
companies are considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents).
Investment Restrictions Applicable Only to the T. Rowe Price Small Company Value
Portfolio:
The following fundamental policies should be read in connection with
the notes set forth below. The notes are not fundamental policies. As a matter
of fundamental policy, the Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may involve a
borrowing, in a manner consistent with the Portfolio's investment objective and
program, provided that the combination of (i) and (ii) shall not exceed 33 1/3%
of the value of the Portfolio's total assets (including the amount borrowed)
less liabilities (other than borrowings) or such other percentage permitted by
law. Any borrowings which come to exceed this amount will be reduced in
accordance with applicable law. The Portfolio may borrow from banks, and other
funds or other persons to the extent permitted by applicable law;
2. Purchase or sell physical commodities; except that it may enter into futures
contracts and options thereon;
3. Purchase the securities of any issuer if, as a result, more than 25% of the
value of the Portfolio's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
4. Make loans, although the Portfolio may (i) lend portfolio securities and
participate in an interfund lending program to the extent permitted by
applicable law, provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of the Portfolio's
total assets; (ii) purchase money market securities and enter into repurchase
agreements; and (iii) acquire publicly-distributed or privately-placed debt
securities and purchase debt;
5. Purchase a security if, as a result, with respect to 75% of the value of its
total assets, more than 5% of the value of the Portfolio's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities;
6. Purchase a security if, as a result, with respect to 75% of the value of the
Portfolio's total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Portfolio (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities);
7. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments backed by real estate or in
securities of companies engaged in the real estate business);
8. Issue senior securities except in compliance with the Investment Company Act
of 1940; or
9. Underwrite securities issued by other persons, except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
Notes: The following notes should be read in connection with the
above-described fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions (1) and (4), the Portfolio will
not borrow from or lend to any other fund unless it applies for and receives an
exemptive order from the SEC, if so required, or the SEC issues rules permitting
such transactions. The Portfolio has no current intention of engaging in any
such activity and there is no assurance the SEC would grant any order requested
by the Portfolio or promulgate any rules allowing the transactions.
With respect to investment restriction (2), the Portfolio does not
consider currency contracts or hybrid investments to be commodities.
For purposes of investment restriction (3), U.S., state or local
governments, or related agencies or instrumentalities, are not considered an
industry.
For purposes of investment restriction (4), the Portfolio will consider
the acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Investment Restrictions Applicable Only to the Founders Capital Appreciation
Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Purchase any securities on margin except to obtain such short-term credits as
may be necessary for the clearance of transactions.
2. Sell securities short.
3. Make loans to other persons; the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities is not considered the
making of a loan by the Portfolio. The Portfolio may also enter into repurchase
agreements by purchasing U.S. Government securities with a simultaneous
agreement with the seller to repurchase them at the original purchase price plus
accrued interest.
4. Underwrite the securities of other issuers.
5. Invest in commodities, commodity futures contracts, real estate, real estate
mortgage loans or other illiquid interests in real estate, except that the
Portfolio may invest in securities of issuers which invest in commodities,
commodity futures, real estate, real estate mortgage loans or other illiquid
interests in real estate.
6. Make any investment which would concentrate 25% or more of the Portfolio's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
7. Issue any senior securities.
8. Borrow money, except for extraordinary or emergency purposes, and then only
from banks in amounts up to 10% of the Portfolio's net assets computed at the
lesser of cost or value.
In applying the above restriction regarding investments in a single
industry, the Portfolio uses industry classifications based, where applicable,
on Bridge Information Systems, Reuters, the S&P Stock Guide published by
Standard & Poor's, information obtained from Bloomberg L.P. and Moody's
International, and/or the prospectus of the issuing company. Selection of an
appropriate industry classification resource will be made by the Sub-advisor in
the exercise of its reasonable discretion. (This note is not a fundamental
policy.)
Investment Restrictions Applicable Only to the Founders Passport Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Make loans of money or securities other than (a) through the purchase of
securities in accordance with the Portfolio's investment objective, (b) through
repurchase agreements, and (c) by lending portfolio securities in an amount not
to exceed 33 1/3% of the Portfolio's total assets;
2. Underwrite securities issued by others except to the extent that the
Portfolio may be deemed an underwriter when purchasing or selling securities;
3. Issue senior securities;
4. Invest directly in physical commodities (other than foreign currencies), real
estate or interests in real estate; provided, that the Portfolio may invest in
securities of issuers which invest in physical commodities, real estate or
interests in real estate; and, provided further, that this restriction shall not
prevent the Portfolio from purchasing or selling options, futures, swaps and
forward contracts, or from investing in securities or other instruments backed
by physical commodities, real estate or interests in real estate;
5. Make any investment which would concentrate 25% or more of the Portfolio's
total assets in the securities of issuers having their principal business
activities in the same industry, provided that this limitation does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
6. Borrow money except from banks in amounts up to 33 1/3% of the Portfolio's
total assets;
7. As to 75% of the value of its total assets, invest more than 5% of its total
assets, at market value, in the securities of any one issuer (except securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities);
or
8. As to 75% of the value of its total assets, purchase more than 10% of any
class of securities of any single issuer or purchase more than 10% of the voting
securities of any single issuer.
In applying the above restriction regarding investments in a single
industry, the Portfolio uses industry classifications based, where applicable,
on Bridge Information Systems, Reuters, the S&P Stock Guide published by
Standard & Poor's, information obtained from Bloomberg L.P. and Moody's
International, and/or the prospectus of the issuing company. Selection of an
appropriate industry classification resource will be made by the Sub-advisor in
the exercise of its reasonable discretion. (This note is not a fundamental
policy.)
Investment Restrictions Applicable Only to the INVESCO Equity Income Portfolio:
The Portfolio has adopted certain fundamental investment restrictions.
Under these restrictions, the Portfolio may not:
1. Issue preference shares or create any funded debt;
2. Sell short;
3. Borrow money except from banks in excess of 5% of the value of its total net
assets, and when borrowing, it is a temporary measure for emergency purposes;
4. Buy or sell real estate, commodities, commodity contracts (however, the
Portfolio may purchase securities of companies investing in real estate);
5. Purchase any security or enter into a repurchase agreement, if as a result,
more than 15% of its net assets would be invested in repurchase agreements not
entitling the holder to payment of principal and interest within seven days and
in securities that are illiquid by virtue of legal or contractual restrictions
on resale or the absence of a readily available market. The Trustees or the
Investment Manager or the Sub-advisor, acting pursuant to authority delegated by
the Trustees, may determine that a readily available market exists for
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to that rule, and therefore that such securities are not
subject to the foregoing limitation;
6. Purchase securities if the purchase would cause the Portfolio, at the time,
to have more than 5% of its total assets invested in the securities of any one
company or to own more than 10% of the voting securities of any one company
(except obligations issued or guaranteed by the U.S. Government);
7. Make loans to any person, except through the purchase of debt securities in
accordance with the Portfolio's investment policies, or the lending of portfolio
securities to broker-dealers or other institutional investors, or the entering
into repurchase agreements with member banks of the Federal Reserve System,
registered broker-dealers and registered government securities dealers. The
aggregate value of all portfolio securities loaned may not exceed 33-1/3% of the
Portfolio's total net assets (taken at current value); or
8. Invest more than 25% of the value of the Portfolio's assets in one particular
industry.
Investment Restrictions Applicable Only to the PIMCO Total Return Bond
Portfolio:
The following are fundamental investment restrictions.
1. The Portfolio will not invest in a security if, as a result of such
investment, more than 25% of its total assets (taken at market value at the time
of investment) would be invested in securities of issuers of a particular
industry, except that this restriction does not apply to securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities (or
repurchase agreements with respect thereto);
2. The Portfolio will not, with respect to 75% of its total assets, invest in a
security if, as a result of such investment, more than 5% of its total assets
(taken at market value at the time of investment) would be invested in the
securities of any one issuer, except that this restriction does not apply to
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities (or repurchase agreements with respect thereto);
3. The Portfolio will not, with respect to 75% of its assets, invest in a
security if, as a result of such investment, it would hold more than 10% (taken
at the time of investment) of the outstanding voting securities of any one
issuer;
4. The Portfolio will not purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein);
5. The Portfolio will not purchase or sell commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit the Portfolio, subject to
restrictions stated in the Trust's Prospectus and elsewhere in this Statement,
from purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or any
interest rate, securities related or foreign currency-related hedging
instrument, including swap agreements and other derivative instruments, subject
to compliance with any applicable provisions of the federal securities laws or
commodities laws;
6. The Portfolio will not borrow money, issue senior securities, pledge,
mortgage, hypothecate its assets, except that the Portfolio may (i) borrow from
banks or enter into reverse repurchase agreements, or employ similar investment
techniques, and pledge its assets in connection therewith, but only if
immediately after each borrowing there is an asset coverage of 300% and (ii)
enter into transactions in options, futures and options on futures and other
derivative instruments as described in the Trust's Prospectus and this Statement
(the deposit of assets in escrow in connection with the writing of covered put
and call options and the purchase of securities on a when-issued or delayed
delivery basis, collateral arrangements with respect to initial or variation
margin deposits for future contracts and commitments entered into under swap
agreements or other derivative instruments, will not be deemed to be pledges of
the Portfolio's assets);
7. The Portfolio will not lend funds or other assets, except that the Portfolio
may, consistent with its investment objective and policies: (a) invest in debt
obligations, including bonds, debentures or other debt securities, bankers'
acceptances and commercial paper, even though the purchase of such obligations
may be deemed to be the making of a loan, (b) enter into repurchase agreements,
and (c) lend its Portfolio securities in an amount not to exceed one-third the
value of its total assets, provided such loans are and in accordance with
applicable guidelines established by the SEC and the Trust's Board of Trustees;
or
8. The Portfolio will not maintain a short position, or purchase, write or sell
puts, calls, straddles, spreads or combinations thereof, except as set forth in
the Trust's Prospectus and this Statement for transactions in options, futures,
and options on futures transactions arising under swap agreements or other
derivative instruments.
Investment Restrictions Applicable Only to the PIMCO Limited Maturity Bond
Portfolio:
The Portfolio may not:
1. Invest in a security if, as a result of such investment, more than 25% of its
total assets (taken at market value at the time of such investment) would be
invested in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements with
respect thereto);
2. With respect to 75% of its assets, invest in a security if, as a result of
such investment, more than 5% of its total assets (taken at market value at the
time of such investment) would be invested in securities of any one issuer,
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities;
3. With respect to 75% of its assets, invest in a security if, as a result of
such investment, it would hold more than 10% (taken at the time of such
investment) of the outstanding voting securities of any one issuer;
4. Purchase or sell real estate (although it may purchase securities secured by
real estate or interests therein, or securities issued by companies which invest
in real estate, or interests therein);
5. Purchase or sell commodities or commodities contracts or oil, gas or mineral
programs. This restriction shall not prohibit the Portfolio, subject to
restrictions described in the Prospectus and elsewhere in this Statement, from
purchasing, selling or entering into futures contracts, options, or any interest
rate, securities-related or foreign currency-related hedging instrument,
including swap agreements and other derivative instruments, subject to
compliance with any applicable provisions of the federal securities or
commodities laws;
6. Borrow money, issue senior securities, or pledge, mortgage or hypothecate its
assets, except that the Portfolio may (i) borrow from banks or enter into
reverse repurchase agreements, or employ similar investment techniques, and
pledge its assets in connection therewith, but only if immediately after each
borrowing there is asset coverage of 300% and (ii) enter into transactions in
options, futures and options on futures and other derivative instruments as
described in the Prospectus and in this Statement (the deposit of assets in
escrow in connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis, collateral
arrangements with respect to initial or variation margin deposits for futures
contracts and commitments entered into under swap agreements or other derivative
instruments, will not be deemed to be pledges of the Portfolio assets);
7. Lend any funds or other assets, except that a Portfolio may, consistent with
its investment objective and policies: (a) invest in debt obligations, including
bonds, debentures or other debt securities, banker' acceptance and commercial
paper, even though the purchase of such obligations may be deemed to be the
making of loans, (b) enter into repurchase agreements, and (c) lend its
portfolio securities in an amount not to exceed one-third of the value of its
total assets, provided such loans are made in accordance with applicable
guidelines established by the Securities and Exchange Commission and the Trust's
Board of Trustees; or
8. Maintain a short position, or purchase, write or sell puts, calls, straddles,
spreads or combinations thereof, except on such conditions as may be set forth
in the Prospectus and in this Statement.
Investment Restrictions Applicable Only to the Berger Capital Growth Portfolio:
The following fundamental restrictions apply to the Berger Capital
Growth Portfolio. The Portfolio may not:
1. Purchase the securities of any one issuer (except U.S. Government securities)
if immediately after and as a result of such purchase (a) the value of the
holdings of the Portfolio in the securities of such issuer exceeds 5% of the
value of the Portfolio's total assets or (b) the Portfolio owns more than 10% of
the outstanding voting securities or of any class of securities of such issuer.
2. Purchase securities of any company with a record of less than three years'
continuous operation (including that of predecessors) if such purchase would
cause the Portfolio's investments in all such companies taken at cost to exceed
5% of the value of the Portfolio's total assets.
3. Invest in any one industry more than 25% of the value of its total assets at
the time of such investment.
4. Purchase securities on margin from a broker or dealer or make short sales of
securities.
5. Make loans, except that the Portfolio may enter into repurchase agreements in
accordance with the Trust's investment policies. The Portfolio does not, for
this purpose, consider the purchase of all or a portion of an issue of publicly
distributed bonds, bank loan participation agreements, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities, to be the
making of a loan.
6. Borrow in excess of 5% of the value of its total assets, or pledge, mortgage,
or hypothecate its assets taken at market value to an extent greater than 10% of
the Portfolio's total assets taken at cost (and no borrowing may be undertaken
except from banks as a temporary measure for extraordinary or emergency
purposes).
7. Act as a securities underwriter (except to the extent the Portfolio may be
deemed an underwriter under the Securities Act of 1933 in disposing of a
security), issue senior securities (except to the extent permitted under the
Investment Company Act of 1940), invest in real estate although it may purchase
shares of a real estate investment trust), or invest in commodities or commodity
contracts.
8. Participate on a joint or joint and several basis in any securities trading
account.
Investment Restrictions Applicable Only to the Robertson Stephens Value + Growth
Portfolio:
As a matter of fundamental policy, the Portfolio may not:
1. Issue any class of securities which is senior to the Portfolio's shares of
beneficial interest, except that the Portfolio may borrow money to the extent
contemplated by Restriction 3 below;
2. Purchase securities on margin (but the Portfolio may obtain such short-term
credits as may be necessary for the clearance of transactions). (Margin payments
or other arrangements in connection with transactions in short sales, futures
contracts, options, and other financial instruments are not considered to
constitute the purchase of securities on margin for this purpose.);
3. Borrow more than one-third of the value of its total assets less all
liabilities and indebtedness (other than such borrowings) not represented by
senior securities;
4. Act as underwriter of securities of other issuers except to the extent that,
in connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
5. As to 75% of the Portfolio's total assets, purchase any security (other than
obligations of the U.S. Government, its agencies or instrumentalities) if as a
result: (i) more than 5% of the Portfolio's total assets (taken at current
value) would then be invested in securities of a single issuer, or (ii) more
than 25% of the Portfolio's total assets (taken at current value) would be
invested in a single industry;
6. Invest in securities of any issuer if any officer or Trustee of the Trust or
any officer or director of the Sub-advisor, as the case may be, owns more than
(OMEGA) of 1% of the outstanding securities of such issuer, and such officers,
Trustees and directors who own more than (OMEGA) of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer; or
7. Make loans, except by purchase of debt obligations or other financial
instruments in which the Portfolio may invest consistent with its investment
policies, by entering into repurchase agreements, or through the lending of its
portfolio securities.
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment.
Investment Restrictions Applicable Only to the Twentieth Century International
Growth Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Lend its portfolio securities except to unaffiliated persons and subject to
the rules and regulations adopted under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). No such rules and regulations have been
issued, but it is Sub-advisor's policy that such loans must be secured
continuously by cash collateral maintained on a current basis in an amount at
least equal to the market value of the securities loaned, or by irrevocable
letters of credit. During the existence of the loan, the Portfolio must continue
to receive the equivalent of the interest and dividends paid by the issuer on
the securities loaned and interest on the investment of the collateral; the
Portfolio must have the right to call the loan and obtain the securities loaned
at any time on five days' notice, including the right to call the loan to enable
the Portfolio to vote the securities. To comply with the regulations of certain
state securities administrators, such loans may not exceed one-third of the
Portfolio's net assets taken at market;
2. With respect to 75% of the value of its total assets, purchase the security
of any one issuer if such purchase would cause more than 5% of the Portfolio's
assets at market to be invested in the securities of such issuer, except U.S.
government securities, or if the purchase would cause more than 10% of the
outstanding voting securities of any one issuer to be held in the Portfolio;
3. Invest more than 25% of the assets of the Portfolio, exclusive of cash and
U.S. government securities, in securities of any one industry;
4. Issue any senior security except in compliance with the Investment Company
Act;
5. Underwrite any securities except to the extent that the Portfolio may be
deemed an underwriter when purchasing or selling securities;
6. Purchase or sell real estate. (In the opinion of the Sub-advisor, this
restriction will not preclude the Portfolio from investing in securities of
corporations that deal in real estate);
7. Purchase or sell commodities or commodity contracts; except that the
Portfolio may, for non-speculative purposes, buy or sell interest rate futures
contracts on debt securities (debt futures and bond index futures) and related
options; or
8. Borrow any money, except in an amount not in excess of 33 1/3% of the total
assets of the Portfolio, and then only for emergency and extraordinary purposes;
this does not prohibit the escrow and collateral arrangements in connection with
investment in interest rate futures contracts and related options by the
Portfolio.
In determining industry groups for purposes of the above restriction
regarding investments in a single industry, the Securities and Exchange
Commission ordinarily uses the Standard Industry Classification codes developed
by the United States Office of Management and Budget. The Sub-advisor monitors
industry concentration using a more restrictive list of industry groups than
that recommended by the Securities and Exchange Commission. The Sub-advisor
believes that these classifications are reasonable and are not so broad that the
primary economic characteristics of the companies in a single class are
materially different. The use of these more restrictive industry classifications
may, however, cause the Portfolio to forego investment possibilities which may
otherwise be available to it under the Investment Company Act. (This note is not
a fundamental policy.)
Investment Restrictions Applicable Only to the Twentieth Century Strategic
Balanced Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Lend its securities except to unaffiliated persons and subject to the rules
and regulations adopted under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). No such rules and regulations have been
promulgated, but it is the Sub-advisor's policy that such loans must be secured
continuously by cash collateral maintained on a current basis in an amount at
least equal to the market value of the securities loaned, or by irrevocable
letters of credit. During the existence of the loan, the Sub-advisor must
continue to receive the equivalent of the interest and dividends paid by the
issuer on the securities loaned and interest on the investment of the
collateral; the Portfolio must have the right to call the loan and obtain the
securities loaned at any time on five days' notice, including the right to call
the loan to enable the Portfolio to vote the securities. To comply with the
regulations of certain state securities administrators, such loans may not
exceed one-third of the Portfolio's net assets taken at market.
2. With respect to 75% of the value of its total assets, purchase the security
of any one issuer if such purchase would cause more than 5% of the Portfolio's
assets at market to be invested in the securities of such issuer, except United
States government securities, or if the purchase would cause more than 10% of
the outstanding voting securities of any one issuer to be held in the Portfolio;
3. Invest more than 25% of the assets of the Portfolio, exclusive of cash and
U.S. government securities, in securities of any one industry;
4. Issue any senior security except in compliance with the Investment Company
Act;
5. Underwrite any securities except to the extent that the Portfolio may be
deemed an underwriter when purchasing or selling securities;
6. Purchase or sell real estate. (In the opinion of the Sub-advisor, this
restriction will not preclude the Portfolio from investing in securities of
corporations that deal in real estate.);
7. Purchase or sell commodities or commodity contracts; except that the
Portfolio may, for non-speculative purposes, buy or sell interest rate futures
contracts on debt securities (debt futures and bond index futures) and related
options; or
8. Borrow any money, except in an amount not in excess of 33 1/3% of the total
assets of the Portfolio, and then only for emergency and extraordinary purposes;
this does not prohibit the escrow and collateral arrangements in connection with
investment in interest rate futures contracts and related options by the
Portfolio.
Investment Restrictions Applicable Only to the AST Putnam Value Growth & Income
Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Borrow money in excess of 33 1/3% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at the
time the borrowing is made, and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be repaid before any
additional investments are purchased;
2. Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under certain federal securities laws;
3. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities which represent interests in real estate, and it may
acquire and dispose of real estate or interests in real estate acquired through
the exercise of its rights as a holder of debt obligations secured by real
estate or interests therein;
4. Purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase and sell financial futures contracts and options;
5. Make loans, except by purchase of debt obligations in which the Portfolio may
invest consistent with its investment policies, by entering into repurchase
agreements, or by lending its portfolio securities;
6. With respect to 75% of its total assets, invest in the securities of any
issuer if, immediately after such investment, more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to obligations issued
or guaranteed as to interest or principal by the U.S. government or its agencies
or instrumentalities;
7. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer;
8. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more than 25%
of the Portfolio's total assets would be invested in any one industry; or
9. Issue any class of securities which is senior to the Portfolio's shares of
beneficial interest.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
Investment Restrictions Applicable Only to the AST Putnam International Equity
Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. Borrow money except from banks and then in amounts not in excess of 33 1/3%
of its total assets. The Portfolio may borrow at prevailing interest rates and
invest the funds in additional securities. The Portfolio's borrowings are
limited so that immediately after such borrowing the value of the Portfolio's
assets (including borrowings) less its liabilities (not including borrowings) is
at least three times the amount of the borrowings. Should the Portfolio, for any
reason, have borrowings that do not meet the above test then, within three
business days, the Portfolio must reduce such borrowings so as to meet the
necessary test. Under such a circumstance, the Portfolio may have to liquidate
securities at a time when it is disadvantageous to do so;
2. Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under certain federal securities laws;
3. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities representing interests in real estate, and it may acquire
and dispose of real estate or interests in real estate acquired through the
exercise of its rights as a holder of debt obligations secured by real estate or
interests therein;
4. Purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase and sell financial futures contracts and related options;
5. Make loans, except by purchase of debt obligations in which the Portfolio may
invest consistent with its investment policies, by entering into repurchase
agreements, or by lending its portfolio securities;
6. With respect to 75% of its total assets, invest in the securities of any
issuer if, immediately after such investment, more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to obligations issued
or guaranteed as to interest or principal by the U.S. government or its agencies
or instrumentalities;
7. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer;
8. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if as a result of such purchase more than 25% of
the Portfolio's total assets would be invested in any one industry; or
9. Issue senior securities.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
Investment Restrictions Applicable Only to the AST Putnam Balanced Portfolio:
As a matter of fundamental policy, the Portfolio will not:
1. With respect to 75% of its total assets, invest in the securities of any
issuer if, immediately after such investment, more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to obligations issued
or guaranteed as to interest or principal by the U.S. government or its agencies
or instrumentalities;
2. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer;
3. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities which represent interests in real estate, and it may
acquire and dispose of real estate or interests in real estate acquired through
the exercise of its rights as a holder of debt obligations secured by real
estate or interests therein;
4. Purchase securities (other than securities of the U.S. government, its
agencies or instrumentalities) if, as a result of such purchase, more than 25%
of the Portfolio's total assets would be invested in any one industry;
5. Invest in commodities or commodity contracts except that it may purchase or
sell financial futures contracts and options thereon;
6. Underwrite securities issued by others except to the extent that the
Portfolio may be deemed an underwriter when purchasing or selling securities;
7. Borrow money in excess of 10% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at the
time the borrowing is made, and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be repaid before any
additional investments are purchased;
8. Make loans, except by purchase of debt obligations in which the Portfolio may
invest consistent with its investment policies, by entering into repurchase
agreements, or by lending its portfolio securities; or
9. Issue senior securities.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
CERTAIN RISK FACTORS AND INVESTMENT METHODS:
Some of the investment instruments, techniques and methods which may be
used by one or more of the Portfolios and the risks attendant thereto are
described below. Other risk factors and investment methods may be described in
the "Investment Objectives and Policies" and "Certain Risk Factors and
Investment Methods" section in the Trust's Prospectus and in the "Investment
Objectives and Policies" section of this Statement. The risks and investment
methods described below apply only to those Portfolios which may invest in such
instruments or use such techniques.
Debt Obligations:
Yields on short, intermediate, and long-term securities are dependent
on a variety of factors, including, the general conditions of the money and bond
markets, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. Debt securities with longer maturities tend to produce
higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities and lower
yields. The market prices of debt securities usually vary, depending upon
available yields. An increase in interest rates will generally reduce the value
of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. The ability of the Portfolio to
achieve its investment objectives is also dependent on the continuing ability of
the issuers of the debt securities in which the Portfolio invests to meet their
obligations for the payment of interest and principal when due.
Special Risks Associated with Low-Rated and Comparable Unrated Securities:
Low-rated and comparable unrated securities, while generally offering
higher yields than investment-grade securities with similar maturities, involve
greater risks, including the possibility of default or bankruptcy. They are
regarded as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal. The special risk considerations in connection
with such investments are discussed below. See the Appendix of this Statement
for a discussion of securities ratings.
Effect of Interest Rates and Economic Changes. The low-rated and
comparable unrated securities market is relatively new, and its growth
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such a
prolonged economic downturn could severely disrupt the market for and adversely
affect the value of such securities.
All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of low-rated and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher-rated securities,
which react primarily to fluctuations in the general level of interest rates.
Low-rated and comparable unrated securities also tend to be more sensitive to
economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of low-rated and comparable unrated securities
may experience financial stress and may not have sufficient revenues to meet
their payment obligations. The issuer's ability to service its debt obligations
may also be adversely affected by specific corporate developments, the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by an issuer of
low-rated and comparable unrated securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the issuer
of a low-rated and comparable unrated security defaulted, a Portfolio might
incur additional expenses to seek recovery. Periods of economic uncertainty and
changes would also generally result in increased volatility in the market prices
of low-rated and comparable unrated securities and thus in a Portfolio's net
asset value.
As previously stated, the value of such a security will decrease in a
rising interest rate market and accordingly, so will a Portfolio's net asset
value. If a Portfolio experiences unexpected net redemptions in such a market,
it may be forced to liquidate a portion of its portfolio securities without
regard to their investment merits. Due to the limited liquidity of high-yield
securities (discussed below) a Portfolio may be forced to liquidate these
securities at a substantial discount. Any such liquidation would reduce a
Portfolio's asset base over which expenses could be allocated and could result
in a reduced rate of return for a Portfolio.
Payment Expectations. Low-rated and comparable unrated securities
typically contain redemption, call, or prepayment provisions which permit the
issuer of such securities containing such provisions to, at their discretion,
redeem the securities. During periods of falling interest rates, issuers of
high-yield securities are likely to redeem or prepay the securities and
refinance them with debt securities with a lower interest rate. To the extent an
issuer is able to refinance the securities, or otherwise redeem them, a
Portfolio may have to replace the securities with a lower-yielding security,
which would result in a lower return for a Portfolio.
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
Credit Ratings. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated securities. They
do not, however, evaluate the market value risk of low-rated and comparable
unrated securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit-rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in low-rated and comparable unrated securities will be more
dependent on the Sub-advisor's credit analysis than would be the case with
investments in investment-grade debt securities. The Sub-advisor may employ its
own credit research and analysis, which could include a study of existing debt,
capital structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history, and the current trend
of earnings. The Sub-advisor continually monitors the investments in a Portfolio
and evaluates whether to dispose of or to retain low-rated and comparable
unrated securities whose credit ratings or credit quality may have changed.
Liquidity and Valuation. A Portfolio may have difficulty disposing of
certain low-rated and comparable unrated securities because there may be a thin
trading market for such securities. Because not all dealers maintain markets in
all low-rated and comparable unrated securities, there is no established retail
secondary market for many of these securities. A Portfolio anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market does exist, it is generally
not as liquid as the secondary market for higher-rated securities. The lack of a
liquid secondary market may have an adverse impact on the market price of the
security. As a result, a Portfolio's asset value and a Portfolio's ability to
dispose of particular securities, when necessary to meet a Portfolio's liquidity
needs or in response to a specific economic event, may be impacted. The lack of
a liquid secondary market for certain securities may also make it more difficult
for the Portfolio to obtain accurate market quotations for purposes of valuing a
Portfolio. Market quotations are generally available on many low-rated and
comparable unrated issues only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
During periods of thin trading, the spread between bid and asked prices is
likely to increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of low-rated and comparable unrated securities, especially
in a thinly-traded market.
Put and Call Options:
Writing (Selling) Call Options. A call option gives the holder (buyer)
the "right to purchase" a security or currency at a specified price (the
exercise price), at expiration of the option (European style) or at any time
until a certain date (the expiration date) (American style). So long as the
obligation of the writer of a call option continues, he may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring him to deliver the underlying security or currency against payment of
the exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the writer effects a closing purchase
transaction by repurchasing an option identical to that previously sold.
When writing a call option, a Portfolio, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price, but conversely retains the risk
of loss should the price of the security or currency decline. Unlike one who
owns securities or currencies not subject to an option, the Portfolio has no
control over when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Portfolio
has written expires, the Portfolio will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security or currency during the option period. If the call option
is exercised, a Portfolio will realize a gain or loss from the sale of the
underlying security or currency.
Writing (Selling) Put Options. A put option gives the purchaser of the
option the right to sell, and the writer (seller) has the obligation to buy, the
underlying security or currency at the exercise price during the option period
(American style) or at the expiration of the option (European style). So long as
the obligation of the writer continues, he may be assigned an exercise notice by
the broker-dealer through whom such option was sold, requiring him to make
payment of the exercise price against delivery of the underlying security or
currency. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
Premium Received from Writing Call or Put Options. A Portfolio will
receive a premium from writing a put or call option, which increases such
Portfolio's return in the event the option expires unexercised or is closed out
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option and the volatility of the market
price of the underlying security. By writing a call option, a Portfolio limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a Portfolio assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
Closing Transactions. Closing transactions may be effected in order to
realize a profit on an outstanding call option, to prevent an underlying
security or currency from being called, or, to permit the sale of the underlying
security or currency. A Portfolio may terminate an option that it has written
prior to its expiration by entering into a closing purchase transaction in which
it purchases an option having the same terms as the option written. A Portfolio
will realize a profit or loss from such transaction if the cost of such
transaction is less or more than the premium received from the writing of the
option. In the case of a put option, any loss so incurred may be partially or
entirely offset by the premium received from a simultaneous or subsequent sale
of a different put option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by unrealized appreciation of the underlying
security owned by such Portfolio.
Furthermore, effecting a closing transaction will permit the Portfolio
to write another call option on the underlying security or currency with either
a different exercise price or expiration date or both. If the Portfolio desires
to sell a particular security or currency from its portfolio on which it has
written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security or
currency. There is, of course, no assurance that the Portfolio will be able to
effect such closing transactions at a favorable price. If the Portfolio cannot
enter into such a transaction, it may be required to hold a security or currency
that it might otherwise have sold. When the Portfolio writes a covered call
option, it runs the risk of not being able to participate in the appreciation of
the underlying securities or currencies above the exercise price, as well as the
risk of being required to hold on to securities or currencies that are
depreciating in value. This could result in higher transaction costs. The
Portfolio will pay transaction costs in connection with the writing of options
to close out previously written options. Such transaction costs are normally
higher than those applicable to purchases and sales of portfolio securities.
Purchasing Call Options. Call options may be purchased by a Portfolio
for the purpose of acquiring the underlying securities or currencies for its
portfolio. Utilized in this fashion, the purchase of call options enables the
Portfolio to acquire the securities or currencies at the exercise price of the
call option plus the premium paid. At times the net cost of acquiring securities
or currencies in this manner may be less than the cost of acquiring the
securities or currencies directly. This technique may also be useful to a
Portfolio in purchasing a large block of securities or currencies that would be
more difficult to acquire by direct market purchases. So long as it holds such a
call option rather than the underlying security or currency itself, the
Portfolio is partially protected from any unexpected decline in the market price
of the underlying security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the premium paid for
the option.
Purchasing Put Options. A Portfolio may purchase a put option on an
underlying security or currency (a "protective put") owned by the Portfolio as a
defensive technique in order to protect against an anticipated decline in the
value of the security or currency. Such hedge protection is provided only during
the life of the put option when the Portfolio, as the holder of the put option,
is able to sell the underlying security or currency at the put exercise price
regardless of any decline in the underlying security's market price or
currency's exchange value. For example, a put option may be purchased in order
to protect unrealized appreciation of a security or currency where a Sub-advisor
deems it desirable to continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any transaction costs
would reduce any capital gain otherwise available for distribution when the
security or currency is eventually sold.
If a Portfolio purchases put options at a time when the Portfolio does
not own the underlying security or currency. By purchasing put options on a
security or currency it does not own, the Portfolio seeks to benefit from a
decline in the market price of the underlying security or currency. If the put
option is not sold when it has remaining value, and if the market price of the
underlying security or currency remains equal to or greater than the exercise
price during the life of the put option, the Portfolio will lose its entire
investment in the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security or currency must decline
sufficiently below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale transaction.
Dealer Options. Exchange-traded options generally have a continuous
liquid market while dealer options have none. Consequently, the Portfolio will
generally be able to realize the value of a dealer option it has purchased only
by exercising it or reselling it to the dealer who issued it. Similarly, when
the Portfolio writes a dealer option, it generally will be able to close out the
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Portfolio originally wrote the option.
While the Portfolio will seek to enter into dealer options only with dealers who
will agree to and which are expected to be capable of entering into closing
transactions with the Portfolio, there can be no assurance that the Portfolio
will be able to liquidate a dealer option at a favorable price at any time prior
to expiration. Until the Portfolio, as a covered dealer call option writer, is
able to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used as cover until the option expires or is
exercised. In the event of insolvency of the contra party, the Portfolio may be
unable to liquidate a dealer option. With respect to options written by the
Portfolio, the inability to enter into a closing transaction may result in
material losses to the Portfolio. For example, since the Portfolio must maintain
a secured position with respect to any call option on a security it writes, the
Portfolio may not sell the assets which it has segregated to secure the position
while it is obligated under the option. This requirement may impair the
Portfolio's ability to sell portfolio securities at a time when such sale might
be advantageous.
The Staff of the SEC has taken the position that purchased dealer
options and the assets used to secure the written dealer options are illiquid
securities. The Portfolio may treat the cover used for written OTC options as
liquid if the dealer agrees that the Portfolio may repurchase the OTC option it
has written for a maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to the extent the
maximum repurchase price under the formula exceeds the intrinsic value of the
option. To this extent, the Portfolio will treat dealer options as subject to
the Portfolio's limitation on unmarketable securities. If the SEC changes its
position on the liquidity of dealer options, the Portfolio will change its
treatment of such instrument accordingly.
Certain Risk Factors in Writing Call Options and in Purchasing Call and
Put Options: During the option period, a Portfolio, as writer of a call option
has, in return for the premium received on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security increase, but has retained the risk of loss should the price
of the underlying security decline. The writer has no control over the time when
it may be required to fulfill its obligation as a writer of the option. The risk
of purchasing a call or put option is that the Portfolio may lose the premium it
paid plus transaction costs. If the Portfolio does not exercise the option and
is unable to close out the position prior to expiration of the option, it will
lose its entire investment.
An option position may be closed out only on an exchange which provides
a secondary market. There can be no assurance that a liquid secondary market
will exist for a particular option at a particular time and that the Portfolio,
can close out its position by effecting a closing transaction. If the Portfolio
is unable to effect a closing purchase transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Accordingly, the Portfolio may not be able to sell the underlying security at a
time when it might otherwise be advantageous to do so. Possible reasons for the
absence of a liquid secondary market include the following: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed
by an exchange; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) inadequacy of the facilities of an exchange or the clearing
corporation to handle trading volume; and (v) a decision by one or more
exchanges to discontinue the trading of options or impose restrictions on
orders. In addition, the hours of trading for options may not conform to the
hours during which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets. The purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
Each exchange has established limitations governing the maximum number
of call options, whether or not covered, which may be written by a single
investor acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). An exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions.
Options on Stock Indices:
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
Risk Factors in Options on Indices. Because the value of an index
option depends upon the movements in the level of the index rather than upon
movements in the price of a particular security, whether the Portfolio will
realize a gain or a loss on the purchase or sale of an option on an index
depends upon the movements in the level of prices in the market generally or in
an industry or market segment rather than upon movements in the price of the
individual security. Accordingly, successful use of positions will depend upon a
Sub-advisor's ability to predict correctly movements in the direction of the
market generally or in the direction of a particular industry. This requires
different skills and techniques than predicting changes in the prices of
individual securities.
Index prices may be distorted if trading of securities included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
securities in the index. If this occurred, a Portfolio would not be able to
close out options which it had written or purchased and, if restrictions on
exercise were imposed, might be unable to exercise an option it purchased, which
would result in substantial losses.
Price movements in Portfolio securities will not correlate perfectly
with movements in the level of the index and therefore, a Portfolio bears the
risk that the price of the securities may not increase as much as the level of
the index. In this event, the Portfolio would bear a loss on the call which
would not be completely offset by movements in the prices of the securities. It
is also possible that the index may rise when the value of the Portfolio's
securities does not. If this occurred, a Portfolio would experience a loss on
the call which would not be offset by an increase in the value of its securities
and might also experience a loss in the market value of its securities.
Unless a Portfolio has other liquid assets which are sufficient to
satisfy the exercise of a call on the index, the Portfolio will be required to
liquidate securities in order to satisfy the exercise.
When a Portfolio has written a call on an index, there is also the risk
that the market may decline between the time the Portfolio has the call
exercised against it, at a price which is fixed as of the closing level of the
index on the date of exercise, and the time the Portfolio is able to sell
securities. As with options on securities, the Sub-advisor will not learn that a
call has been exercised until the day following the exercise date, but, unlike a
call on securities where the Portfolio would be able to deliver the underlying
security in settlement, the Portfolio may have to sell part of its securities in
order to make settlement in cash, and the price of such securities might decline
before they could be sold.
If a Portfolio exercises a put option on an index which it has
purchased before final determination of the closing index value for the day, it
runs the risk that the level of the underlying index may change before closing.
If this change causes the exercised option to fall "out-of-the-money" the
Portfolio will be required to pay the difference between the closing index value
and the exercise price of the option (multiplied by the applicable multiplier)
to the assigned writer. Although the Portfolio may be able to minimize this risk
by withholding exercise instructions until just before the daily cutoff time or
by selling rather than exercising an option when the index level is close to the
exercise price, it may not be possible to eliminate this risk entirely because
the cutoff time for index options may be earlier than those fixed for other
types of options and may occur before definitive closing index values are
announced.
Trading in Futures:
A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (e.g., units of a stock index) for a specified price, date, time and
place designated at the time the contract is made. Brokerage fees are incurred
when a futures contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred to as buying or
purchasing a contract or holding a long position. Entering into a contract to
sell is commonly referred to as selling a contract or holding a short position.
Unlike when the Portfolio purchases or sells a security, no price would be
paid or received by the Portfolio upon the purchase or sale of a futures
contract. Upon entering into a futures contract, and to maintain the Portfolio's
open positions in futures contracts, the Portfolio would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, U.S. government securities, suitable money market instruments,
or other liquid securities, known as "initial margin." The margin required for a
particular futures contract is set by the exchange on which the contract is
traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margins that may range upward from less than 5% of the value of the
contract being traded.
Margin is the amount of funds that must be deposited by the Portfolio
with its custodian in a segregated account in the name of the futures commission
merchant in order to initiate futures trading and to maintain the Portfolio's
open positions in futures contracts. A margin deposit is intended to ensure the
Portfolio's performance of the futures contract. The margin required for a
particular futures contract is set by the exchange on which the futures contract
is traded, and may be significantly modified from time to time by the exchange
during the term of the futures contract. Futures contracts are customarily
purchased and sold on margins that may range upward from less than 5% of the
value of the futures contract being traded.
If the price of an open futures contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Portfolio.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuate making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." The Portfolio expects
to earn interest income on its margin deposits. Although certain futures
contracts, by their terms, require actual future delivery of and payment for the
underlying instruments, in practice most futures contracts are usually closed
out before the delivery date. Closing out an open futures contract purchase or
sale is effected by entering into an offsetting futures contract purchase or
sale, respectively, for the same aggregate amount of the identical securities
and the same delivery date. If the offsetting purchase price is less than the
original sale price, the Portfolio realizes a gain; if it is more, the Portfolio
realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Portfolio realizes a gain; if it is less, the
Portfolio realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Portfolio will be
able to enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Portfolio is not able to enter
into an offsetting transaction, the Portfolio will continue to be required to
maintain the margin deposits on the futures contract.
For example, one contract in the Financial Times Stock Exchange 100
Index future is a contract to buy 25 pounds sterling multiplied by the level of
the UK Financial Times 100 Share Index on a given future date. Settlement of a
stock index futures contract may or may not be in the underlying security. If
not in the underlying security, then settlement will be made in cash, equivalent
over time to the difference between the contract price and the actual price of
the underlying asset at the time the stock index futures contract expires.
Options on futures are similar to options on underlying instruments
except that options on futures give the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put), rather than to
purchase or sell the futures contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by the delivery of the accumulated balance in the writer's
futures margin account which represents the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract. Alternatively, settlement may be made totally in cash. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
The writer of an option on a futures contract is required to deposit
margin pursuant to requirements similar to those applicable to futures
contracts. Upon exercise of an option on a futures contract, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Although financial futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery. Closing out
is accomplished by effecting an offsetting transaction. A futures contract sale
is closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would immediately pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
Commissions on financial futures contracts and related options
transactions may be higher than those which would apply to purchases and sales
of securities directly.
A public market exists in interest rate futures contracts covering
primarily the following financial instruments: U.S. Treasury bonds; U.S.
Treasury notes; Government National Mortgage Association ("GNMA") modified
pass-through mortgage-backed securities; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. It is expected that Futures contracts trading in additional financial
instruments will be authorized. The standard contract size is generally $100,000
for Futures contracts in U.S. Treasury bonds, U.S. Treasury notes, and GNMA
pass-through securities and $1,000,000 for the other designated Futures
contracts. A public market exists in Futures contracts covering a number of
indexes, including, but not limited to, the Standard & Poor's 500 Index, the
Standard & Poor's 100 Index, the NASDAQ 100 Index, the Value Line Composite
Index and the New York Stock Exchange Composite Index.
Certain Risks Relating to Futures Contracts and Related Options. There
are special risks involved in futures transactions.
Volatility and Leverage. The prices of futures contracts are
volatile and are influenced, among other things, by actual and anticipated
changes in the market and interest rates, which in turn are affected by fiscal
and monetary policies and national and international policies and economic
events.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, the Portfolio would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that the Portfolio has sufficient assets to satisfy its obligations under a
futures contract, the Portfolio earmarks to the futures contract money market
instruments equal in value to the current value of the underlying instrument
less the margin deposit.
Liquidity. The Portfolio may elect to close some or all of
its futures positions at any time prior to their expiration. The Portfolio would
do so to reduce exposure represented by long futures positions or increase
exposure represented by short futures positions. The Portfolio may close its
positions by taking opposite positions which would operate to terminate the
Portfolio's position in the futures contracts. Final determinations of variation
margin would then be made, additional cash would be required to be paid by or
released to the Portfolio, and the Portfolio would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of
trade where the contracts were initially traded. Although the Portfolio intends
to purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to close a futures
contract, and in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge the underlying
instruments, the Portfolio would continue to hold the underlying instruments
subject to the hedge until the futures contracts could be terminated. In such
circumstances, an increase in the price of the underlying instruments, if any,
might partially or completely offset losses on the futures contract. However, as
described below, there is no guarantee that the price of the underlying
instruments will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior, market or interest rate
trends. There are several risks in connection with the use by the Portfolio of
futures contracts as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures contracts and
movements in the prices of the underlying instruments which are the subject of
the hedge. Sub-advisor will, however, attempt to reduce this risk by entering
into futures contracts whose movements, in its judgment, will have a significant
correlation with movements in the prices of the Portfolio's underlying
instruments sought to be hedged.
Successful use of futures contracts by the Portfolio for hedging
purposes is also subject to a Sub-advisor's ability to correctly predict
movements in the direction of the market. It is possible that, when the
Portfolio has sold futures to hedge its portfolio against a decline in the
market, the index, indices, or underlying instruments on which the futures are
written might advance and the value of the underlying instruments held in the
Portfolio's portfolio might decline. If this were to occur, the Portfolio would
lose money on the futures and also would experience a decline in value in its
underlying instruments. However, while this might occur to a certain degree,
Sub-advisor may believe that over time the value of the Portfolio's portfolio
will tend to move in the same direction as the market indices which are intended
to correlate to the price movements of the underlying instruments sought to be
hedged. It is also possible that if the Portfolio were to hedge against the
possibility of a decline in the market (adversely affecting the underlying
instruments held in its portfolio) and prices instead increased, the Portfolio
would lose part or all of the benefit of increased value of those underlying
instruments that it has hedged, because it would have offsetting losses in its
futures positions. In addition, in such situations, if the Portfolio had
insufficient cash, it might have to sell underlying instruments to meet daily
variation margin requirements. Such sales of underlying instruments might be,
but would not necessarily be, at increased prices (which would reflect the
rising market). The Portfolio might have to sell underlying instruments at a
time when it would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by Sub-advisor might
not result in a successful hedging transaction over a very short time period.
Certain Risks of Options on Futures Contracts. The Portfolio may seek
to close out an option position by writing or buying an offsetting option
covering the same index, underlying instruments, or contract and having the same
exercise price and expiration date. The ability to establish and close out
positions on such options will be subject to the maintenance of a liquid
secondary market. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in the class or series of options)
would cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders.
Foreign Futures and Options:
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of a
foreign board of trade. Neither the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of trade, including
the execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable foreign
law. This is true even if the exchange is formally linked to a domestic market
so that a position taken on the market may be liquidated by a transaction on
another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures or foreign options transaction
occurs. For these reasons, customers who trade foreign futures or foreign
options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange, including the right
to use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, Portfolios received from customers for foreign futures or foreign
options transactions may not be provided the same protections as Portfolios
received in respect of transactions on United States futures exchanges. In
addition, the price of any foreign futures or foreign options contract and,
therefore, the potential profit and loss thereon may be affected by any variance
in the foreign exchange rate between the time your order is placed and the time
it is liquidated, offset or exercised.
Foreign Currency Futures Contracts and Related Options. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally traded in the interbank market
conducted directly between currency traders (usually large, commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades.
Depending on the applicable investment policies and restrictions
applicable to a Portfolio, a Portfolio may generally enter into forward foreign
currency exchange contracts under two circumstances. First, when a Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency involved in the
underlying security transactions, the Portfolio may be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
Second, when a Sub-advisor believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, including the U.S. dollar, it may enter into a forward contract to
sell or buy the amount of the former foreign currency, approximating the value
of some or all of the Portfolio's securities denominated in such foreign
currency. Alternatively, where appropriate, the Portfolio may hedge all or part
of its foreign currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an effective proxy for
other currencies. In such a case, the Portfolio may enter into a forward
contract where the amount of the foreign currency to be sold exceeds the value
of the securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Portfolio. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver. However, as noted, in
order to avoid excessive transactions and transaction costs, the Portfolio may
use liquid, high-grade debt securities, denominated in any currency, to cover
the amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices. If
the Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent of the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
Purchase and Sale of Currency Futures Contracts and Related Options. As
noted above, a currency futures contract sale creates an obligation by a
Portfolio, as seller, to deliver the amount of currency called for in the
contract at a specified future time for a special price. A currency futures
contract purchase creates an obligation by a Portfolio, as purchaser, to take
delivery of an amount of currency at a specified future time at a specified
price. Although the terms of currency futures contracts specify actual delivery
or receipt, in most instances the contracts are closed out before the settlement
date without the making or taking of delivery of the currency. Closing out of a
currency futures contract is effected by entering into an offsetting purchase or
sale transaction. Unlike a currency futures contract, which requires the parties
to buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract. If the holder decides not to enter into the contract, the
premium paid for the option is fixed at the point of sale.
Interest Rate Swaps and Interest Rate Caps and Floors:
Interest rate swaps involve the exchange by the Portfolio with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments. The exchange
commitments can involve payments to be made in the same currency or in different
currencies. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually based principal amount from the party
selling the interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a contractually based
principal amount from the party selling the interest rate floor.
Hybrid Instruments:
Hybrid instruments combine the elements of futures contracts or options
with those of debt, preferred equity or a depository instrument ("Hybrid
Instruments"). The risks of investing in Hybrid Instruments reflect a
combination of the risks from investing in securities, futures and currencies,
including volatility and lack of liquidity. Reference is made to the discussion
of futures and forward contracts in this Statement for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the related commodity or
currency may not move in the same direction or at the same time. Hybrid
Instruments may bear interest or pay preferred dividends at below market (or
even relatively nominal) rates. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market or in a
private transaction between the Portfolio and the seller of the Hybrid
Instrument, the creditworthiness of the contra party to the transaction would be
a risk factor which the Portfolio would have to consider. Hybrid Instruments
also may not be subject to regulation of the CFTC, which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which regulates the offer
and sale of securities by and to U.S. persons, or any other governmental
regulatory authority.
Foreign Currency Exchange-Related Securities:
Certain Portfolios may invest in foreign currency warrants and
performance indexed paper.
Foreign Currency Warrants. Foreign currency warrants are warrants which
entitle the holder to receive from their issuer an amount of cash (generally,
for warrants issued in the United States, in U.S. dollars) which is calculated
pursuant to a predetermined formula and based on the exchange rate between a
specified foreign currency and the U.S. dollar as of the exercise date of the
warrant. Foreign currency warrants generally are exercisable upon their issuance
and expire as of a specified date and time. Foreign currency warrants have been
issued in connection with U.S. dollar-denominated debt offerings by major
corporate issuers in an attempt to reduce the foreign currency exchange risk
which, from the point of view of prospective purchasers of the securities, is
inherent in the international fixed-income marketplace. Foreign currency
warrants may attempt to reduce the foreign exchange risk assumed by purchasers
of a security by, for example, providing for a supplemental payment in the event
that the U.S. dollar depreciates against the value of a major foreign currency
such as the Japanese Yen or German Deutschmark. The formula used to determine
the amount payable upon exercise of a foreign currency warrant may make the
warrant worthless unless the applicable foreign currency exchange rate moves in
a particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by OCC, the terms of
foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is
generally considerably in excess of the price that a commercial user of foreign
currencies might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to significant foreign exchange risk, including risks arising from
complex political or economic factors.
Principal Exchange Rate Linked Securities. Principal exchange rate
linked securities are debt obligations the principal on which is payable at
maturity in an amount that may vary based on the exchange rate between the U.S.
dollar and a particular foreign currency at or about that time. The return on
"standard" principal exchange rate linked securities is enhanced if the foreign
currency to which the security is linked appreciates against the U.S. dollar,
and is adversely affected by increases in the foreign exchange value of the U.S.
dollar. "Reverse" principal exchange rate linked securities are like the
"standard" securities, except that their return is enhanced by increases in the
value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based on the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
Performance Indexed Paper. Performance indexed paper is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on performance
indexed paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below,
and a potential maximum rate of return that is above, market yields on U.S.
dollar-denominated commercial paper, with both the minimum and maximum rates of
return on the investment corresponding to the minimum and maximum values of the
spot exchange rate two business days prior to maturity.
Zero-Coupon Securities:
Zero-coupon securities pay no cash income and are sold at substantial
discounts from their value at maturity. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the issue price and their value at maturity. Zero-coupon securities are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest (cash). Zero-coupon securities which are convertible into common stock
offer the opportunity for capital appreciation as increases (or decreases) in
market value of such securities closely follows the movements in the market
value of the underlying common stock. Zero-coupon convertible securities
generally are expected to be less volatile than the underlying common stocks, as
they usually are issued with maturities of 15 years or less and are issued with
options and/or redemption features exercisable by the holder of the obligation
entitling the holder to redeem the obligation and receive a defined cash
payment.
Zero-coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRSTM) and Certificate of Accrual on Treasuries
(CATSTM). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Portfolio, most
likely will be deemed the beneficial holder of the underlying U.S. Government
securities.
The U.S. Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Portfolio will be able to have its beneficial ownership of zero-coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities that the Treasury sells
itself.
When-Issued Securities:
The price of when-issued securities, which may be expressed in yield
terms, is fixed at the time the commitment to purchase is made, but delivery and
payment for the when-issued securities take place at a later date. Normally, the
settlement date occurs within 90 days of the purchase. During the period between
purchase and settlement, no payment is made by the Portfolio to the issuer and
no interest accrues to the Portfolio. Forward commitments involve a risk of loss
if the value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in value of the
Portfolio's other assets. While when-issued securities may be sold prior to
the settlement date, the Portfolio intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons.
Mortgage-Backed Securities:
Principal and interest payments made on the mortgages in an underlying
mortgage pool are passed through to the Portfolio. Unscheduled prepayments of
principal shorten the securities' weighted average life and may lower their
total return. (When a mortgage in the underlying mortgage pool is prepaid, an
unscheduled principal prepayment is passed through to the Portfolio. This
principal is returned to the Portfolio at par. As a result, if a mortgage
security were trading at a premium, its total return would be lowered by
prepayments, and if a mortgage securities were trading at a discount, its total
return would be increased by prepayments.) The value of these securities also
may change because of changes in the market's perception of the creditworthiness
of the federal agency that issued them. In addition, the mortgage securities
market in general may be adversely affected by changes in governmental
regulation or tax policies.
Asset-Backed Securities:
Asset-backed securities directly or indirectly represent a
participation interest in, or are secured by and payable from, a stream of
payments generated by particular assets such as motor vehicle or credit card
receivables. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities.
Asset-backed securities may be classified as pass-through certificates or
collateralized obligations.
Pass-through certificates are asset-backed securities which represent
an undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support. See "Types
of Credit Support."
Asset-backed securities issued in the form of debt instruments, also
known as collateralized obligations, are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Such assets are most often trade, credit card or
automobile receivables. The assets collateralizing such asset-backed securities
are pledged to a trustee or custodian for the benefit of the holders thereof.
Such issuers generally hold no assets other than those underlying the
asset-backed securities and any credit support provided. As a result, although
payments on such asset-backed securities are obligations of the issuers, in the
event of defaults on the underlying assets not covered by any credit support
(see "Types of Credit Support"), the issuing entities are unlikely to have
sufficient assets to satisfy their obligations on the related asset-backed
securities.
Methods of Allocating Cash Flows. While many asset-backed securities
are issued with only one class of security, many asset-backed securities are
issued in more than one class, each with different payment terms. Multiple class
asset-backed securities are issued for two main reasons. First, multiple classes
may be used as a method of providing credit support. This is accomplished
typically through creation of one or more classes whose right to payments on the
asset-backed security is made subordinate to the right to such payments of the
remaining class or classes. See "Types of Credit Support." Second, multiple
classes may permit the issuance of securities with payment terms, interest rates
or other characteristics differing both from those of each other and from those
of the underlying assets. Examples include so-called "strips" (asset-backed
securities entitling the holder to disproportionate interests with respect to
the allocation of interest and principal of the assets backing the security),
and securities with a class or classes having characteristics which mimic the
characteristics of non-asset-backed securities, such as floating interest rates
(i.e., interest rates which adjust as a specified benchmark changes) or
scheduled amortization of principal.
Asset-backed securities in which the payment streams on the underlying
assets are allocated in a manner different than those described above may be
issued in the future. The Portfolio may invest in such asset-backed securities
if such investment is otherwise consistent with its investment objectives and
policies and with the investment restrictions of the Portfolio.
Types of Credit Support. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two classes: liquidity protection and protection against ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool are made in a
timely fashion. Protection against ultimate default ensures ultimate payment of
the obligations on at least a portion of the assets in the pool. Such protection
may be provided through guarantees, insurance policies or letters of credit
obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches. Examples of
asset-backed securities with credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class
asset-backed securities with certain classes subordinate to other classes as to
the payment of principal thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class) and
asset-backed securities that have "reserve portfolios" (where cash or
investments, sometimes funded from a portion of the initial payments on the
underlying assets, are held in reserve against future losses) or that have been
"over collateralized" (where the scheduled payments on, or the principal amount
of, the underlying assets substantially exceeds that required to make payment of
the asset-backed securities and pay any servicing or other fees). The degree of
credit support provided on each issue is based generally on historical
information respecting the level of credit risk associated with such payments.
Delinquency or loss in excess of that anticipated could adversely affect the
return on an investment in an asset-backed security. Additionally, if the letter
of credit is exhausted, holders of asset-backed securities may also experience
delays in payments or losses if the full amounts due on underlying sales
contracts are not realized.
Automobile Receivable Securities. Asset-backed securities may be backed
by receivables from motor vehicle installment sales contracts or installment
loans secured by motor vehicles ("Automobile Receivable Securities"). Since
installment sales contracts for motor vehicles or installment loans related
thereto ("Automobile Contracts") typically have shorter durations and lower
incidences of prepayment, Automobile Receivable Securities generally will
exhibit a shorter average life and are less susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create an
enforceable interest in their respective Automobile Contracts only by filing a
financing statement and by having the servicer of the Automobile Contracts,
which is usually the originator of the Automobile Contracts, take custody
thereof. In such circumstances, if the servicer of the Automobile Contracts were
to sell the same Automobile Contracts to another party, in violation of its
obligation not to do so, there is a risk that such party could acquire an
interest in the Automobile Contracts superior to that of the holders of
Automobile Receivable Securities. Also although most Automobile Contracts grant
a security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to create an enforceable security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the certificate
of title to each vehicle financed, pursuant to the Automobile Contracts
underlying the Automobile Receivable Security, usually is not amended to reflect
the assignment of the seller's security interest for the benefit of the holders
of the Automobile Receivable Securities. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases, be available
to support payments on the securities. In addition, various state and federal
securities laws give the motor vehicle owner the right to assert against the
holder of the owner's Automobile Contract certain defenses such owner would have
against the seller of the motor vehicle. The assertion of such defenses could
reduce payments on the Automobile Receivable Securities.
Credit Card Receivable Securities. Asset-backed securities may be
backed by receivables from revolving credit card agreements ("Credit Card
Receivable Securities"). Credit balances on revolving credit card agreements
("Accounts") are generally paid down more rapidly than are Automobile Contracts.
Most of the Credit Card Receivable Securities issued publicly to date have been
Pass-Through Certificates. In order to lengthen the maturity of Credit Card
Receivable Securities, most such securities provide for a fixed period during
which only interest payments on the underlying Accounts are passed through to
the security holder and principal payments received on such Accounts are used to
Portfolio the transfer to the pool of assets supporting the related Credit Card
Receivable Securities of additional credit card charges made on an Account. The
initial fixed period usually may be shortened upon the occurrence of specified
events which signal a potential deterioration in the quality of the assets
backing the security, such as the imposition of a cap on interest rates. The
ability of the issuer to extend the life of an issue of Credit Card Receivable
Securities thus depends upon the continued generation of additional principal
amounts in the underlying accounts during the initial period and the
non-occurrence of specified events. An acceleration in cardholders' payment
rates or any other event which shortens the period during which additional
credit card charges on an Account may be transferred to the pool of assets
supporting the related Credit Card Receivable Security could shorten the
weighted average life and yield of the Credit Card Receivable Security.
Credit card holders are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such holder the right to
set off certain amounts against balances owed on the credit card, thereby
reducing amounts paid on Accounts. In addition, unlike most other asset-backed
securities, Accounts are unsecured obligations of the cardholder.
Warrants:
Investments in warrants is pure speculation in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of the
corporation issuing them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of time. They do not
represent ownership of the securities but only the right to buy them. Warrants
differ from call options in that warrants are issued by the issuer of the
security which may be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not necessarily move
parallel to the prices of the underlying securities.
Certain Risks of Foreign Investing:
Currency Fluctuations. Investment in securities denominated in foreign
currencies involves certain risks. A change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of a Portfolio's assets denominated in that currency. Such changes will
also affect a Portfolio's income. Generally, when a given currency appreciates
against the dollar (the dollar weakens) the value of a Portfolio's securities
denominated in that currency will rise. When a given currency depreciates
against the dollar (the dollar strengthens). The value of a Portfolio's
securities denominated in that currency would be expected to decline.
Investment and Repatriation Restrictions. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled in
varying degrees. These restrictions may at times limit or preclude investment in
certain of such countries and may increase the cost and expenses of a Portfolio.
Investments by foreign investors are subject to a variety of restrictions in
many developing countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the types of companies in which foreigners may invest.
Additional or different restrictions may be imposed at any time by these or
other countries in which a Portfolio invests. In addition, the repatriation of
both investment income and capital from several foreign countries is restricted
and controlled under certain regulations, including in some cases the need for
certain government consents. Although these restrictions may in the future make
it undesirable to invest in these countries, Sub-advisor does not believe that
any current repatriation restrictions would affect its decision to invest in
these countries.
Market Characteristics. Foreign securities may be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as, and may be more volatile than, those
in the United States. While growing in volume, they usually have substantially
less volume than U.S. markets and a Portfolio's securities may be less liquid
and more volatile than securities of comparable U.S. companies. Equity
securities may trade at price/earnings multiples higher than comparable U.S.
securities and such levels may not be sustainable. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although a Portfolio will endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than in the United States. Moreover, settlement practices for
transactions in foreign markets may differ from those in U.S. markets, and may
include delays beyond periods customary in the United States.
Political and Economic Factors. Individual foreign economies of
certain countries may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The internal politics of certain foreign countries are not as stable
as in the United States.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies of
many foreign countries are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and economic conditions of
their trading partners. The enactment by these trading partners of protectionist
trade legislation could have a significant adverse effect upon the securities
markets of such countries.
Information and Supervision. There is generally less publicly
available information about foreign companies comparable to reports and ratings
that are published about companies in the United States. Foreign companies are
also generally not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.
Taxes. The dividends and interest payable on certain of a Portfolio's
foreign securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Portfolio's
shareholders. A shareholder otherwise subject to U.S. federal income taxes may,
subject to certain limitations, be entitled to claim a credit or deduction for
U.S. federal income tax purposes for his or her proportionate share of such
foreign taxes paid by the Portfolio.
Costs. Investors should understand that the expense ratio of the
Portfolio can be expected to be higher than investment companies investing in
domestic securities since the cost of maintaining the custody of foreign
securities and the rate of advisory fees paid by the Portfolio are higher.
Other. With respect to certain foreign countries, especially
developing and emerging ones, there is the possibility of adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of the Portfolio,
political or social instability, or diplomatic developments which could affect
investments by U.S. persons in those countries.
Eastern Europe. Changes occurring in Eastern Europe and Russia today
could have long-term potential consequences. As restrictions fall, this could
result in rising standards of living, lower manufacturing costs, growing
consumer spending, and substantial economic growth. However, investment in the
countries of Eastern Europe and Russia is highly speculative at this time.
Political and economic reforms are too recent to establish a definite trend away
from centrally-planned economies and state owned industries. In many of the
countries of Eastern Europe and Russia, there is no stock exchange or formal
market for securities. Such countries may also have government exchange
controls, currencies with no recognizable market value relative to the
established currencies of western market economies, little or no experience in
trading in securities, no financial reporting standards, a lack of a banking and
securities infrastructure to handle such trading, and a legal tradition which
does not recognize rights in private property. In addition, these countries may
have national policies which restrict investments in companies deemed sensitive
to the country's national interest. Further, the governments in such countries
may require governmental or quasi-governmental authorities to act as custodian
of the Portfolio's assets invested in such countries and these authorities may
not qualify as a foreign custodian under the Investment Company Act of 1940 and
exemptive relief from such Act may be required. All of these considerations are
among the factors which could cause significant risks and uncertainties to
investment in Eastern Europe and Russia.
Latin America. The political history of certain Latin American
countries has been characterized by political uncertainty, intervention by the
military in civilian and economic spheres, and political corruption. Such
developments, if they were to reoccur, could reverse favorable trends toward
market and economic reform, privatization and removal of trade barriers and
result in significant disruption in securities markets. Persistent levels of
inflation or in some cases, hyperinflation, have led to high interest rates,
extreme measures by governments to keep inflation in check and a generally
debilitating effect on economic growth. Although inflation in many countries has
lessened, there is no guarantee it will remain at lower levels. In addition, a
number of Latin American countries are also among the largest debtors of
developing countries. There have been moratoria on, and reschedulings of,
repayment with respect to these debts. Such events can restrict the flexibility
of these debtor nations in the international markets and result in the
imposition of onerous conditions on their economics.
Certain Latin American countries may have managed currencies which are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. Certain Latin American countries also may restrict
the free conversion of their currency into foreign currencies, including the
U.S. dollar. There is no significant foreign exchange market for certain
currencies and it would, as a result, be difficult for the Portfolio to engage
in foreign currency transactions designed to protect the value of the
Portfolio's interests in securities denominated in such currencies.
PORTFOLIO TURNOVER: High turnover involves correspondingly greater
brokerage commissions, other transaction costs and a possible increase in
short-term capital gains or losses. For the years ended December 31, 1994 and
1995, the Lord Abbett Growth and Income Portfolio's rates of turnover were
60.47% and 50.28%, respectively. The turnover rate for the JanCap Growth
Portfolio for the years ended December 31, 1994 and 1995 were 93.92% and
113.32%, respectively. The policy of the AST Money Market Portfolio of investing
only in securities maturing 397 days or less from the date of acquisition or
purchased pursuant to repurchase agreements that provide for repurchase by the
seller within 397 days from the date of acquisition will result in a high
portfolio turnover rate. The turnover rate for the Federated Utility Income
Portfolio for the years ended December 31, 1994 and 1995 were 54.26% and 70.94%,
respectively. The turnover rate for the Federated High Yield Portfolio from
January 3, 1994 (commencement of operations) to December 31, 1994 was 40.55% and
for the year ended December 31, 1995 was 29.64%. The turnover rate for the T.
Rowe Price Asset Allocation Portfolio from January 3, 1994 (commencement of
operations) to December 31, 1994 was 31.62% and for the year ended December 31,
1995 was 17.62%. The turnover rate for the T. Rowe Price International Equity
Portfolio from January 3, 1994 (commencement of operations) to December 31, 1994
was 15.70% and for the year ended December 31, 1995 was 17.11%. The turnover
rate for the T. Rowe Price International Bond Portfolio (formerly, the AST
Scudder International Bond Portfolio) from May 1, 1994 (commencement of
operations) to December 31, 1994 was 163.27% and for the year ended December 31,
1995 was 325.00%. Such turnover rates represent that of the Portfolio as
sub-advised by the former Sub-advisor, Scudder, Stevens & Clark, Inc. As of May
1, 1996, the Portfolio has been sub-advised by Rowe Price-Fleming International,
Inc., with an anticipated annual rate of turnover not to exceed 350%. The
turnover rate for the Founders Capital Appreciation Portfolio from January 3,
1994 (commencement of operations) to December 31, 1994 was 197.93% and for the
year ended December 31, 1995 was 68.32%. The turnover rate for the INVESCO
Equity Income Portfolio from January 3, 1994 (commencement of operations) to
December 31, 1994 was 62.87% and for the year ended December 31, 1995 was
89.48%. The turnover rate for the PIMCO Total Return Bond Portfolio from January
3, 1994 (commencement of operations) to December 31, 1994 was 139.25% and for
the year ended December 31, 1995 was 124.41%. The turnover rate for the Berger
Capital Growth Portfolio from October 19, 1994 (commencement of operations) to
December 31, 1994 was 5.36% and for the year ended December 31, 1995 was 84.21%.
The turnover rates from May 2, 1995 (commencement of operations) to December 31,
1995 for the Founders Passport Portfolio (formerly, the Seligman Henderson
International Small Cap Portfolio), the T. Rowe Price Natural Resources
Portfolio and the PIMCO Limited Maturity Bond Portfolio were 3.52%, 2.32% and
204.85%, respectively. Such turnover rate for the Founders Passport Portfolio
represents that of the Portfolio as sub-advised by the former Sub-advisor,
Seligman Henderson Co. As of October 15, 1996, the Portfolio has been
sub-advised by Founders Asset Management, Inc., with an anticipated annual rate
of turnover not to exceed 150%. The turnover rate for the AST Putnam
International Equity Portfolio's (formerly, the Seligman Henderson International
Equity Portfolio) for the years ended December 31, 1994 and 1995 were 48.69% and
58.62%, respectively. Such turnover rates represent that of the Portfolio as
sub-advised by the former Sub-advisor, Seligman Henderson Co. As of October 15,
1996, the Portfolio has been sub-advised by Putnam Investment Management, Inc.,
with an anticipated annual rate of turnover not to exceed 100%. The turnover
rate for the AST Putnam Balanced Portfolio (formerly, the AST Phoenix Balanced
Asset Portfolio) for the years ended December 31, 1994 and 1995 were 86.50% and
160.94%, respectively. Such turnover rates represent that of the Portfolio as
sub-advised by the former Sub-advisor, Phoenix Investment Counsel, Inc. As of
October 15, 1996, the Portfolio has been sub-advised by Putnam Investment
Management, Inc., with an anticipated annual rate of turnover not to exceed
200%. The annual rate of turnover for the Robertson Stephens Value + Growth
Portfolio, which commenced operations as of May 2, 1996, is not anticipated to
exceed 250% under normal market conditions. The annual rates of turnover for the
AST Janus Overseas Growth Portfolio, the T. Rowe Price Small Company Value
Portfolio, the Twentieth Century International Growth Portfolio, the Twentieth
Century Strategic Balanced Portfolio and the AST Putnam Value Growth & Income
Portfolio, all of which are first being offered as of the date of this
Statement, are not anticipated to exceed 200%, 100%, 150%, 150% and 100%,
respectively, under normal market conditions.
MANAGEMENT: The overall management of the business and affairs of the Trust is
vested with the Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust and persons or companies furnishing
services to the Trust, including the Trust's agreements with the Trust's
Investment Manager and the agreements between the Investment Manager and each
Sub-advisor, Administrator, Custodian and Transfer and Shareholder Servicing
Agent. The day-to-day operations of the Trust are delegated to the Trust's
officers subject always to the investment objectives and policies of the Trust
and to the general supervision of the Board of Trustees.
The Trustees and officers of the Trust and their principal occupations
are listed below. Unless otherwise indicated, the address of each Trustee and
executive officer is One Corporate Drive, Shelton, Connecticut 06484:
<TABLE>
<CAPTION>
Name, Office and Age Principal Occupation
<S> <C> <C>
Gordon C. Boronow*+ President and Chief Operating Officer:
Vice President and Trustee (43) American Skandia Life Assurance Corporation
Jan R. Carendi*+ Senior Executive Vice President and
President, Principal Executive Officer Member of Corporate Management Group:
and Trustee (51) Skandia Insurance Company Ltd.
David E. A. Carson President, Chairman and Chief Executive Officer:
Trustee (62) People's Bank
850 Main Street
Bridgeport, Connecticut 06604
Richard G. Davy, Jr.*+ Controller:
Controller (48) American Skandia Investment
Services, Incorporated
Julian A. Lerner Semi-retired since 1995; Senior Vice President
Trustee (72) and Portfolio Manager of AIM Charter Fund
and AIM Summit Fund from 1986 to 1995:
12850 Spurling Road -- Suite 208
Dallas, TX 75230
Thomas M. Mazzaferro*+ Executive Vice President and
Treasurer (43) Chief Financial Officer:
American Skandia Life Assurance Corporation
Thomas M. O'Brien President and Chief Executive Officer:
Trustee (46) North Side Savings Bank
170 Tulip Avenue
Floral Park, New York 11001
Mary Ellen O'Leary* Corporate Counsel:
Secretary (36) American Skandia Life Assurance Corporation
M. Priscilla Pannell*+ Assistant Corporate Secretary:
Assistant Corporate Secretary (62) American Skandia Life Assurance Corporation
F. Don Schwartz Management Consultant:
Trustee (61) 1101 Penn Grant Road
Lancaster, PA 17602
</TABLE>
* Interested person as defined in the Investment Company Act of 1940.
+ Individuals are officers and/or directors of one or more of the following
companies: American Skandia Investment Services, Incorporated (the Investment
Manager), American Skandia Life Assurance Corporation, American Skandia
Marketing, Incorporated (the principal underwriter for various annuities deemed
to be securities for American Skandia Life Assurance Corporation) and the
immediate parent of each these companies, American Skandia Investment Holding
Corporation.
The interested Trustees and officers of the Trust do not receive
compensation directly from the Trust for serving in such capacities. However,
those officers and Trustees of the Trust who are affiliated with the Investment
Manager or the Trust's Transfer and Shareholder Servicing Agent and
Administrator may receive remuneration indirectly, as such entities will receive
fees from the Trust for the services they provide. Each of the other Trustees
receives an annual fee paid by the Trust plus expenses for each meeting of the
Board and of shareholders which he or she attends. For the year ended December
31, 1995, the Trust paid to its disinterested Trustees fees and expenses for all
meetings of the Board and any committee meetings attended in the aggregate
amount of $69,958.
Under the terms of the Massachusetts General Corporation Law, the Trust
may indemnify any person who was or is a Trustee, officer or employee of the
Trust to the maximum extent permitted by the Massachusetts General Corporation
Law; provided, however, that any such indemnification (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon a
determination that indemnification of such persons is proper in the
circumstances. Such determination shall be made (i) by the Board of Trustees, by
a majority vote of a quorum which consists of Trustees who are neither
"interested persons" of the Trust as defined in Section 2(a)(19) of the
Investment Company Act of 1940 (the "1940 Act"), nor parties to the proceeding,
or (ii) if the required quorum is not obtainable or if a quorum of such Trustees
so directs by independent legal counsel in a written opinion. No indemnification
will be provided by the Trust to any Trustee or officer of the Trust for any
liability to the Trust or its shareholders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
MANAGEMENT OF THE TRUST:
Investment Management Agreements: The Trust has entered into Investment
Management Agreements with the Investment Manager (the "Management Agreements").
The Investment Manager furnishes each Portfolio with investment advice and
certain administrative services with respect to the applicable Portfolio's
assets subject to the supervision of the Board of Trustees and in conformity
with the stated policies of the applicable Portfolio. The Investment Manager has
engaged the Sub-advisors noted below to conduct the investment programs of each
Portfolio. Under the terms of the Management Agreements, the Investment Manager
furnishes, at its expense, such personnel as is required by each Portfolio for
the proper conduct of its affairs and engages the Sub-advisors to conduct the
investment programs pursuant to the Investment Manager's obligations under the
Management Agreements. The Investment Manager, not the Trust, is responsible for
the expenses of conducting the investment programs. The Sub-advisor is
responsible for the expenses of conducting the investment programs in relation
to the applicable Portfolio pursuant to agreements between the Investment
Manager and each Sub-advisor. Each Portfolio pays all of its other expenses,
including but not limited to, brokerage commissions, legal, auditing, taxes or
governmental fees, the cost of preparing share certificates, custodian,
depository, transfer and shareholder servicing agent costs, expenses of issue,
sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, insurance premiums on property or personnel
(including officers and Trustees if available) of the Trust which inure to its
benefit, expenses relating to Trustee and shareholder meetings, the cost of
preparing and distributing reports and notices to shareholders, the fees and
other expenses incurred by the Trust in connection with membership in investment
company organizations and the cost of printing copies of prospectuses and
statements of additional information distributed to shareholders. Expenses
incurred by the Trust not directly attributable to any specific Portfolio and
Portfolios are allocated on the basis of the net assets of the respective
Portfolios.
Under the terms of the Management Agreements, the Investment Manager is
permitted to render services to others. The Management Agreements provide that
neither the Investment Manager nor its personnel shall be liable for any error
of judgment or mistake of law or for any act or omission in the administration
or management of the applicable Portfolios, except for willful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Management Agreements.
The Investment Manager has agreed by the terms of the Management Agreements
for certain Portfolios of the Trust to reimburse the Portfolio for any fiscal
year in order to prevent Portfolio expenses (exclusive of taxes, interest,
brokerage commissions and extraordinary expenses, determined by the Trust or the
Investment Manager, but inclusive of the management fee) from exceeding a
specified percentage of the Portfolio's average daily net assets, as follows:
Lord Abbett Growth and Income Portfolio: 1.25%
JanCap Growth Portfolio: 1.35%. Commencing September 4, 1996, the
Investment Manager has voluntarily agreed to reimburse certain operating
expenses in excess of 1.33% for the JanCap Growth Portfolio. This voluntary
agreement may be terminated by the Investment Manager at any time.
AST Money Market Portfolio: .65%. The Investment Manager has
voluntarily agreed to reimburse certain operating expenses in excess of .60% for
the AST Money Market Portfolio. This voluntary agreement may be terminated by
the Investment Manager at any time.
Federated Utility Income Portfolio: 1.25%
Federated High Yield Portfolio: 1.15%
T. Rowe Price Asset Allocation Portfolio: 1.25%
T. Rowe Price International Equity Portfolio: 1.75%. Commencing May 1,
1996, the Investment Manager has voluntarily agreed to reimburse certain
operating expenses in excess of 1.71% for the T. Rowe Price International Equity
Portfolio. This voluntary agreement may be terminated by the Investment Manager
at any time.
T. Rowe Price Natural Resources Portfolio: 1.35%
T. Rowe Price International Bond Portfolio: 1.75%
Founders Capital Appreciation Portfolio: 1.30%
Founders Passport Portfolio: 1.75%
INVESCO Equity Income Portfolio: 1.20%
PIMCO Total Return Bond Portfolio: 1.05%
PIMCO Limited Maturity Bond Portfolio: 1.05%
Berger Capital Growth Portfolio: 1.25%
Robertson Stephens Value + Growth Portfolio: 1.45%
AST Putnam International Equity Portfolio: Under the terms of the
Management Agreement for the AST Putnam International Equity Portfolio, if for
any fiscal year the total of all ordinary business expenses of the Portfolio,
excluding brokerage commissions and fees, taxes, interest and extraordinary
expenses such as litigation ("Portfolio Expenses"), exceed (i) 1.75% on the
first $100 million of the Portfolio's average daily net assets, and (ii) 1.50%
with respect to the Portfolio's average daily net assets over $100 million, the
Investment Manager agrees, if required to do so pursuant to applicable statute
or regulatory authority, to pay the Portfolio such excess expenses no later than
the last day of the first month of the next succeeding fiscal year; provided
that, in the event the most restrictive expense limits imposed by any statute or
regulatory authority of any jurisdiction in which shares of the Portfolio are
offered for sale is at any time established at a limit higher than 1.75% or no
limit at all, with respect to the Portfolio's average daily net assets over $100
million, the Investment Manager agrees to reimburse the Portfolio, from that
point forward, for Portfolio Expenses in excess of 1.75% on all of the average
daily net assets of the Portfolio. Currently, the most restrictive of such
expense limitations would require the Investment Manager to reimburse the
Portfolio for Portfolio Expenses in excess of 2.5% of the first $30 million of
the Portfolio's average daily net assets, plus 2.0% of the next $70 million,
plus 1.5% of the Portfolio's average daily net assets over $100 million.
AST Putnam Balanced Portfolio: 1.25%
The Investment Manager has also voluntarily agreed to reimburse the other
Portfolios of the Trust for an fiscal year in order to prevent Portfolio
expenses (exclusive of taxes, interest, brokerage commissions and extraordinary
expenses, determined by the Trust or the Investment Manager, but inclusive of
the management fee) from exceeding a specified percentage of each Portfolio's
average daily net assets, as follows:
AST Janus Overseas Growth Portfolio: 1.75%
T. Rowe Price Small Company Value Portfolio: 1.30%
Twentieth Century International Growth Portfolio: 1.75%
Twentieth Century Strategic Balanced Portfolio: 1.25%
AST Putnam Value Growth & Income Portfolio: 1.25%
The Investment Manager may terminate the above voluntary agreements at any
time. Voluntary payments of Portfolio expenses by the Investment Manager may be
subject to reimbursement by the Portfolio within the two year period following
such payment to the extent permissible under applicable law and provided that
the Portfolio is able to effect such reimbursement and remain in compliance with
applicable expense limitations.
Each Management Agreement will continue in effect from year to year,
provided it is approved, at least annually, in the manner stipulated in the 1940
Act. This requires that each Management Agreement and any renewal be approved by
a vote of the majority of the Trustees who are not parties thereto or interested
persons of any such party, cast in person at a meeting specifically called for
the purpose of voting on such approval. Each Management Agreement may be
terminated without penalty on sixty days' written notice by vote of a majority
of the Board of Trustees or by the Investment Manager, or by holders of a
majority of the applicable Portfolio's outstanding shares, and will
automatically terminate in the event of its "assignment" as that term is defined
in the 1940 Act.
The Administrator and Transfer and Shareholder Servicing Agent: PFPC
Inc., a Delaware corporation which is an indirect wholly-owned subsidiary of PNC
Financial Corp., 103 Bellevue Parkway, Wilmington, Delaware 19809, currently
serves as the Trust's Administrator and as the Trust's Transfer and Shareholder
Servicing Agent.
The Administration and Accounting Services Agreement: Under a Trust
Accounting and Administration Agreement (the "Administration Agreement") dated
May 1, 1992, PFPC Inc. (the "Administrator") provides certain fund accounting
and administrative services to the Trust, as described in the Prospectus.
Pursuant to the terms of the Administration Agreement, the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss or expense suffered by the Trust, in connection with the matters to
which the Administration Agreement relates, except for a loss or expense
resulting from willful misfeasance, bad faith, or gross negligence on its part
in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, director, partner, employee or agent of the Administrator, who may be
or become an officer, Trustee, employee or agent of the Trust, shall be deemed
when rendering services to the Trust or acting on any business of the Trust
(other than services or business in connection with the Administrator's duties
hereunder) to be rendering such services to or acting solely for the Trust and
not as an officer, director, partner employee or agent or one under the control
or direction of the Administrator even though paid by them.
Compensation for the services and facilities provided by the
Administrator under the Administration Agreement includes the Administrator's
out-of pocket expenses. "Out-of-pocket" expenses of the Administrator include,
but are not limited to: postage and mailing, forms, envelopes, checks, toll-free
lines (if requested by the Trust), telephone, hardware and telephone lines for
remote terminals (if required by the Trust), wire fees, certificate issuance
fees, microfiche and microfilm, telex, federal express, outside independent
pricing service charges, record retention/storage and proxy solicitation,
mailing and tabulation expenses (if required by the Trust).
For the period from January 1, 1995 to December 31, 1995, the Trust
paid its current Administrator $2,080,598. For the period from January 1, 1994
to December 31, 1994, the Trust paid its current Administrator $1,192,633. For
the period from January 1, 1993 to December 31, 1993, the Trust paid its current
Administrator $310,660 for administrative services rendered.
The Administration Agreement provides that it will continue in effect
from year to year. The Administration Agreement is terminable, without penalty,
by the Board of Trustees, by vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities, or by the Administrator, on not less than
sixty days' notice. The Administration Agreement shall automatically terminate
upon its assignment by the Administrator without the prior written consent of
the Trust, provided, however, that no such assignment shall release
Administrator from its obligations under this Agreement.
BROKERAGE ALLOCATION: Subject to the supervision of the Board of Trustees,
decisions to buy and sell securities for the Trust are made for each Portfolio
by its Sub-advisor. Each Sub-advisor is authorized to allocate the orders placed
by it on behalf of the applicable Portfolio to brokers who also provide research
or statistical material, or other services to the Portfolio or the Sub-advisor
for the use of the applicable Portfolio. Such allocation shall be in such
amounts and proportions as the Sub-advisor shall determine and the Sub-advisor
will report on said allocations either to the Investment Manager, which will
report on such allocations to the Board of Trustees, or, if requested, directly
to the Board of Trustees. Such reports will indicate the brokers to whom such
allocations have been made and the basis therefor. The Sub-advisor may consider
sale of shares of the Portfolio, as well as the recommendations of the
Investment Manager, as factors in the selection of brokers to execute portfolio
transactions for a Portfolio, subject to the requirements of best net price and
most favorable execution.
Subject to the rules promulgated by the SEC, as well as other
regulatory requirements, a Sub-advisor also may allocate orders to brokers or
dealers affiliated with the Sub-advisor or the Investment Manager. Such
allocation shall be in such amounts and proportions as the Sub-advisor shall
determine and the Sub-advisor will report on said allocations either to the
Investment Manager, which will report on such allocations to the Board of
Trustees, or, if requested, directly to the Board of Trustees.
In selecting a broker to execute each particular transaction, each
Sub-advisor will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker; the
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of the Portfolio on a
continuing basis. Accordingly, the cost of the brokerage commissions in any
transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the execution services
offered. Subject to such policies and procedures as the Board of Trustees may
determine, a Sub-advisor shall not be deemed to have acted unlawfully or to have
breached any duty solely by reason of its having caused a Portfolio to pay a
broker that provides research services to the Sub-advisor an amount of
commission for effecting an investment transaction in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Sub-advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research service provided by such
broker viewed in terms of either that particular transaction or the
Sub-advisor's ongoing responsibilities with respect to a Portfolio. For the
years ended December 31, 1993, 1994 and 1995, aggregate brokerage commissions of
$928,123, $2,244,147, and $3,220,077, respectively, were paid in relation to
brokerage transactions for the Trust. Less than 1% of the Trust's aggregate
brokerage commissions were paid to affiliates of Sub-advisors for the year ended
December 31, 1995.
ALLOCATION OF INVESTMENTS: The Sub-advisors have other advisory clients, some of
which have similar investment objectives to one or more Portfolios for which
advisory services are being provided. In addition, a Sub-advisor may be engaged
to provide advisory services for more than one of the Trust's Portfolios. There
will be times when a Sub-advisor may recommend purchases and/or sales of the
same securities for a Portfolio and such Sub-advisor's other clients. In such
circumstances, it will be the policy of each Sub-advisor to allocate purchases
and sales among a Portfolio and its other clients, including other Trust
Portfolios for which it provides advisory services, in a manner which the
Sub-advisor deems equitable, taking into consideration such factors as size of
account, concentration of holdings, investment objectives, tax status, cash
availability, purchase costs, holding period and other pertinent factors
relative to each account.
REGULATORY MATTERS: The Staff of Securities and Exchange Commission ("SEC") has
taken the position that the purchase and sale of futures contracts and the
writing of related options may involve senior securities for the purposes of the
restrictions contained in Section 18 of the Investment Company Act of 1940 on
investment companies' issuing senior securities. However, the Staff has issued
letters declaring that it will not recommend enforcement action under Section 18
if an investment company:
(i) sells futures contracts to offset expected declines in the value of
the investment company's securities, provided the value of such futures
contracts does not exceed the total market value of those securities (plus such
additional amount as may be necessary because of differences in the volatility
factor of the securities vis-a-vis the futures contracts);
(ii) writes call options on futures contracts, stock indexes or other
securities, provided that such options are covered by the investment company's
holding of a corresponding long futures position, by its ownership of securities
which correlate with the underlying stock index, or otherwise;
(iii) purchases futures contracts, provided the investment company
establishes a segregated account ("cash segregated account") consisting of cash
or cash equivalents in an amount equal to the total market value of such futures
contracts less the initial margin deposited therefor; and
(iv) writes put options on futures contracts, stock indexes or other
securities, provided that such options are covered by the investment company's
holding of a corresponding short futures position, by establishing a cash
segregated account in an amount equal to the value of its obligation under the
option, or otherwise.
Each Portfolio will conduct its purchases and sales of any futures
contracts and writing of related options transactions in accordance with the
foregoing.
COMPUTATION OF NET ASSET VALUES: The Trust determines the net asset values
of a Portfolio's shares at the close of the New York Stock Exchange (the
"Exchange"), currently 4:00 p.m. Eastern time, on each day that the Exchange is
open for business and on such other days as there is sufficient trading in such
Portfolio's securities to affect materially its net asset value per share except
for New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
All Portfolios with the exception of the AST Money Market Portfolio:
The net asset value per share of all of the Portfolios with the exception of the
AST Money Market Portfolio is determined by dividing the market value of its
securities as of the close of trading plus any cash or other assets (including
dividends and accrued interest receivable) less all liabilities (including
accrued expenses), by the number of shares outstanding. Portfolio securities,
including open short positions and options written, are valued at the last sale
price on the securities exchange or securities market on which such securities
primarily are traded. Securities not listed on an exchange or securities market,
or securities in which there were not transactions, are valued at the average of
the most recent bid and asked prices, except in the case of open short positions
where the asked price is available. Any securities or other assets for which
recent market quotations are not readily available are valued at fair market
value as determined in good faith by the Board of Trustees. Short-term
obligations with more than sixty days remaining to maturity are valued at
current market value until the sixtieth day prior to maturity, and will then be
valued on an amortized cost basis on the value on such date unless the Trustees
determine that this amortized cost value does not represent fair market value.
Expenses and fees, including the investment management fees, are accrued daily
and taken into account for the purpose of determining net asset value of shares.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the Exchange. The
values of such securities used in computing the net asset value of the shares of
a Portfolio are determined as of such times. Foreign currency exchange rates are
also generally determined prior to the close of the Exchange. Occasionally,
events affecting the value of such securities and such exchange rates may occur
between the times at which they are determined and the close of the Exchange,
which will not be reflected in the computation of net asset values. If during
such periods events occur which materially affect the value of such securities,
the securities will be valued at their fair market value as determined in good
faith by the Trustees.
For purposes of determining the net asset value per share of each
Portfolio all assets and liabilities initially expressed in foreign currencies
will be converted into U.S. dollars quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks.
AST Money Market Portfolio: For the AST Money Market Portfolio, all
securities are valued by the amortized cost method. The purpose of this method
of calculation is to attempt to maintain a constant net asset value per share of
$1.00. No assurance can be given that this goal can be attained. The amortized
cost method of valuation values a security at its cost at the time of purchase
and thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. If a difference of more than 1/2 of 1% occurs between
valuation based on the amortized cost method and valuation based on market
value, the Trustees will take steps necessary to reduce such deviation, such as
changing dividend policy, shortening the average maturity of the investments in
the Portfolio or realizing gains or losses.
PURCHASE AND REDEMPTION OF SHARES: A complete description of the manner by which
the Trust's shares may be purchased and redeemed appears in the Prospectus under
the heading "Purchase and Redemption of Shares."
TAX MATTERS: A description of some of the tax considerations generally affecting
the Trust and its shareholders is found in the section of the Prospectus
entitled "Tax Matters." No attempt is made to present a detailed explanation of
the tax treatment of the Trust or its shareholders. The discussion in the
Prospectus is not intended as a substitute for careful tax planning.
UNDERWRITER: The Trust is presently used for funding variable annuities,
and may also be used for funding variable life insurance. Pursuant to an
exemptive order of the Securities and Exchange Commission, the Trust may also
sell its shares directly to qualified plans. If the Trust does so, it intends to
use American Skandia Marketing, Incorporated ("ASM, Inc.") or another affiliated
broker-dealer as underwriter, if so required by applicable law. ASM, Inc. is
registered as a broker-dealer with the Securities and Exchange Commission and
the National Association of Securities Dealers. It is an affiliate of American
Skandia Life Assurance Corporation, being a wholly-owned subsidiary of American
Skandia Investment Holding Corporation. As of the date of this Statement, ASM,
Inc. has not received payments from the Trust in connection with any brokerage
or underwriting services provided to the Trust.
PERFORMANCE: The Prospectus contains a brief description of how performance is
calculated. Quotations of average annual return for a Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in such Portfolio over periods of 1, 5, and 10 years (up
to the life of the Portfolio). These are the annual total rates of return that
would equate the initial amount invested to the ending redeemable value. These
rates of return are calculated pursuant to the following formula: P(1+T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Portfolio
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid. The total return of each Portfolio, computed as of June
30, 1996, is shown in the table below:
<TABLE>
<CAPTION>
Total Return
Date Available One Year Three Years Five Years Since
for Sale Inception
- --------------------------------------------- ------------------- --------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Seligman Henderson Int'l Equity Portfolio(1) 05/17/89 17.56% 12.26% 10.00% 11.14%
Seligman Henderson Int'l Small Cap
Portfolio(2) 05/02/95 16.46% N/A N/A 15.61%
Lord Abbett Growth and Income Portfolio 05/01/92 17.43% 14.25% N/A 13.71%
JanCap Growth Portfolio 11/06/92 31.33% 16.60% N/A 17.39%
Federated Utility Income Portfolio 05/04/93 18.62% 8.44% N/A 9.20%
Federated High Yield Portfolio 01/04/94 11.06% N/A N/A 7.48%
AST Phoenix Balanced Asset Portfolio(3) 05/04/93 16.17% 9.76% N/A 9.75%
T. Rowe Price Asset Allocation Portfolio 01/04/94 12.52% N/A N/A 10.37%
T. Rowe Price International Equity Portfolio 01/04/94 15.98% N/A N/A 6.19%
T. Rowe Price Natural Resources Portfolio 05/02/95 27.54% N/A N/A 24.12%
T. Rowe Price International Bond Portfolio(4) 05/03/94 3.98% N/A N/A 3.07%
Founders Capital Appreciation Portfolio 01/04/94 30.63% N/A N/A 22.91%
INVESCO Equity Income Portfolio 01/04/94 20.22% N/A N/A 13.06%
PIMCO Total Return Bond Portfolio 01/04/94 5.36% N/A N/A 5.18%
PIMCO Limited Maturity Bond Portfolio 05/02/95 4.23% N/A N/A 4.06%
Berger Capital Growth Portfolio 10/20/94 26.74% N/A N/A 21.70%
</TABLE>
(1) As of October 15, 1996, Putnam Investment Management, Inc. has served
as Sub-advisor to the Portfolio, now named the AST Putnam International Equity
Portfolio. The performance information provided in the above chart reflects that
of the Portfolio as sub-advised by the prior Sub-advisor, Seligman Henderson
Co., computed as of June 30, 1996. Such performance information is historical
and is not intended to indicate future performance of the Portfolio.
(2) As of October 15, 1996, Founders Asset Management, Inc. has served as
Sub-advisor to the Portfolio, now named the Founders Passport Portfolio. The
performance information provided in the above chart reflects that of the
Portfolio as sub-advised by the prior Sub-advisor, Seligman Henderson Co.,
computed as of June 30, 1996. Such performance information is historical and is
not intended to indicate future performance of the Portfolio.
(3) As of October 15, 1996, Putnam Investment Management, Inc. has served
as Sub-advisor to the Portfolio, now named the AST Putnam Balanced Portfolio.
The performance information provided in the above chart reflects that of the
Portfolio as sub-advised by the prior Sub-advisor, Phoenix Investment Counsel,
Inc., computed as of June 30, 1996. Such performance information is historical
and is not intended to indicate future performance of the Portfolio.
(4) Prior to May 1, 1996, Scudder, Stevens & Clark, Inc. served as
Sub-advisor to the Portfolio (formerly, the AST Scudder International Bond
Portfolio). As of May 1, 1996, Rowe Price-Fleming International, Inc. has served
as Sub-advisor to the Portfolio. The performance information provided in the
above chart, computed for the period May 3, 1994 (commencement of operations) to
May 1, 1996, reflects that of the Portfolio as sub-advised by Scudder, Stevens &
Clark, Inc. Such performance information is historical and is not intended to
indicate future performance of the Portfolio.
Quotations of a Portfolio's yield are based on the investment income
per share earned during a particular 30-day period (including dividends, if any,
and interest), less expenses accrued during the period ("net investment
income"), and are computed by dividing net investment income by the net asset
value per share on the last day of the period, according to the following
formula:
YIELD = 2[(a-b + 1)6 -1]
cd
where: a = dividend and interest income
b = expenses accrued for the period
c = average daily number of shares outstanding during the period that
were entitled to receive dividends d = maximum net asset value per
share on the last day of the period
The AST Money Market Portfolio yield refers to the income generated by
an investment in the Portfolio over a seven-day period expressed as an annual
percentage rate. Such Portfolio also may calculate an effective yield by
compounding the base period return over a one-year period. The effective yield
will be slightly higher than the yield because of the compounding effect on this
assumed reinvestment.
The current yield and effective yield calculations for shares of the
AST Money Market Portfolio are illustrated for the seven-day period ended June
30, 1996:
Current Yield Effective Yield
4.84% 4.96%
Such Portfolio's total return is based on the overall dollar or
percentage change in value of a hypothetical investment in the Portfolio
assuming dividend distributions are reinvested. A cumulative total return
reflects the hypothetical annual compounded rate that would have produced the
same cumulative total return if performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in a
Portfolio's performance, investors should recognize that they are not the same
as actual year-by-year results.
OTHER INFORMATION:
Principal Holders: As of December 1, 1996, the amount of shares of the
Trust owned by the ten persons who were officers and directors at that time,and
are expected to be officers and directors as of the date of this Statement, and
who are shown as such in the section of this Statement entitled "Management,"
was less than one percent of the shares.
The Participating Insurance Companies and Qualified Plans are not
obligated to continue to invest in shares of any Portfolio under all
circumstances. Variable annuity and variable life insurance policy holders
should refer to the prospectuses for such products for a description of the
circumstances in which such a change might occur.
Reports to Holders: Holders of variable annuity contracts or variable
life insurance policies issued by Participating Insurance Companies and
Qualified Plans for which shares of the Trust are the investment vehicle will
receive from the Participating Insurance Companies or Qualified Plans, as
applicable, unaudited semi-annual financial statements and audited year-end
financial statements. Participants in Qualified Plans will receive from trustees
of the Qualified Plans, or directly from the Trust as applicable, unaudited
semi-annual financial statements and audited year-end financial statements. Each
report will show the investments owned by the Trust and the market values of the
investments and will provide other information about the Trust and its
operations.
FINANCIAL STATEMENTS: Included in this Statement of Additional Information
are Audited Financial Statements for the Trust for the year ended December 31,
1995 and Unaudited Financial Statements for the Trust for the period ended June
30, 1996. To the extent and only to the extent that any statement in a document
incorporated by reference into this Statement is modified or superseded by a
statement in this Statement or in a later-filed document, such statement is
hereby deemed so modified or superseded and not part of this Statement.
You may obtain, without charge, a copy of any or all the documents
incorporated by reference in this Statement, including any exhibits to such
documents which have been specifically incorporated by reference. We do so upon
receipt of your written or oral request. Please address your request to American
Skandia Trust, P.O. Box 883, Shelton, Connecticut, 06484. Our phone number is
(203) 926-1888.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
American Skandia Trust:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Seligman Henderson International
Equity Portfolio (formerly Henderson International Equity Portfolio) of American
Skandia Trust (the "Trust") as of December 31, 1995, the related statements of
operations for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. We also have audited the
accompanying statements of assets and liabilities, including the portfolios of
investments, of Lord Abbett Growth and Income Portfolio, JanCap Growth
Portfolio, AST Money Market Portfolio, Federated Utility Income Portfolio, AST
Phoenix Balanced Asset Portfolio, Federated High Yield Portfolio, T. Rowe Price
Asset Allocation Portfolio, PIMCO Total Return Bond Portfolio, INVESCO Equity
Income Portfolio, Founders Capital Appreciation Portfolio, T. Rowe Price
International Equity Portfolio, AST Scudder International Bond Portfolio, Berger
Capital Growth Portfolio, Seligman Henderson International Small Cap Portfolio,
T. Rowe Price Natural Resources Portfolio, and PIMCO Limited Maturity Bond
Portfolio of the Trust as of December 31, 1995, the related statements of
operations and changes in net assets and the financial highlights for each of
the periods presented. We also have audited the accompanying statements of
assets and liabilities of AST Phoenix Capital Growth Portfolio and Eagle Growth
Equity Portfolio of the Trust as of December 31, 1995, the related statements of
operations and changes in net assets, and the financial highlights for each of
the periods presented. These financial statements and the financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1995 by correspondence with the custodians and brokers and where replies
were not received, we performed other auditing procedures. 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 audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial positions of Seligman Henderson
International Equity Portfolio, Lord Abbett Growth and Income Portfolio, JanCap
Growth Portfolio, AST Money Market Portfolio, Federated Utility Income
Portfolio, AST Phoenix Balanced Asset Portfolio, Federated High Yield Portfolio,
AST Phoenix Capital Growth Portfolio, T. Rowe Price Asset Allocation Portfolio,
PIMCO Total Return Bond Portfolio, INVESCO Equity Income Portfolio, Founders
Capital Appreciation Portfolio, T. Rowe Price International Equity Portfolio,
Eagle Growth Equity Portfolio, AST Scudder International Bond Portfolio, Berger
Capital Growth Portfolio, Seligman Henderson International Small Cap Portfolio,
T. Rowe Price Natural Resources Portfolio, and PIMCO Limited Maturity Bond
Portfolio of American Skandia Trust as of December 31, 1995, the results of
their operations, the changes in their net assets, and the financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 9, 1996 (April 16, 1996 with respect to Note 7)
<PAGE>
AMERICAN SKANDIA TRUST
SELIGMAN HENDERSON INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C>
FOREIGN STOCKS -- 89.0%
AUSTRALIA -- 3.0%
Broken Hill Proprietary Co.
LTD. ......................... 292,705 $ 4,137,635
MIM Holdings LTD. .............. 1,177,791 1,629,857
News Corp. ..................... 400,901 2,141,559
------------
7,909,051
------------
DENMARK -- 1.2%
Teledanmark Cl-B................ 60,264 3,288,133
------------
FRANCE -- 9.6%
AXA SA.......................... 55,766 3,757,586
Carrefour Supermarch SA......... 5,410 3,281,901
Cie Generale des Eaux........... 39,156 3,908,804
Lafarge -- Coppee SA............ 54,934 3,538,882
Roussel Uclaf................... 22,299 3,779,106
Societe Generale................ 33,372 4,122,524
Societe Nationale Elf
Aquitaine..................... 47,046 3,465,890
------------
25,854,693
------------
GERMANY -- 5.5%
Adidas.......................... 36,823 1,943,593
Bayer AG........................ 13,551 3,597,979
Deutsche Bank AG................ 64,218 3,049,258
Karstadt AG..................... 6,630 2,718,198
Lufthansa....................... 24,218 3,351,885
------------
14,660,913
------------
HONG KONG -- 2.7%
Hong Kong Telecommunications
LTD........................... 1,877,600 3,350,949
Swire Pacific LTD. Cl-A......... 505,000 3,918,576
------------
7,269,525
------------
INDONESIA -- 1.1%
Gadjah Tungal................... 5,073,000 2,828,192
------------
ITALY -- 2.2%
Assicurazione Generali.......... 146,373 3,542,991
Olivetti & Co. SPA Cl-C......... 2,851,074 2,284,808
------------
5,827,799
------------
JAPAN -- 27.0%
Aoyama Trading Co. LTD. ........ 37,500 1,197,735
CSK Corp. ...................... 117,000 3,657,666
Denny's Japan Co. LTD. ......... 38,000 1,268,873
East Japan Railway Co. ......... 1,416 6,879,907
Joshin Demki.................... 88,000 1,149,826
Kao Corp. ...................... 169,000 2,093,690
Mitsui Marine & Fire
Insurance..................... 542,000 3,860,937
Mitsui O.S.K. Lines*............ 1,234,000 3,953,291
Mitsubishi Materials Corp. ..... 716,000 3,707,511
Nippon Telegraph & Telephone
Corp. ........................ 855 6,909,843
Nippon TV Network............... 8,410 2,246,574
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C>
Nomura Securities Co. LTD. ..... 186,000 $ 4,050,523
Pioneer Electronic Corp. ....... 426,000 7,792,683
Sumitomo Metal Industries*...... 1,183,000 3,583,808
Sumitomo Sitix Corp. ........... 63,000 1,146,341
Sumitomo Trust & Banking........ 266,000 3,758,808
Tokyo Steel Manufacturing....... 51,000 937,863
Toshiba Corp. .................. 959,000 7,509,011
Toyo Ink Manufacturing.......... 194,000 957,607
Tsutsumi Jewelry Co. LTD. ...... 21,000 1,050,813
Yamaha Corp. ................... 255,000 4,590,592
------------
72,303,902
------------
MALAYSIA -- 1.5%
Malayan Banking BHD............. 246,500 2,077,302
Proton Perusahaan Otomobil...... 550,000 1,938,450
------------
4,015,752
------------
MEXICO -- 0.1%
Grupo Financiero Banamex Cl-B... 225,000 375,195
------------
NETHERLANDS -- 2.8%
Elsevier NV..................... 279,625 3,729,030
ING Groep NV.................... 57,857 3,865,065
------------
7,594,095
------------
NORWAY -- 1.7%
Kvaerner AS Cl-B................ 47,276 1,583,836
Norsk Hydro AS.................. 68,195 2,866,604
------------
4,450,440
------------
SINGAPORE -- 3.1%
Jurong Shipyard................. 596,000 4,593,693
United Overseas Bank LTD. ...... 394,860 3,797,268
------------
8,390,961
------------
SPAIN -- 2.8%
Banco de Santander SA........... 76,573 3,858,747
Iberdrola SA.................... 208,362 1,913,792
Uralita SA...................... 179,327 1,632,269
------------
7,404,808
------------
SWEDEN -- 2.5%
Ericsson, (L.M.) Telephone Co.
Cl-B.......................... 182,390 3,568,470
Stora Kopparbergs Bergslags
Cl-B.......................... 257,111 3,076,277
------------
6,644,747
------------
SWITZERLAND -- 5.6%
Brown Boveri AG-Bearer.......... 3,341 3,881,852
Nestle SA....................... 3,270 3,617,896
Roche Holding AG-Genussshein.... 481 3,805,710
Zuerich Versicherung-Bearer..... 12,501 3,707,051
------------
15,012,509
------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
SELIGMAN HENDERSON INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C>
THAILAND -- 1.9%
Siam Cement Co. LTD............. 52,000 $ 2,881,778
Siam Commercial Bank............ 168,000 2,214,212
------------
5,095,990
------------
UNITED KINGDOM -- 14.7%
BAT Industries PLC.............. 410,000 3,613,078
British Petroleum Co. PLC....... 333,500 2,791,337
Caradon PLC..................... 620,000 1,882,201
Central European Growth
Fund***....................... 1,680,000 1,023,945
Central European Growth Fund
(Warrants)*................... 258,000 24,038
Farnell Electronics PLC......... 240,000 2,679,586
FKI Babcock PLC................. 962,500 2,466,109
Granada Group PLC............... 362,000 3,625,734
Rentikil Group PLC.............. 381,800 1,986,133
Reuters Holdings PLC............ 343,600 3,147,986
Royal Bank of Scotland PLC...... 310,000 2,820,895
Siebe PLC....................... 225,000 2,774,154
Tesco PLC....................... 781,500 3,604,235
Unilever PLC.................... 178,000 3,656,853
WPP Group Ord. PLC.............. 1,350,000 3,437,995
------------
39,534,279
------------
TOTAL FOREIGN STOCKS
(COST $220,036,687)............... 238,460,984
------------
AMERICAN DEPOSITORY RECEIPTS -- 1.1%
DIVERSIFIED -- 0.5%
Grupo Carso SA*................. 110,000 1,221,000
------------
MISCELLANEOUS -- 0.6%
Sociedad Anoni.................. 80,000 1,730,000
------------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $3,435,327)................. 2,951,000
------------
GLOBAL DEPOSITORY RECEIPTS -- 1.9%
DIVERSIFIED -- 0.9%
Hindalco Industries............. 75,000 2,540,250
------------
ELECTRONICS -- 1.0%
Samsung Electronics Co.*........ 43,000 2,547,750
------------
TOTAL GLOBAL DEPOSITORY RECEIPTS
(COST $4,105,665)................. 5,088,000
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
SOVEREIGN ISSUES -- 1.3%
ELECTRICAL-EQUIPMENT -- 0.6%
Teco Electric & Machine
Corp.
2.75%................. 04/15/04 $2,000 $ 1,567,500
INDUSTRIAL -- 0.7%
Gujarat Ambuja Cement
3.50%................. 06/30/99 1,450 1,950,250
TOTAL SOVEREIGN ISSUES
(COST $3,582,659).................... 3,517,750
TOTAL INVESTMENTS
(COST $231,160,338**) -- 93.3%....... 250,017,734
OTHER ASSETS LESS
LIABILITIES -- 6.7%.................. 18,038,094
NET ASSETS -- 100.0%................... $268,055,828
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation................. $ 29,767,682
Gross depreciation................. (11,120,367)
Net appreciation................... $ 18,647,315
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1995:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
COVERED EXPIRATION UNREALIZED
TYPE BY CONTRACT MONTH APPRECIATION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Buy ESP 64,462,119 01/96 $ 1,755
Sell JPN 3,330,855,000 02/96 543,751
--------
$545,506
========
COUNTRY/CURRENCY ABBREVIATIONS
- ----------------------------------------------------------
ESP - Spain/Spanish Peseta
JPN - Japan/Japanese Yen
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
** Cost for Federal income tax purposes was $231,370,419.
*** Closed-end fund.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
LORD ABBETT GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK -- 63.9%
AEROSPACE -- 1.3%
Boeing Co. .................... 30,000 $ 2,351,250
Rockwell International
Corp. ....................... 25,000 1,321,875
------------
3,673,125
------------
AUTOMOBILES -- 1.6%
General Motors Corp. .......... 90,000 4,758,750
------------
BANKING -- 4.4%
BankAmerica Corp. ............. 70,000 4,532,500
Chemical Banking Corp. ........ 80,000 4,700,000
Comerica, Inc. ................ 90,000 3,611,250
------------
12,843,750
------------
BUSINESS SUPPLIES -- 1.1%
Snap-On, Inc. ................. 70,000 3,167,500
------------
CHEMICALS -- 3.0%
Dow Chemical Co. .............. 30,000 2,111,250
James River Corp. ............. 180,000 4,342,500
M.A. Hanna Co. ................ 80,000 2,240,000
------------
8,693,750
------------
COMMUNICATIONS -- 0.9%
Harris Corp. .................. 50,000 2,731,250
------------
COMPUTERS -- 0.9%
EMC Corp.*..................... 170,000 2,613,750
------------
DIVERSIFIED -- 1.4%
Crane Co. ..................... 35,000 1,290,625
National Services Industries,
Inc. ........................ 90,000 2,913,750
------------
4,204,375
------------
DRUGS -- 0.9%
Merck & Co., Inc. ............. 40,000 2,630,000
------------
ELECTRONICS -- 4.4%
AMP, Inc. ..................... 100,000 3,837,500
Emerson Electric Co. .......... 60,000 4,905,000
Hewlett-Packard Co. ........... 35,000 2,931,250
Seagate Technology, Inc.*...... 25,000 1,187,500
------------
12,861,250
------------
FINANCIAL-BANK & TRUST -- 1.0%
Bank of Boston Corp. .......... 60,000 2,775,000
------------
FINANCIAL SERVICES -- 1.9%
H. F. Ahmanson Co. ............ 100,000 2,650,000
H&R Block, Inc. ............... 70,000 2,835,000
------------
5,485,000
------------
FOODS & BEVERAGES -- 4.8%
Conagra, Inc. ................. 100,000 4,125,000
Dean Foods Co. ................ 35,700 981,750
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Hershey Foods Corp. ........... 55,000 $ 3,575,000
Sara Lee Corp. ................ 50,000 1,593,750
Supervalu, Inc. ............... 110,000 3,465,000
------------
13,740,500
------------
FOOD PROCESSING -- 0.7%
Pioneer Hi-Bred
International................ 35,000 1,946,875
------------
FOREST PRODUCTS -- 0.8%
Westvaco Corp. ................ 80,000 2,220,000
------------
HEALTHCARE -- 1.7%
Malincrodt Group, Inc. ........ 135,000 4,910,625
------------
HOSPITAL MANAGEMENT -- 0.7%
Baxter International, Inc. .... 45,000 1,884,375
------------
INSURANCE -- 5.1%
Aetna Life & Casualty Co. ..... 70,000 4,847,500
CHUBB Corp. ................... 45,000 4,353,750
Lincoln National Corp. ........ 30,000 1,612,500
Transamerica Corp. ............ 55,000 4,008,125
------------
14,821,875
------------
MACHINERY & HEAVY EQUIPMENT -- 0.8%
Goulds Pumps, Inc. ............ 90,000 2,250,000
------------
NATURAL GAS -- 1.3%
Sonat, Inc. ................... 105,000 3,740,625
------------
OFFICE EQUIPMENT -- 0.8%
Moore Corp. LTD. .............. 125,000 2,328,125
------------
OIL & GAS -- 2.3%
Chevron Corp. ................. 70,000 3,675,000
Coastal Corp. ................. 80,000 2,980,000
------------
6,655,000
------------
OIL & GAS-EQUIPMENT & SERVICES -- 0.3%
Schlumberger LTD. ............. 13,700 948,725
------------
PAPER & PAPER PRODUCTS -- 1.0%
Kimberly-Clark Corp. .......... 35,100 2,904,525
------------
PHARMACEUTICALS -- 1.2%
Warner Lambert Co. ............ 35,000 3,399,375
------------
PHOTOGRAPHY -- 0.5%
Perkin Elmer Corp. ............ 35,000 1,321,250
------------
PRINTING & PUBLISHING -- 1.5%
Deluxe Corp. .................. 80,000 2,320,000
R.R. Donnelley & Sons Co. ..... 50,000 1,968,750
------------
4,288,750
------------
RESTAURANTS -- 0.9%
Brinker International, Inc.*... 180,000 2,722,500
------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
LORD ABBETT GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
RETAIL-MERCHANDISING -- 2.1%
May Department Stores Co. ..... 70,000 $ 2,957,500
Sears Roebuck & Co. ........... 80,000 3,120,000
------------
6,077,500
------------
RUBBER & PLASTIC -- 0.2%
Standard Products Co. ......... 34,100 601,013
------------
SAVINGS & LOAN ASSOCIATIONS -- 1.2%
Great Western Financial
Corp. ....................... 140,000 3,570,000
------------
TELECOMMUNICATIONS -- 3.0%
AT&T Corp. .................... 80,000 5,180,000
MCI Communications Corp. ...... 130,000 3,396,250
------------
8,576,250
------------
TEXTILES -- 1.3%
VF Corp. ...................... 45,000 2,373,750
Warnaco Group, Inc. Cl-A....... 50,000 1,250,000
------------
3,623,750
------------
UTILITIES-ELECTRIC -- 3.1%
Detroit Edison Co. ............ 100,000 3,450,000
Ohio Edison Co. ............... 170,000 3,995,000
Public Service Co. of
Colorado..................... 45,000 1,591,875
------------
9,036,875
------------
UTILITIES-GAS -- 3.0%
Cinergy Corp. ................. 160,000 4,900,000
Consolidated Natural Gas
Co. ......................... 80,000 3,630,000
------------
8,530,000
------------
WASTE MANAGEMENT -- 2.8%
Browning-Ferris Industries,
Inc. ........................ 150,000 4,425,000
WMX Technologies, Inc. ........ 120,000 3,585,000
------------
8,010,000
------------
TOTAL COMMON STOCK
(COST $162,644,061).............. 184,546,013
------------
PREFERRED STOCK -- 4.4%
FINANCE -- 1.2%
St. Paul's Capital,
Convertible Cl-C
6.00%........................ 60,000 3,375,000
------------
METALS & MINING -- 0.5%
Cyprus Amax Minerals,
Convertible $4.00............ 25,000 1,484,375
------------
OIL & GAS -- 0.8%
Atlantic Richfield Co. $2.23... 105,000 2,467,500
------------
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
PACKAGING & PAPER PRODUCTS -- 1.9%
International Paper Co.,
Convertible
5.25%........................ 55,000 $ 2,512,125
Sonoco Products Co.,
Convertible $2.25............ 50,000 2,856,250
------------
5,368,375
------------
TOTAL PREFERRED STOCK
(COST $12,777,635)............... 12,695,250
------------
AMERICAN DEPOSITORY RECEIPTS -- 3.3%
AIRLINES -- 0.8%
British Airways PLC............ 30,000 2,182,500
------------
HEALTH -- 1.2%
Smithkline Beecham PLC
(Unit)....................... 65,000 3,607,500
------------
OIL -- 1.3%
Total Petroleum................ 110,000 3,740,000
------------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $7,338,946)................ 9,530,000
------------
SHORT TERM INVESTMENTS -- 5.8%
Temporary Investment
Cash Fund.................... 8,382,244 8,382,244
Temporary Investment Fund...... 8,382,244 8,382,244
------------
(COST $16,764,488)........... 16,764,488
------------
TOTAL INVESTMENTS
(COST $199,525,130**) -- 77.4%... 223,535,751
OTHER ASSETS LESS
LIABILITIES -- 22.6%............. 65,213,522
------------
NET ASSETS -- 100.0%............... $288,749,273
============
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation........................ $26,543,215
Gross depreciation........................ (2,559,577)
----------
Net appreciation.......................... $23,983,638
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
** Cost for Federal income tax purposes was $199,552,113.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
JANCAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
COMMON STOCK -- 84.8%
AEROSPACE-DEFENSE -- 2.4%
Lockheed Martin Corp. ........... 112,550 $ 8,891,450
McDonnell Douglas Corp. ......... 16,250 1,495,000
------------
10,386,450
------------
BANKING -- 10.3%
Chemical Banking Corp. .......... 281,450 16,535,188
Citicorp......................... 231,545 15,571,401
First Bank System, Inc. ......... 82,375 4,087,859
First Chicago NBD Corp. ......... 46,075 1,819,963
First Interstate Bancorp......... 45,275 6,180,038
------------
44,194,449
------------
BEVERAGES & BOTTLING -- 6.1%
Coca-Cola Co. ................... 148,600 11,033,550
Coca-Cola Enterprises, Inc. ..... 151,850 4,061,988
Pepsico, Inc. ................... 204,475 11,425,041
------------
26,520,579
------------
BIOPHARMACEUTICALS -- 3.1%
Amgen, Inc. ..................... 225,025 13,360,859
------------
BROADCASTING -- 0.1%
Infinity Broadcasting Corp.
Cl-A*.......................... 11,475 427,444
------------
CHEMICALS -- 4.2%
Cytec Industries, Inc. .......... 88,525 5,521,747
Hercules, Inc. .................. 67,700 3,816,588
Monsanto Co. .................... 70,200 8,599,500
------------
17,937,835
------------
COMPUTER SERVICES & SOFTWARE -- 5.8%
Cisco Systems, Inc.*............. 170,125 12,695,578
First Data Corp. ................ 182,500 12,204,688
------------
24,900,266
------------
COMPUTERS -- 4.1%
Sun Microsystems, Inc.*.......... 384,600 17,547,375
------------
CONSUMER GOODS & SERVICES -- 2.6%
Coleman Co., Inc.*............... 75,875 2,665,109
CUC International, Inc. ......... 135,450 4,622,231
Lowe's Companies, Inc. .......... 114,625 3,839,938
------------
11,127,278
------------
CONSUMER PRODUCTS -- 0.5%
General Electric Co. ............ 28,700 2,066,400
------------
ELECTRICAL EQUIPMENT -- 0.8%
Duracell International, Inc. .... 69,000 3,570,750
------------
ELECTRONICS -- 4.8%
Altera Corp. .................... 163,825 8,150,294
Diebold, Inc. ................... 49,100 2,718,913
Lexmark International Group, Inc.
Cl-A........................... 400,000 7,300,000
National Semiconductor Corp.*.... 118,725 2,641,631
------------
20,810,838
------------
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
ENTERTAINMENT -- 2.4%
Walt Disney Co. ................. 177,725 $ 10,485,775
------------
FINANCIAL SERVICES -- 8.5%
Charles Schwab Corp. (New)....... 182,700 3,676,838
Federal Home Loan Mortgage
Association.................... 10,175 849,613
Federal National Mortgage
Association.................... 90,215 11,197,937
Merrill Lynch & Co., Inc. ....... 316,875 16,160,625
Morgan Stanley Group, Inc. ...... 58,225 4,694,391
------------
36,579,404
------------
FOOD PROCESSING -- 0.3%
Pioneer Hi-Bred International.... 23,000 1,279,375
------------
FOREST PRODUCTS -- 0.8%
Georgia Pacific Corp. ........... 11,750 806,344
Willamette Industries, Inc. ..... 50,300 2,829,375
------------
3,635,719
------------
HOME BUILDER -- 0.3%
D.R. Horton, Inc.*............... 107,625 1,264,594
------------
HOTELS & MOTELS -- 1.2%
Hospitality Franchise Systems,
Inc. .......................... 65,625 5,364,844
------------
MACHINERY & HEAVY EQUIPMENT -- 0.6%
Caterpillar, Inc. ............... 46,525 2,733,344
------------
MEDICAL & MEDICAL SERVICES -- 1.2%
Medtronic, Inc. ................. 36,450 2,036,644
Oxford Health Plans, Inc. ....... 39,100 2,888,513
------------
4,925,157
------------
METALS & STEELS -- 1.7%
Phelps Dodge Corp. .............. 118,900 7,401,525
------------
PHARMACEUTICALS -- 7.2%
Bristol-Meyers Squibb Co. ....... 49,700 4,267,988
Merck & Co., Inc. ............... 168,275 11,064,081
Pfizer, Inc. .................... 180,750 11,387,250
Warner Lambert Co. .............. 46,175 4,484,747
------------
31,204,066
------------
PRINTING & PUBLISHING -- 1.1%
Gartner Group, Inc. Cl-A......... 100,000 4,787,500
------------
RESTAURANTS -- 3.8%
Boston Chicken, Inc. ............ 122,175 3,924,872
McDonald's Corp. ................ 274,625 12,392,453
------------
16,317,325
------------
RETAIL-SPECIALTY -- 0.7%
Nike, Inc. ...................... 44,100 3,070,463
------------
SAVINGS & LOAN ASSOCIATIONS -- 1.4%
Fidelity Federal Bank FSB........ 2,682,439 5,869,177
------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
JANCAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
TELECOMMUNICATIONS -- 5.1%
Ascend Communications, Inc.*..... 102,350 $ 8,303,144
Premisys Communications, Inc. ... 20,000 1,120,000
Sprint Corp. .................... 103,700 4,135,038
Tele-Communications
International, Inc.*........... 78,600 1,788,150
US Robotics, Inc. ............... 75,975 6,666,806
------------
22,013,138
------------
TRANSPORTATION -- 3.7%
AMR Corp. ....................... 134,100 9,956,925
Delta Air Lines, Inc. ........... 48,525 3,584,784
UAL Corp. ....................... 13,550 2,418,675
------------
15,960,384
------------
TOTAL COMMON STOCK
(COST $301,903,995)................ 365,742,313
------------
PREFERRED STOCK -- 0.7%
FINANCIAL SERVICES
American Express Convertible
6.25%
(COST $2,780,360)............ 56,000 3,108,000
------------
AMERICAN DEPOSITORY RECEIPTS -- 2.4%
FINANCIAL SERVICES -- 0.3%
Reuters Holdings PLC............. 22,725 1,252,716
------------
HEALTH -- 0.5%
Smithkline Beecham PLC (Unit).... 43,300 2,403,150
------------
RETAIL -- 1.6%
Fila Holding SPA................. 148,075 6,737,413
------------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $8,536,059).................. 10,393,279
------------
FOREIGN STOCKS -- 6.8%
COMPUTERS -- 2.8%
Sap AG Vorzug -- (DEM)........... 77,810 11,816,352
------------
PHARMACEUTICALS -- 4.0%
Roche Holding AG-
Genussshein -- (SW)............ 2,187 17,303,711
------------
TOTAL FOREIGN STOCKS
(COST $22,958,932)................. 29,120,063
------------
SHORT TERM INVESTMENTS --
MONEY MARKET FUNDS -- 0.0%
Temporary Investment Cash Fund... 9,686 9,686
Temporary Investment Fund........ 9,685 9,685
------------
(COST $19,371)................. 19,371
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 6.0%
Ford Motor Credit Co.
5.75%................ 01/02/96 $15,800 $ 15,797,476
General Electric
Capital Corp.
5.95%................ 01/04/96 10,000 9,995,042
-----------
TOTAL COMMERCIAL PAPER
(COST $25,792,518)....... 25,792,518
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 2.3%
Federal Home Loan Bank
5.66%
(COST $9,976,417).... 01/16/96 10,000 9,976,417
-----------
TOTAL INVESTMENTS
(COST $371,967,652**) -- 103.0%..... 444,151,961
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (3.0%).............. (12,831,188)
-----------
NET ASSETS -- 100.0%.................. $431,320,773
===========
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation................ $75,256,541
Gross depreciation................ (3,077,801)
----------
Net appreciation.................. $72,178,740
----------
----------
Foreign currency exchange contracts outstanding at December
31, 1995:
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT UNREALIZED
COVERED EXPIRATION APPRECIATION
TYPE BY CONTRACT MONTH (DEPRECIATION)
<S> <C> <C> <C> <C>
-----------------------------------------------------------
Sell DEM 9,127,000 02/96 $145,741
Sell DEM 6,000,000 04/96 36,562
182,303
Buy FIM 13,500,000 02/96 (23,719)
Sell FIM 13,500,000 02/96 121,478
97,759
$280,062
</TABLE>
COUNTRY/CURRENCY ABBREVIATIONS
- ----------------------------------------------------------
DEM - Germany/German Deutschemark
FIM - Finland/Finnish Markka
SW - Switzerland/Swiss Franc
- --------------------------------------------------------------------------------
* Non-income producing securities.
** Cost for Federal income tax purposes was $371,973,221.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
AST MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 19.6%
BANKING -- 4.3%
Bank of New York
5.83%................. 01/18/96 $15,000 $ 14,958,704
FINANCIAL -- 14.2%
Bayerische Vereinsbank
Caymen
6.50%................. 01/02/96 18,000 17,996,750
CIT Group Holdings, Inc.
5.60%................. 03/08/96 15,000 14,843,667
General Electric Capital
Corp.
5.79%................. 01/30/96 16,000 15,925,373
48,765,790
PHARMACEUTICALS -- 1.1%
Pfizer, Inc.
5.65%................. 02/05/96 3,763 3,742,330
TOTAL COMMERCIAL PAPER
(COST $67,466,824)........ 67,466,824
CERTIFICATES OF DEPOSIT -- 50.3%
DOMESTIC -- 29.6%
Bank of Nova Scotia
5.75%................. 02/06/96 5,000 5,000,000
Canada Imperial Bank of
Commerce Toronto
5.80%................. 01/18/96 16,000 16,000,000
Dai Ichi Kangyo
Bank LTD.
6.26%................. 02/02/96 10,000 10,000,907
Fuji Bank
6.12%................. 01/17/96 16,000 16,000,000
Harris Trust Bank
5.65%................. 01/25/96 15,000 15,000,000
Industrial Bank of Japan
6.03%................. 02/23/96 17,000 17,004,011
National Westminster
Bank New York
5.72%................. 02/16/96 18,000 18,002,533
Sumitomo Bank New York
6.09%................. 01/16/96 5,000 5,000,000
102,007,451
EURO DOLLAR -- 4.4%
Sanwa London
6.01%................. 01/16/96 15,000 15,000,062
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
YANKEE DOLLAR -- 16.3%
Banque National de Paris
5.79%................. 01/26/96 $10,000 $ 10,000,000
5.74%................. 03/25/96 5,000 5,000,000
National Bank of
Australia
5.75%................. 10/02/96 5,000 4,995,315
NBD Bank NA
5.95%................. 05/30/96 8,000 8,009,560
Societe Generale
5.65%................. 02/08/96 15,000 15,000,000
6.60%................. 04/12/96 3,000 3,000,972
Sumitomo Bank New York
5.99%................. 01/16/96 10,000 10,000,163
56,006,010
TOTAL CERTIFICATES OF
DEPOSIT
(COST $173,013,523)....... 173,013,523
U.S. TREASURY BILLS -- 0.2%
5.29%................... 03/21/96 400 395,302
5.29%................... 03/21/96 442 436,804
TOTAL U.S. TREASURY BILLS
(COST $832,106)........... 832,106
MEDIUM TERM NOTES -- 9.9%
BANKING -- 1.4%
Comerica Bank of
Detroit, Michigan
5.70%................. 09/03/96 5,000 4,997,731
FINANCIAL -- 4.4%
Xerox Credit Corp.
17.00%................ 02/09/96 15,000 15,168,654
U.S. GOVERNMENT
AGENCIES -- 4.1%
Federal National
Mortgage Association
5.30%................. 12/26/96 14,000 13,970,800
TOTAL MEDIUM TERM NOTES
(COST $34,137,185)........ 34,137,185
VARIABLE RATE DISCOUNT NOTES -- 1.5%
U.S. GOVERNMENT AGENCIES
Federal National
Mortgage Association
5.75%
(COST $4,995,774)... 10/11/96 5,000 4,995,774
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
AST MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 18.2%
FEDERAL FARM CREDIT BANK -- 2.9%
6.07%................... 06/03/96 $10,000 $ 9,995,958
FEDERAL HOME LOAN BANK -- 6.6%
5.46%................... 01/22/96 22,815 22,742,334
FEDERAL HOME LOAN MORTGAGE
CORP. -- 3.2%
5.47%................... 01/19/96 9,093 9,068,131
6.06%................... 03/21/96 2,000 1,973,067
11,041,198
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 5.5%
5.60%................... 11/01/96 6,000 5,991,850
5.50%................... 01/31/96 13,050 12,990,188
18,982,038
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $62,761,528).................. 62,761,528
TOTAL INVESTMENTS
(COST $343,206,940*) - 99.7%........ 343,206,940
OTHER ASSETS LESS
LIABILITIES -- 0.3%................. 1,018,232
NET ASSETS -- 100.0%.................. $344,225,172
</TABLE>
- --------------------------------------------------------------------------------
* Also cost for Federal income tax purposes.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
FEDERATED UTILITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK -- 76.0%
BANKING -- 0.3%
PNC Financial Corp. ............. 10,800 $ 348,300
-----------
ENERGY -- 2.5%
Sonat, Inc. ..................... 58,500 2,084,063
Westcoast Energy, Inc. .......... 38,400 561,600
-----------
2,645,663
-----------
FINANCIAL SERVICES -- 0.1%
First USA, Inc. ................. 2,700 106,650
-----------
FOOD & TOBACCO -- 1.1%
Philip Morris Companies, Inc. ... 13,000 1,176,500
-----------
HEALTHCARE -- 1.9%
Meditrust SBI.................... 58,500 2,040,187
-----------
NATURAL GAS -- 5.5%
MCN Corp. ....................... 81,800 1,901,850
Pacific Enterprises, Inc. ....... 70,700 1,997,275
Panhandle Eastern Corp. ......... 23,700 660,638
Williams Companies, Inc. ........ 30,300 1,329,413
-----------
5,889,176
-----------
OIL & GAS -- 1.5%
Exxon Corp. ..................... 19,500 1,562,437
-----------
TELECOMMUNICATIONS -- 21.7%
Ameritech Corp. ................. 55,700 3,286,300
AT&T Corp. ...................... 70,900 4,590,775
BellSouth Corp. ................. 93,700 4,075,950
GTE Corp. ....................... 85,800 3,775,200
MCI Communications Corp. ........ 157,000 4,101,625
SBC Communications Corp. ........ 59,900 3,444,250
-----------
23,274,100
-----------
UTILITIES-COMBINATION -- 2.6%
CMS Energy Corp. ................ 92,700 2,769,412
-----------
UTILITIES-ELECTRIC -- 36.2%
Baltimore Gas & Electric Co. .... 47,100 1,342,350
Cinergy Corp. ................... 45,700 1,399,562
DPL, Inc. ....................... 107,200 2,653,200
DQE, Inc. ....................... 83,550 2,569,162
Duke Power Co. .................. 71,900 3,406,262
Florida Progress Corp. .......... 44,600 1,577,725
FPL Group, Inc. ................. 90,700 4,206,213
General Public Utilities
Corp. ......................... 49,200 1,672,800
Illinova Corp. .................. 77,800 2,334,000
NIPSCO Industries, Inc. ......... 58,000 2,218,500
Ohio Edison Co. ................. 30,300 712,050
Pacificorp....................... 75,600 1,606,500
PECO Energy Co. ................. 52,900 1,593,613
Pinnacle West Capital Co. ....... 93,600 2,691,000
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Southern Co. .................... 85,800 $ 2,112,825
Texas Utilities Co. ............. 60,000 2,467,500
Unicom Corp. .................... 20,000 655,000
Utilicorp United, Inc. .......... 66,700 1,959,313
Western Resources, Inc. ......... 54,400 1,815,600
-----------
38,993,175
-----------
UTILITIES-GAS -- 2.6%
Enron Corp. ..................... 54,300 2,070,187
Enron Global Power & Pipeline.... 30,600 761,175
-----------
2,831,362
-----------
TOTAL COMMON STOCK
(COST $70,730,913)................. 81,636,962
-----------
PREFERRED STOCK -- 13.4%
AUTOMOBILES -- 1.0%
General Motors Corp., Convertible
Cl-C $3.25..................... 15,100 1,106,075
-----------
BEVERAGES & TOBACCO -- 4.0%
RJR Nabisco Holdings Corp.,
Convertible Cl-C $0.60......... 674,200 4,298,025
-----------
FINANCE -- 3.8%
Merrill Lynch & Co., Inc.,
Convertible $3.12.............. 28,100 1,457,687
SunAmerica, Inc., Convertible
Cl-E $3.10..................... 15,000 982,500
SunAmerica, Inc., Convertible
Cl-D $2.78..................... 33,500 1,603,813
-----------
4,044,000
-----------
FOREST PRODUCTS -- 1.0%
James River Corp., Convertible
9.00%.......................... 44,500 1,040,187
-----------
HOME FURNISHINGS & HOUSEWARES -- 0.6%
Kaufman & Broad, Convertible Cl-B
$1.52.......................... 42,600 633,675
-----------
METALS & MINING -- 1.6%
Reynolds Metals Co., Convertible
$3.31.......................... 33,700 1,706,063
-----------
NATURAL GAS -- 1.0%
Williams Companies, Inc.,
Convertible $3.50.............. 14,300 1,058,200
-----------
PAPER & PAPER PRODUCTS -- 0.4%
International Paper Co.,
Convertible $5.25.............. 11,000 502,425
-----------
TOTAL PREFERRED STOCK
(COST $13,683,523)................. 14,388,650
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FEDERATED UTILITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
AMERICAN DEPOSITORY RECEIPTS -- 6.3%
ELECTRIC POWER -- 0.6%
National Power PLC............... 70,200 $ 649,350
-----------
ELECTRONIC-SYSTEMS -- 1.0%
Nokia Corp. C1-A................. 27,700 1,076,837
-----------
TELECOMMUNICATIONS -- 4.7%
Cable & Wireless PLC............. 10,600 223,925
Cointel Prides................... 43,900 2,546,200
Compania de Telefonos de Chile... 7,100 588,413
Telcomunicacoes Brasileras....... 12,800 606,400
Telefonica de Espana............. 26,200 1,097,125
-----------
5,062,063
-----------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $7,356,442).................. 6,788,250
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- -------
<S> <C> <C> <C>
CORPORATE BONDS -- 2.5%
INDUSTRIAL -- 0.6%
Analog Devices, Inc.,
Convertible
3.50%............... 12/01/00 $ 330 358,050
National Semiconductor
Corp., Convertible
6.50%............... 10/01/02 280 262,500
------------
620,550
------------
INSURANCE -- 0.9%
Equitable Companies,
Inc., Convertible
Subordinate
Debentures
6.13%............... 12/15/24 825 945,656
------------
RETAIL -- 0.3%
Federated Department
Stores, Inc.,
Convertible
5.00%............... 10/01/03 370 372,313
------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
TECHNOLOGY -- 0.7%
3Com Corp.,
Convertible
10.25%.............. 11/01/01 $ 320 $ 492,000
VLSI Technology, Inc.
8.25%............... 10/01/05 280 260,400
------------
752,400
------------
TOTAL CORPORATE BONDS
(COST $2,612,272)....... 2,690,919
------------
REPURCHASE AGREEMENT -- 1.0%
HSBC Securities, Inc.
5.50%, dated
12/29/95 matures on
01/02/96, repurchase
price $1,000,611
(Collateralized by
U.S. Treasury Notes,
par value
$1,025,000, market
value $1,023,078,
due on 04/30/96)
(COST
$1,000,000)..... 01/02/96 1,000 1,000,000
------------
TOTAL INVESTMENTS
(COST $95,383,150*) -- 99.2%...... 106,504,781
OTHER ASSETS LESS
LIABILITIES -- 0.8%............... 894,233
------------
NET ASSETS -- 100.0%................ $107,399,014
===========
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation........................ $11,993,758
Gross depreciation........................ (1,020,210)
----------
Net appreciation.......................... $10,973,548
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
* Cost for Federal income tax purposes was $95,531,233.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
AST PHOENIX BALANCED ASSET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK -- 33.5%
AEROSPACE- 1.7%
Boeing Co. ...................... 30,000 $ 2,351,250
Lockheed Martin Corp. ........... 25,000 1,975,000
------------
4,326,250
------------
BANKING -- 2.1%
Bankers Trust New York Corp. .... 25,000 1,662,500
Citicorp......................... 25,000 1,681,250
Great Western Financial Corp. ... 57,000 1,453,500
Integra Financial Corp. ......... 10,500 661,500
------------
5,458,750
------------
BROADCASTING & PUBLISHING -- 2.1%
Capital Cities ABC, Inc. ........ 15,000 1,850,625
Scholastic Corp.*................ 25,000 1,943,750
Tele-Communications Liberty
Media, Inc. Cl-A*.............. 15,000 403,125
Tele-Communications Group
Cl-A*.......................... 60,000 1,192,500
------------
5,390,000
------------
CHEMICALS -- 1.3%
IMC Global, Inc. ................ 30,000 1,226,250
Monsanto Co. .................... 7,500 918,750
Potash Corp. of Saskatchewan..... 15,000 1,063,125
------------
3,208,125
------------
COMPUTER SERVICES & SOFTWARE -- 1.5%
Bay Networks, Inc. .............. 20,000 822,500
Cisco Systems, Inc.*............. 20,000 1,492,500
Informix Corp.*.................. 25,000 750,000
Oracle Systems Corp.*............ 20,000 847,500
------------
3,912,500
------------
COMPUTERS -- 1.6%
Digital Equipment Corp.*......... 30,000 1,923,750
Silicon Graphics, Inc.*.......... 20,000 550,000
Sun Microsystems, Inc.*.......... 15,000 684,375
3Com Corp.*...................... 22,000 1,025,750
------------
4,183,875
------------
CONGLOMERATES -- 0.8%
Thermo Electron Corp.*........... 39,000 2,028,000
------------
CONSUMER-CYCLICAL -- 0.2%
Newell Co. ...................... 20,000 517,500
------------
CONSUMER GOODS & SERVICES -- 0.8%
General Electric Co. ............ 28,000 2,016,000
------------
COSMETICS-TOILETRY -- 0.2%
Gillette Co. .................... 10,000 521,250
------------
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
DRUGS -- 2.0%
Amgen, Inc.*..................... 30,000 $ 1,781,250
Genzyme Corp.*................... 10,000 623,750
Merck & Co., Inc. ............... 30,000 1,972,500
Watson Pharmaceuticals, Inc.*.... 15,000 735,000
------------
5,112,500
------------
ELECTRICAL-EQUIPMENT -- 0.8%
Honeywell, Inc. ................. 40,000 1,945,000
------------
ELECTRONICS -- 0.6%
Hewlett-Packard Co. ............. 5,000 418,750
LSI Logic Corp.*................. 8,000 262,000
S3, Inc.*........................ 44,000 775,500
------------
1,456,250
------------
ENGINEERING & CONSTRUCTION -- 0.9%
Fluor Corp. ..................... 33,000 2,178,000
------------
FINANCIAL SERVICES -- 2.3%
Bank of Boston Corp. ............ 29,000 1,341,250
Donaldson Lufkin & Jenrette,
Inc. .......................... 11,200 350,000
Equifax, Inc. ................... 80,000 1,710,000
Morgan Stanley Group, Inc. ...... 11,000 886,875
Travelers Group, Inc. ........... 25,000 1,571,875
------------
5,860,000
------------
FOOD & TOBACCO -- 1.4%
Nabisco Holdings Corp. .......... 50,000 1,631,250
Philip Morris Companies, Inc. ... 20,000 1,810,000
------------
3,441,250
------------
HEALTHCARE -- 0.5%
American Home Products Corp. .... 13,000 1,261,000
------------
HOSPITAL-INFORMATION SYSTEM -- 0.5%
HBO & Co. ....................... 17,000 1,302,625
------------
HOSPITAL SUPPLIES & HOSPITAL
MANAGEMENT -- 0.3%
Manor Care, Inc. ................ 25,000 875,000
------------
INSURANCE -- 1.5%
Allstate Corp. .................. 25,000 1,028,125
American International Group,
Inc. .......................... 18,000 1,665,000
Cigna Corp. ..................... 10,000 1,032,500
------------
3,725,625
------------
MEDICAL PRODUCTS -- 1.2%
Johnson & Johnson................ 15,000 1,284,375
Medtronic, Inc. ................. 30,000 1,676,250
------------
2,960,625
------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
AST PHOENIX BALANCED ASSET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
OIL -- 1.6%
Chevron Corp. ................... 25,000 $ 1,312,500
Mobil Corp. ..................... 10,000 1,120,000
Texaco, Inc. .................... 21,000 1,648,500
------------
4,081,000
------------
OIL & GAS-EQUIPMENT &
SERVICES -- 0.1%
Enron Oil & Gas.................. 15,000 360,000
------------
OIL-EQUIPMENT & SERVICES -- 3.1%
Baker Hughes, Inc. .............. 50,000 1,218,750
Ensco International, Inc.*....... 50,000 1,150,000
Halliburton Co. ................. 35,000 1,771,875
Schlumberger LTD. ............... 27,800 1,925,150
Sonat Offshore Drilling, Inc. ... 39,000 1,745,250
------------
7,811,025
------------
PERSONAL ITEMS -- 0.3%
Procter & Gamble Co. ............ 10,000 830,000
------------
RETAIL-SPECIALTY -- 0.2%
Officemax, Inc.*................. 20,000 447,500
------------
TECHNOLOGY -- 0.1%
Texas Instruments, Inc. ......... 7,000 362,250
------------
TELECOMMUNICATIONS -- 3.2%
AT&T Corp. ...................... 30,000 1,942,500
Bell Atlantic Corp. ............. 25,000 1,671,875
BellSouth Corp. ................. 50,000 2,175,000
GTE Corp. ....................... 35,000 1,540,000
Qualcomm, Inc.*.................. 20,000 860,000
------------
8,189,375
------------
TELECOMMUNICATIONS EQUIPMENT -- 0.6%
Ascend Communications, Inc.*..... 20,000 1,622,500
------------
TOTAL COMMON STOCK
(COST $71,350,226)................. 85,383,775
------------
AMERICAN DEPOSITORY RECEIPTS -- 1.1%
OIL
British Petroleum Co. PLC........ 10,000 1,021,250
Royal Dutch Petroleum Co. ....... 13,500 1,905,187
------------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $2,342,401).................. 2,926,437
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
--------- -------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.9%
CS First Boston
Mortgage Securities
Corp.
7.182%............... 11/25/27 $ 450 454,641
Donaldson Lufkin &
Jenrette, Inc.
6.955%............... 11/01/23 1,200 1,173,750
LB Commercial Conduit
Mortgage Trust Cl-B
7.184%............... 01/01/10 $ 350 $ 365,531
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
Merrill Lynch Mortgage
Investors Cl-B
7.53%................ 06/15/21 $ 248 $ 256,219
Resolution Trust
Corp. Cl-A5
6.02%................ 02/25/27 452 450,208
Resolution Trust Corp.
Cl-B
8.75%................ 05/25/24 350 365,641
6.80%................ 02/01/27 990 987,624
6.90%................ 02/25/27 425 428,719
Resolution Trust
Corp. Cl-M1
7.15%................ 05/25/29 436 439,442
------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(COST $4,868,110)........ 4,921,775
------------
CORPORATE BONDS -- 0.4%
TELECOMMUNICATIONS
Continental Cablevision
8.30%
(COST $987,534).... 05/15/06 990 996,187
------------
SOVEREIGN ISSUES -- 1.4%
ARGENTINA -- 0.2%
Argentina Registered
FRB
7.31%................ 03/31/05 650 462,719
------------
BRAZIL -- 0.2%
Brazil Capitalization
Bond
8.00%................ 04/15/14 796 455,155
------------
COLUMBIA -- 0.3%
Financiera Energy
Nacional
9.00%................ 11/08/99 390 406,575
Republic of Columbia
7.25%................ 02/23/04 425 414,906
------------
821,481
------------
MEXICO -- 0.2%
Banco Nacional de
Commerce Global
7.25%................ 02/02/04 500 385,625
------------
PHILIPPINES -- 0.2%
Philippines Bond
6.81%................ 01/05/05 450 405,563
------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
AST PHOENIX BALANCED ASSET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
POLAND -- 0.3%
Republic of Poland
Global Registered Par
Eu Variable Rate
2.75%................ 10/27/24 $ 900 $ 424,305
Republic of Poland
Government PDI
Variable Rate
3.75%................ 10/27/14 650 420,875
------------
845,180
------------
TOTAL SOVEREIGN ISSUES
(COST $3,239,953)........ 3,375,723
------------
MUNICIPAL BONDS -- 2.4%
De Kalb County Water &
Sewer Revenue
5.25%................ 10/01/23 350 344,750
Florida State Board of
Education
5.25%................ 06/01/23 405 396,393
Florida State Turnpike
Revenue Authority
Ref-Dept of
Transportation-A
5.00%................ 07/01/19 240 231,900
Intermountain Power
Agency Utah Power
Supply Revenue
5.00%................ 07/01/23 365 340,818
Kergen County CA
Pension Obligation
7.26%................ 08/15/14 370 387,575
LA County Transit
Authority
5.25%................ 07/01/23 400 390,500
Long Beach Pension
Obligation
6.87%................ 09/01/06 200 206,500
Massachusetts Bay
Transportation
Authority Cl-B
5.38%................ 03/01/25 400 393,500
Miami Beach Tax
Obligation
8.60%................ 09/01/21 780 887,250
Michigan Public Power
Agency Revenue, Ref.
Belle River Project
Cl-A
5.25%................ 01/01/18 400 388,500
New York State Power
Authority Revenue and
General Purpose Cl-C
5.25%................ 01/01/18 185 181,763
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
Northern California
Power Agency,
Adjustable Rate
Refunding Revenue
Bonds Hydroelectric
Project Number One
5.50%................ 07/01/24 $ 370 $ 370,925
Puerto Rico
Commonwealth
5.38%................ 07/01/22 280 279,650
San Bernardino County
Pension Obligation
Revenue
6.87%................ 08/01/08 100 103,125
6.94%................ 08/01/09 270 279,450
Seattle WA Drain &
Wastewater Utility
Revenue
5.25%................ 12/01/25 240 233,400
South Carolina State
Public Service
Authority Revenue
5.125%............... 01/01/21 150 140,625
5.00%................ 01/01/25.. 305 289,750
Ventura County Pension
Obligation
6.54%................ 11/01/05 235 237,938
------------
TOTAL MUNICIPAL BONDS
(COST $5,884,614)........ 6,084,312
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 1.0%
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
7.50%................ 08/15/23 302 310,534
6.50%................ 11/15/23 628 623,840
6.50%................ 12/15/23 1,715 1,703,722
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $2,547,482)........ 2,638,096
------------
U.S. TREASURY OBLIGATIONS -- 16.9%
U.S. TREASURY BONDS -- 2.2%
6.25%.................. 08/15/23 5,500 5,661,259
------------
U.S. TREASURY
NOTES -- 14.7%
4.75%.................. 02/15/97 4,000 3,980,440
5.75%.................. 09/30/97 10,000 10,092,899
5.13%.................. 04/30/98 2,500 2,495,750
5.13%.................. 12/31/98 4,000 3,988,440
5.50%.................. 04/15/00 2,350 2,370,280
6.25%.................. 02/15/03 3,200 3,341,472
7.25%.................. 05/15/04 5,200 5,777,563
6.50%.................. 08/15/05 5,000 5,330,750
------------
37,377,594
------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $41,865,757).................. 43,038,853
------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
AST PHOENIX BALANCED ASSET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 14.8%
Abbott Laboratories
5.64%................ 01/05/96 $ 2,845 $ 2,843,217
Ameritech Capital
Funding Corp.
5.65%................ 02/16/96 2,000 1,985,647
Amoco Corp.
5.75%................ 01/10/96 2,500 2,496,406
Dupont (E.I.) de
Nemours & Co.
5.75%................ 01/10/96 1,400 1,397,988
5.75%................ 01/19/96 1,200 1,196,550
First Deposit
Funding Trust
5.80%................ 01/16/96 2,065 2,060,010
5.70%................ 02/26/96 3,765 3,731,667
General Electric
Capital Corp.
5.79%................ 01/12/96 3,697 3,697,000
Kimberly-Clark Corp.
5.65%................ 01/30/96 2,225 2,214,873
5.53%................ 02/01/96 705 701,643
Mobil Corp.
5.80%................ 01/02/96 3,395 3,394,453
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
Private Export
Funding Corp.
5.68%................ 01/12/96 $ 5,100 $ 5,091,149
Shell Oil Co.
5.60%................ 01/24/96 3,840 3,826,261
TDK Corp.
5.75%................ 01/22/96 1,765 1,759,080
Wisconsin Electric
Power Co.
5.80%................ 01/30/96 1,480 1,473,085
------------
TOTAL COMMERCIAL PAPER
(COST $37,868,893).................. 37,869,029
------------
TOTAL INVESTMENTS
(COST $170,954,970**) -- 73.4%...... 187,234,187
OTHER ASSETS LESS
LIABILITIES -- 26.6%................ 67,971,856
------------
NET ASSETS -- 100.0%.................. $255,206,043
===========
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation......................... $17,370,891
Gross depreciation......................... (1,098,662)
----------
Net appreciation........................... $16,272,229
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
** Cost for Federal income tax purposes was $170,961,958.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
FEDERATED HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
CORPORATE BONDS -- 82.8%
AEROSPACE -- 0.9%
Howmet Corp., Senior
Subordinate Notes
10.00%.................. 12/01/03 $ 100 $ 104,250
Tracor, Senior Subordinate
Notes
10.88%.................. 08/15/01 650 678,438
----------
782,688
----------
AUTOMOTIVE PARTS-EQUIPMENT -- 2.1%
Aftermarket Technology
Co., Senior Subordinate
Notes
12.00%.................. 08/01/04 750 795,000
JPS Automotive Products
Corp., Senior Notes
11.13%.................. 06/15/01 250 251,250
Lear Seating Corp.,
Subordinate Notes
8.25%................... 02/01/02 550 542,438
Motor Wheel Corp., Senior
Notes
11.50%.................. 03/01/00 250 218,750
----------
1,807,438
----------
BANKING -- 1.0%
First Nationwide Holdings,
Senior Notes
12.25%.................. 05/15/01 750 843,750
----------
BEVERAGES -- 0.5%
Cott Corp., Senior Notes
9.38%................... 07/01/05 450 450,000
----------
BROADCASTING -- 6.4%
Ackerly Communications,
Inc., Senior Secured
Notes
10.75%.................. 10/01/03 125 134,063
ACT III Broadcasting,
Senior Secured Notes
10.25%.................. 12/15/05 450 461,250
Argyle Television, Senior
Subordinate Notes
9.75%................... 11/01/05 750 750,938
Australis Media (Unit)
8.62%................... 05/15/03 500 363,750
A3 Holdings (Unit)
13.25%.................. 12/15/06 150 150,375
Chancellor Broadcasting
Co., Senior Subordinate
Notes
12.50%.................. 10/01/04 500 537,500
Granite Broadcasting
Corp., Senior
Subordinate Notes
10.38%.................. 05/15/05 500 515,625
Pegasus Media (Unit)
12.50%.................. 07/01/05 300 300,000
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
Sinclair Broadcasting
Group, Senior
Subordinate Notes
10.00%.................. 12/15/03 $ 500 $ 513,750
10.00%.................. 09/30/05 500 513,750
Videotron Group LTD.
10.63%.................. 02/15/05 500 538,750
Young Broadcasting, Senior
Subordinate Notes
11.75%.................. 11/15/04 250 280,938
10.13%.................. 02/15/05 250 264,688
----------
5,325,377
----------
BUSINESS EQUIPMENT -- 1.0%
Monarch Acquisition,
Senior Notes
12.50%.................. 07/01/03 375 397,500
United Stationers, Senior
Subordinate Notes
12.75%.................. 05/01/05 400 439,000
----------
836,500
----------
CABLE TELEVISION -- 4.3%
Bell Cablemedia PLC,
Senior Discount Notes
4.95%................... 07/15/04 250 178,125
Cablevision Systems,
Senior Subordinate Notes
9.25%................... 11/01/05 500 520,625
CF Cable TV, Inc., Senior
Notes
11.625%................. 02/15/05 500 551,250
Diamond Cable Co.
5.79%................... 12/15/05 500 295,625
International Cabletel,
Inc., Senior Deferred
Notes
5.99%................... 10/15/03 500 350,000
5.29%................... 04/15/05 250 159,375
Rogers Cable Systems,
Senior Notes
10.00%.................. 03/15/05 300 323,625
11.00%.................. 12/01/15 750 808,125
Wireless One, Inc. (Unit)
13.00%.................. 10/15/03 375 397,500
----------
3,584,250
----------
CHEMICALS -- 2.6%
Arcadian Partners LP,
Senior Notes Cl-B
10.75%.................. 05/01/05 550 607,750
Crain Industries, Inc.,
Senior Subordinate Notes
13.50%.................. 08/15/05 400 406,000
Laroche Industries, Senior
Subordinate Notes
13.00%.................. 08/15/04 200 213,500
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FEDERATED HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
CHEMICALS (CONT'D)
Polymer Group, Inc.
12.25%.................. 07/15/02 $ 700 $ 724,500
RBX Corp., Senior
Subordinate Notes
11.25%.................. 10/15/05 200 197,000
----------
2,148,750
----------
CONSUMER GOODS &
SERVICES -- 1.0%
American Safety Razor
9.88%................... 08/01/05 500 510,000
Hosiery Corp. of America,
Inc., Senior Subordinate
Notes
13.75%.................. 08/01/02 350 378,875
----------
888,875
----------
CONTAINERS & GLASS PRODUCTS -- 4.8%
Container Corp. of
America, Senior Notes
9.75%................... 04/01/03 250 244,375
11.25%.................. 05/01/04 250 258,125
Owens Illinois, Inc.,
Senior Subordinate Notes
10.50%.................. 06/15/02 300 322,125
9.95%................... 10/15/04 1,750 1,863,750
Sea Containers LTD.,
Senior Notes
9.50%................... 07/01/03 375 373,125
Sea Containers LTD.,
Senior Subordinate
Debenture Notes Cl-B
12.50%.................. 12/01/04 125 134,375
Silgan Corp., Senior
Subordinate Notes
11.75%.................. 06/15/02 170 182,750
Trans Ocean Container
Corp., Senior
Subordinate Notes
12.25%.................. 07/01/04 350 365,750
U.S. Can Co., Senior
Subordinate Notes
13.50%.................. 01/15/02 250 275,000
----------
4,019,375
----------
CONSUMER PRODUCTS -- 0.7%
Revlon Consumer Products
Corp., Senior
Subordinate Notes
9.38%................... 04/01/01 500 507,500
10.50%.................. 02/15/03 100 102,500
----------
610,000
----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
ECOLOGICAL SERVICES &
EQUIPMENT -- 1.5%
Allied Waste Industries,
Inc., Senior Subordinate
Notes
12.00%.................. 02/01/04 $ 500 $ 543,750
Mid-American Waste
Systems, Inc., Senior
Subordinate Notes
12.25%.................. 02/15/03 750 682,500
----------
1,226,250
----------
ENTERTAINMENT &
LEISURE -- 1.0%
Alliance Entertainment
11.25%.................. 07/15/05 600 606,000
Premier Parks Inc., Senior
Notes
12.00%.................. 08/15/03 250 258,125
----------
864,125
----------
FARMING & AGRICULTURE -- 0.3%
Spreckels Industries,
Inc., Senior Secured
Notes
11.50%.................. 09/01/00 250 247,500
----------
FINANCIAL SERVICES -- 0.7%
Trizec Financial, Senior
Notes
10.88%.................. 10/15/05 525 544,688
----------
FOOD & DRUG RETAILERS -- 1.1%
Carr-Gottstein Foods,
Senior Subordinate Notes
12.00%.................. 11/15/05 400 404,000
Pathmark Stores, Senior
Subordinate Notes
9.63%................... 05/01/03 500 487,500
----------
891,500
----------
FOOD PRODUCTS -- 1.6%
Doskocil Companies, Senior
Subordinate Notes
9.75%................... 07/15/00 250 240,000
Specialty Foods Corp.,
Senior Subordinate Notes
11.13%.................. 10/01/02 400 382,000
11.25%.................. 08/15/03 500 447,500
Van de Kamp's, Inc.,
Senior Subordinate Notes
12.00%.................. 09/15/05 300 312,000
----------
1,381,500
----------
FOOD SERVICES -- 2.6%
Curtice-Burns Foods, Inc.,
Senior Subordinate Notes
12.25%.................. 02/01/05 725 750,375
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FEDERATED HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
FOOD SERVICES (CONT'D)
Flagstar Corp., Senior
Notes
10.75%.................. 09/15/01 $ 375 $ 344,063
10.88%.................. 12/01/02 275 250,250
11.25%.................. 11/01/04 125 89,375
PMI Acquisition Corp.,
Senior Subordinate Notes
10.25%.................. 09/01/03 750 772,500
----------
2,206,563
----------
HEALTHCARE -- 3.4%
Amerisource Corp., Senior
Debenture Notes
11.25%.................. 07/15/05 384 423,896
Genesis Health Ventures,
Senior Subordinate Notes
9.75%................... 06/15/05 350 371,000
Tenet Healthcare Corp.
10.13%.................. 03/01/05 1,350 1,501,875
Icon Health & Fitness,
Senior Subordinate Notes
13.00%.................. 07/15/02 530 575,050
----------
2,871,821
----------
HOME VIDEOS -- 0.9%
Triangle Pacific, Senior
Notes
10.50%.................. 08/01/03 700 745,500
----------
HOTELS/RESTAURANTS -- 0.4%
Motels of America, Inc.,
Senior Subordinate Notes
12.00%.................. 04/15/04 350 348,688
----------
INDUSTRIAL -- 5.5%
Cabot Safety Acquisition,
Senior Subordinate Notes
12.50%.................. 07/15/05 500 535,000
Coinmach Corp., Senior
Notes
11.75%.................. 11/15/05 556 565,730
Insight Communications
Co., Senior Subordinate
Notes
8.25%................... 03/01/00 850 864,875
Portola Packaging, Inc.,
Senior Notes
10.75%.................. 10/01/05 675 696,938
S.D. Warren Co.
12.00%.................. 12/15/04 500 550,000
Sherritt Gordon LTD.,
Senior Notes
9.75%................... 04/01/03 775 825,375
Sherritt, Inc., Debentures
10.50%.................. 03/31/14 500 548,125
----------
4,586,043
----------
LEISURE TIME -- 0.7%
Affinity Group, Inc.,
Senior Subordinated
Notes
11.50%.................. 10/15/03 550 561,000
----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
MACHINERY & HEAVY
EQUIPMENT -- 1.8%
Pace Industries, Inc.,
Delaware Senior Notes
Cl-B
10.63%.................. 12/01/02 $ 500 $ 442,500
Primeco, Inc., Senior
Subordinate Notes
12.75%.................. 03/01/05 500 525,000
Waters Corp., Senior
Subordinate Notes
12.75%.................. 09/30/04 500 565,000
----------
1,532,500
----------
MANUFACTURING -- 1.5%
American Standard, Senior
Debenture Notes
11.38%.................. 05/15/04 250 276,875
3.40%................... 06/01/05 750 646,875
Fairfield Manufacturing
Co., Senior Subordinate
Notes
11.38%.................. 07/01/01 300 294,750
----------
1,218,500
----------
MEDIA -- 3.7%
Allbritton Communications
Co., Senior Subordinate
Notes
11.50%.................. 08/15/04 500 530,000
Continental Cablevision,
Senior Debenture Notes
9.50%................... 08/01/13 1,250 1,328,125
New World Television,
Inc., Senior Secured
Notes
11.00%.................. 06/30/05 1,150 1,227,625
----------
3,085,750
----------
MISCELLANEOUS -- 0.9%
Envirosource, Inc., Senior
Notes
9.75%................... 06/15/03 500 440,000
Pronet, Inc., Senior
Subordinate Notes
11.88%.................. 06/15/05 250 276,563
----------
716,563
----------
OIL & GAS -- 3.3%
Clark USA, Inc., Senior
Notes
10.88%.................. 12/01/05 600 626,250
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FEDERATED HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
OIL & GAS (CONT'D)
Falcon Drilling Co., Inc.,
Senior Notes
9.75%................... 01/15/01 $ 350 $ 358,750
12.50%.................. 03/15/05 300 330,000
Giant Industries Co.,
Senior Subordinate Notes
9.75%................... 11/15/03 550 558,938
HS Resources, Inc., Senior
Subordinate Notes
9.88%................... 12/01/03 250 246,563
United Meridian Corp.,
Senior Subordinate Notes
11.00%.................. 10/15/05 600 634,500
----------
2,755,001
----------
OTHER INDUSTRIAL
MATERIALS -- 2.4%
Exide Corp., Senior Notes
10.00%.................. 04/15/05 975 1,060,313
Foamex LP, Senior Notes
11.25%.................. 10/01/02 550 541,750
ICF Kaiser International
(Units)
12.00%.................. 12/31/03 250 235,000
ICF Kaiser International,
Senior Subordinate Notes
12.00%.................. 12/31/03 150 141,750
----------
1,978,813
----------
PACKAGING & PAPER
PRODUCTS -- 0.4%
Riverwood International
Corp.
11.25%.................. 06/15/02 300 327,000
----------
PAPER & FOREST
PRODUCTS -- 1.5%
Domtar, Inc., Notes
11.25%.................. 09/15/17 250 266,563
Repap New Brunswick,
Senior Notes
9.88%................... 07/15/00 250 252,500
10.63%.................. 04/15/05 250 245,000
Stone Container Corp.,
Senior Notes
9.88%................... 02/01/01 250 243,750
11.50%.................. 10/01/04 250 251,563
----------
1,259,376
----------
PERSONAL ITEMS -- 0.8%
Playtex Family Products
9.00%................... 12/15/03 750 667,500
----------
PRINTING & PUBLISHING -- 0.4%
Webcraft Technologies,
Inc., Senior Subordinate
Notes
9.38%................... 02/15/02 300 294,000
----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
RETAILING -- 1.2%
Brylane Capital Corp.
10.00%.................. 09/01/03 $ 500 $ 445,000
Herff Jones, Inc., Senior
Subordinate Notes Cl-B
11.00%.................. 08/15/05 550 591,250
----------
1,036,250
----------
RETAIL FOOD CHAINS -- 1.4%
Penn Traffic Co., Senior
Subordinate Notes
9.63%................... 04/15/05 250 195,938
Ralph's Grocery Co.,
Senior Notes
10.45%.................. 06/15/04 650 661,375
11.00%.................. 06/15/05 325 322,563
----------
1,179,876
----------
SPECIALTY CHEMICALS -- 1.4%
Harris Chemical, Inc.
1.76%................... 07/15/01 750 731,250
Uniroyal Technology (Unit)
11.75%.................. 06/01/03 425 410,125
----------
1,141,375
----------
STEEL -- 1.7%
Bayou Steel Corp., First
Mortgage Notes
10.25%.................. 03/01/01 500 445,000
Geneva Steel, Senior Notes
9.50%................... 01/15/04 125 97,813
GS Technologies Operating
Co., Inc., Senior Notes
12.00%.................. 09/01/04 725 721,375
Northwestern Steel & Wire
Co., Senior Notes
9.50%................... 06/15/01 250 246,250
----------
1,510,438
----------
SURFACE TRANSPORTATION -- 0.7%
Trism, Inc., Senior
Subordinate Notes
10.75%.................. 12/15/00 575 563,500
----------
TELECOMMUNICATIONS -- 7.6%
Cablevision Industries,
Debentures Cl-B
9.25%................... 04/01/08 250 266,875
CAI Wireless Systems,
Senior Notes
12.25%.................. 09/15/02 250 268,125
Fonorola, Senior Secured
Notes
12.50%.................. 08/15/02 150 158,250
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FEDERATED HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS (CONT'D)
IXC Communications, Inc.,
Senior Notes
12.50%.................. 10/01/05 $ 700 $ 750,750
Metrocall, Inc., Senior
Subordinate Notes
10.38%.................. 10/01/07 250 267,500
Mobilemedia Corp., Senior
Subordinate Notes
9.38%................... 11/01/07 300 309,000
Nextel Communications,
Senior Discount Notes
11.53%.................. 08/15/04 725 398,750
Paging Network, Inc.,
Senior Subordinate Notes
10.13%.................. 08/01/07 500 546,250
Panamsat LP, Senior
Subordinate Discount
Notes
4.94%................... 08/01/03 1,150 943,000
Peoples Telephone Co.,
Senior Notes
12.25%.................. 07/15/02 250 202,500
Telewest PLC
4.56%................... 10/01/07 2,375 1,439,844
USA Mobile Communications
Corp.
9.50%................... 02/01/04 800 796,000
----------
6,346,844
----------
TEXTILES -- 2.6%
Dan River, Inc., Senior
Subordinate Notes
10.13%.................. 12/15/03 750 695,625
Westpoint Stevens, Inc.,
Senior Subordinate
Debenture Notes
9.38%................... 12/15/05 1,500 1,488,750
----------
2,184,375
----------
TRANSPORTATION -- 2.8%
Ameritruck Distribution,
Senior Subordinate Notes
12.25%.................. 11/15/05 350 347,375
Gearbulk Holdings LTD.
11.25%.................. 12/01/04 850 918,000
Great Dane Holding, Senior
Subordinate Debenture
12.75%.................. 08/01/01 450 412,875
Stena AB, Senior Notes
10.50%.................. 12/15/05 600 619,500
----------
2,297,750
----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
UTILITIES-ELECTRIC -- 1.7%
California Energy,
Discount Notes
9.87%................... 01/15/04 $1,200 $ 1,134,000
California Energy, Senior
Secured Notes
9.88%................... 06/30/03 250 261,875
----------
1,395,875
----------
TOTAL CORPORATE BONDS
(COST $67,272,177).......... 69,263,467
----------
ZERO COUPON BONDS -- 6.1%
BEVERAGES -- 0.4%
Dr. Pepper Bottling
Holding Co., Senior
Discount Notes
3.02%................... 02/15/03 400 328,000
----------
BROADCASTING -- 0.2%
NWCG Holding Corp., Senior
Discount Notes
13.20%.................. 06/15/99 300 208,500
----------
CABLE TELEVISION -- 0.8%
Diamond Cable Co., Senior
Discount Notes
5.84%................... 09/30/04 250 176,250
Peoples Choice T.V. (Unit)
7.09%................... 06/01/04 900 528,750
----------
705,000
----------
CHEMICALS -- 1.4%
G-I Holdings Corp.
11.20%.................. 10/01/98 1,475 1,139,438
----------
METALS & STEELS -- 0.3%
Acme Metals Inc., Senior
Discount Notes
13.50%.................. 08/01/04 350 282,188
----------
PRINTING & PUBLISHING -- 1.1%
Affiliated Newspaper
Investments
5.31%................... 07/01/06 1,400 885,500
----------
RECREATION -- 1.5%
Six Flags Theme Parks,
Senior Subordinate
Discount Note
3.06%................... 06/15/05 1,550 1,220,625
----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FEDERATED HIGH YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 0.4%
Cellular Communications
International, Inc.
13.25%.................. 08/15/00 $ 600 $ 372,000
----------
TOTAL ZERO COUPON BONDS
(COST $4,862,565)........... 5,141,251
----------
U.S. TREASURY NOTES -- 2.5%
6.38%
(COST $2,011,459)....... 08/15/02 2,000 2,099,448
----------
REPURCHASE AGREEMENT -- 5.7%
HSBC Securities, Inc.
5.50% dated 12/29/95
matures on 01/02/96,
repurchase price
$4,772,915
(Collateralized by U.S.
Treasury Note, par value
$4,860,000, market value
$4,891,250 due 04/30/98)
(COST $4,770,000)..... 01/02/96 4,770 4,770,000
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C> <C>
COMMON STOCK -- 0.1%
CHEMICALS -- 0.0%
Uniroyal (Warrants)*...... 2,500 6,250
-----------
CONSUMER PRODUCTS -- 0.0%
Hosiery Corp. of America,
Inc.*................... 250 0
-----------
HEALTHCARE -- 0.0%
Icon Health & Fitness
(Warrants)*............. 250 6,250
-----------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
PRINTING & PUBLISHING -- 0.0%
Affiliated Newspaper
Investments, Inc. ...... 1,000 $ 25,000
-----------
RETAIL FOOD CHAINS -- 0.1%
Grand Union Co. .......... 7,069 53,018
-----------
TELECOMMUNICATIONS -- 0.0%
Pegasus Media &
Communications, Inc. ... 30 9,000
-----------
TOTAL COMMON STOCK
(COST $412,029)............. 99,518
-----------
PREFERRED STOCK -- 0.5%
TELECOMMUNICATIONS
K-111 Communications Corp.
PIK Cl-B
11.63%.................. 2,573 257,265
Panamsat Corp.
12.75%.................. 132 148,590
-----------
TOTAL PREFERRED STOCK
(COST $362,500)............. 405,855
-----------
TOTAL INVESTMENTS
(COST $79,690,730**) -- 97.7%......... 81,779,539
OTHER ASSETS LESS LIABILITIES -- 2.3%... 1,912,481
-----------
NET ASSETS -- 100.0%.................... $83,692,020
==========
NOTES TO SCHEDULE OF
INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation.................. $ 3,123,771
Gross depreciation.................. (1,039,186)
-----------
Net appreciation.................... $ 2,084,585
==========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
** Cost for Federal income tax purposes was $79,694,954.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK -- 39.6%
AEROSPACE -- 0.7%
Boeing Co. ......................... 3,000 $ 235,125
Northrop Corp. ..................... 2,700 172,800
--------
407,925
--------
AUTOMOBILES -- 0.1%
General Motors Corp. ............... 1,400 74,025
--------
AUTOMOTIVE PARTS-EQUIPMENT -- 0.7%
Echlen, Inc. ....................... 5,000 182,500
Gentex Corp.*....................... 600 13,200
Genuine Parts Co. .................. 1,000 41,000
Superior Industries International,
Inc. ............................. 600 15,825
TRW, Inc. .......................... 2,200 170,500
--------
423,025
--------
BEVERAGES & BOTTLING -- 1.5%
Anheuser-Busch Companies, Inc. ..... 3,700 247,438
Coca-Cola Co. ...................... 4,800 356,400
Pepsico, Inc. ...................... 4,700 262,613
--------
866,451
--------
BUILDING & REAL ESTATE -- 0.3%
Clayton Homes, Inc. ................ 1,000 21,375
Masco Corp. ........................ 4,200 131,775
Oakwood Homes Corp. ................ 600 23,025
--------
176,175
--------
BUSINESS SERVICES -- 0.3%
Browning-Ferris Industries, Inc. ... 1,500 44,250
GATX Corp. ......................... 1,400 68,075
Sanifill, Inc.*..................... 2,000 66,750
--------
179,075
--------
CHEMICALS -- 1.8%
Dupont (E.I.) de Nemours & Co. ..... 1,700 118,788
Geon Co. ........................... 700 17,063
Great Lakes Chemical Corp. ......... 2,700 194,400
Loctite Corp. ...................... 1,100 52,250
Lyondell Petrochemical Co. ......... 800 18,300
Minnesota Mining & Manufacturing
Co. .............................. 1,200 79,500
Monsanto Co. ....................... 1,200 147,000
Morton International, Inc. ......... 5,300 190,138
Olin Corp. ......................... 900 66,825
Pall Corp. ......................... 1,200 32,250
Rohm & Haas Co. .................... 2,400 154,500
Wellman, Inc. ...................... 400 9,100
--------
1,080,114
--------
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMPUTER SERVICES & SOFTWARE -- 0.5%
Autodesk, Inc. ..................... 1,700 $ 58,225
Automatic Data Processing, Inc. .... 700 51,975
Computer Associates International... 1,050 59,719
General Motors Corp. Cl-E........... 400 20,800
Parametric Technology Corp.*........ 500 33,250
Reynolds & Reynolds Co. Cl-A........ 2,300 89,413
--------
313,382
--------
CONSUMER DURABLES -- 0.7%
Black & Decker Corp. ............... 3,300 116,325
Corning, Inc. ...................... 1,700 54,400
Eastman Kodak Co. .................. 1,900 127,300
Legget & Platt, Inc. ............... 600 14,550
Tandy Corp. ........................ 1,000 41,500
York International Corp. ........... 1,300 61,100
--------
415,175
--------
CONSUMER PRODUCTS -- 1.8%
Brunswick Corp. .................... 2,000 48,000
Colgate-Palmolive Co. .............. 3,400 238,850
Jones Apparel Group*................ 2,100 82,688
Philip Morris Companies, Inc. ...... 1,400 126,700
Procter & Gamble Co. ............... 3,000 249,000
Service Corp. International......... 3,700 162,800
Springs Industries, Inc. ........... 3,200 132,400
--------
1,040,438
--------
COSMETICS-TOILETRY -- 0.0%
International Flavors & Fragrances,
Inc. ............................. 400 19,200
--------
ELECTRICAL EQUIPMENT -- 1.8%
American Power Conversion Corp.*.... 1,000 9,500
Emerson Electric Co. ............... 3,500 286,125
General Electric Co. ............... 7,200 518,400
Hubbell, Inc. Cl-B.................. 3,850 253,138
--------
1,067,163
--------
ELECTRONIC COMPONENTS -- 0.7%
Advanced Micro Devices, Inc.*....... 3,900 64,350
Analog Devices, Inc.*............... 1,900 67,212
Cypress Semiconductor Corp.*........ 4,400 56,100
Intel Corp. ........................ 1,600 90,800
Motorola, Inc. ..................... 1,000 57,000
Xilinx, Inc.*....................... 2,400 73,200
--------
408,662
--------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
ELECTRONICS -- 1.1%
Arrow Electronics, Inc.*............ 700 $ 30,188
Hewlett-Packard Co. ................ 1,800 150,750
Honeywell, Inc. .................... 1,500 72,938
KLA Instruments Corp.*.............. 1,800 46,912
LAM Research Corp.*................. 1,100 50,325
Phillips Electronics NV............. 3,600 129,150
Teradyne, Inc.*..................... 2,600 65,000
Trimas Corp. ....................... 2,900 54,738
Varian Associates, Inc. ............ 700 33,425
--------
633,426
--------
ENERGY SERVICES -- 0.5%
Halliburton Co. .................... 800 40,500
Helmerich & Payne, Inc. ............ 2,000 59,500
Schlumberger LTD. .................. 2,000 138,500
Smith International, Inc.*.......... 4,500 105,750
--------
344,250
--------
ENTERTAINMENT & LEISURE -- 0.6%
Brinker International, Inc.*........ 3,800 57,475
Cracker Barrel Old Country Store,
Inc. ............................. 1,800 31,050
Del Webb Corp. ..................... 900 18,113
Mirage Resorts, Inc.*............... 2,600 89,700
President Riverboat Casino
(Warrants)*....................... 883 883
Viacom, Inc. Cl-A*.................. 400 18,350
Viacom, Inc. Cl-B*.................. 1,200 56,850
Walt Disney Co. .................... 2,000 118,000
--------
390,421
--------
FINANCIAL-BANK & TRUST -- 2.7%
Baybanks, Inc. ..................... 600 58,950
Chase Manhattan Corp. .............. 1,400 84,875
Chemical Banking Corp. ............. 1,900 111,625
CoreStates Financial Corp. ......... 2,000 75,750
Crestar Financial Corp. ............ 500 29,562
First American Corp.*............... 400 18,950
First Bank System, Inc. ............ 1,000 49,625
First Union Corp. .................. 2,200 122,375
J.P. Morgan & Co., Inc. ............ 2,100 168,525
Keycorp............................. 4,900 177,625
Mellon Bank Corp. .................. 1,500 80,625
Midlantic Corp., Inc. .............. 400 26,250
NationsBank Corp. .................. 3,000 208,875
Norwest Corp. ...................... 4,500 148,500
Southern National Corp. ............ 1,740 45,675
Southtrust Corp. ................... 1,200 30,750
U.S. Bancorp........................ 2,352 79,085
UJB Financial Corp. ................ 1,700 60,775
--------
1,578,397
--------
FINANCIAL SERVICES -- 1.8%
AMBAC, Inc. ........................ 1,600 75,000
American Express Co. ............... 3,600 148,950
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Countrywide Credit Industries,
Inc. ............................. 8,700 $ 189,225
Federal National Mortgage
Association....................... 1,200 148,950
Franklin Resources, Inc. ........... 1,300 65,487
H&R Block, Inc. .................... 2,800 113,400
Household International, Inc. ...... 2,600 153,720
Salomon, Inc. ...................... 400 14,200
Travelers Group, Inc. .............. 2,500 157,187
--------
1,066,119
--------
FOOD PROCESSING -- 1.5%
Archer-Daniels Midland Co. ......... 3,150 56,700
Conagra, Inc. ...................... 3,800 156,750
CPC International, Inc. ............ 500 34,312
Dole Food, Inc. .................... 1,500 52,500
General Mills, Inc. ................ 900 51,975
H.J. Heinz Co. ..................... 4,650 154,031
Hershey Foods Corp. ................ 800 52,000
Ralston-Purina Group................ 2,100 130,987
Sara Lee Corp. ..................... 3,800 121,125
Tyson Foods, Inc. .................. 2,000 52,250
--------
862,630
--------
HEALTHCARE -- 0.1%
Foxmeyer Health Corp. .............. 1,500 40,125
Healthsource, Inc.*................. 800 28,800
--------
68,925
--------
HOSPITAL SUPPLIES & HOSPITAL
MANAGEMENT -- 1.0%
Abbott Laboratories................. 2,800 116,900
Becton Dickinson & Co. ............. 500 37,500
Columbia Healthcare Corp. .......... 2,464 125,047
Pacificare Health Systems, Inc.*.... 400 34,800
Sunrise Medical, Inc.*.............. 700 12,950
U.S. Healthcare, Inc. .............. 600 27,900
United Healthcare Corp. ............ 3,500 229,250
Wellpoint Health Cl-A*.............. 300 9,637
--------
593,984
--------
INFORMATION PROCESSING -- 0.9%
Compaq Computer Corp.*.............. 5,000 240,000
International Business Machines,
Inc. ............................. 1,100 100,513
Komag, Inc.*........................ 2,000 92,250
Sun Microsystems, Inc.*............. 2,600 118,625
--------
551,388
--------
INSURANCE -- 1.6%
American General.................... 3,000 104,625
American International Group,
Inc. ............................. 3,000 277,500
American Re Corp. .................. 1,300 53,137
Hartford Steam Boiler Inspection &
Insurance Co. .................... 1,400 70,000
MGIC Investment Corp. .............. 1,200 65,100
National Re Corp. .................. 800 30,400
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
INSURANCE (CONT'D)
Security Connecticut Corp. ......... 1,200 $ 32,550
Selective Insurance Group, Inc. .... 1,000 35,500
Torchmark Corp. .................... 2,600 117,650
Transport Holdings Cl-A*............ 10 407
UNUM Corp. ......................... 2,500 137,500
--------
924,369
--------
MACHINERY -- 0.2%
FMC Corp.*.......................... 900 60,862
Watts Industries, Inc. ............. 2,900 67,425
--------
128,287
--------
MANUFACTURING -- 0.2%
Allied-Signal, Inc. ................ 2,600 123,500
--------
MEDIA & COMMUNICATIONS -- 1.2%
Capital Cities ABC, Inc. ........... 1,300 160,387
Comcast Corp. Special Cl-A.......... 1,700 30,918
Dun & Bradstreet Corp. ............. 800 51,800
Gannett, Inc. ...................... 700 42,962
Infinity Broadcasting Corp. Cl-A*... 600 22,350
McGraw Hill Co., Inc. .............. 2,200 191,675
Time Warner, Inc. .................. 4,400 166,650
U.S. West Media Group............... 1,600 30,400
--------
697,142
--------
METALS & MINING -- 0.3%
Alumax, Inc.*....................... 1,600 49,000
Aluminum Co. of America............. 2,600 137,475
Coeur D'alene Mines Corp. .......... 800 13,700
--------
200,175
--------
MISCELLANEOUS -- 1.2%
Standard & Poor's 400 Mid-Cap
Depository Receipts............... 16,000 695,250
--------
OFFICE EQUIPMENT -- 0.1%
Ceridian Corp.*..................... 1,100 45,375
--------
OIL & GAS -- 2.5%
Amerada Hess Corp. ................. 2,700 143,100
Atlantic Richfield Co. ............. 1,900 210,425
Exxon Corp. ........................ 3,300 264,412
Mobil Corp. ........................ 3,200 358,400
Phillips Petroleum Co. ............. 1,800 61,425
Questar Corp. ...................... 400 13,400
Sonat, Inc. ........................ 2,800 99,750
Texaco, Inc. ....................... 1,600 125,600
Union Texas Petroleum Holdings,
Inc. ............................. 3,300 63,937
USX Marathon Group.................. 8,200 159,900
--------
1,500,349
--------
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
PAPER & FOREST PRODUCTS -- 0.7%
Bowater, Inc. ...................... 700 $ 24,850
Georgia Pacific Corp. .............. 1,900 130,388
International Paper Co. ............ 2,000 75,750
Jefferson Smurfit Corp.*............ 9,000 85,500
Kimberly-Clark Corp. ............... 700 57,925
Schweitzer Manduit International,
Inc. ............................. 70 1,619
Weyerhaeuser Co. ................... 500 21,625
--------
397,657
--------
PHARMACEUTICALS -- 2.4%
American Home Products Corp. ....... 2,500 242,500
Amgen, Inc.*........................ 4,200 249,375
Bristol-Meyers Squibb Co. .......... 4,200 360,675
Liposome Co., Inc.*................. 1,100 22,000
Merck & Co., Inc. .................. 3,600 236,700
Perrigo Co.*........................ 5,000 59,375
Pfizer, Inc. ....................... 4,200 264,600
--------
1,435,225
--------
RAILROADS -- 0.4%
Burlington Northern Santa Fe
Corp. ............................ 500 39,000
Consolidated Rail Corp. ............ 400 28,000
CSX Corp. .......................... 1,000 45,625
Union Pacific Corp. ................ 2,200 145,200
--------
257,825
--------
REAL ESTATE -- 0.0%
Castle & Cooke, Inc. ............... 500 8,375
--------
RESTAURANTS -- 0.5%
Darden Restaurants, Inc. ........... 900 10,687
Lone Star Steakhouse & Saloon*...... 1,900 72,912
McDonald's Corp. ................... 2,000 90,250
Sbarro, Inc. ....................... 4,950 106,425
--------
280,274
--------
RETAIL & MERCHANDISING -- 2.3%
Albertson's, Inc. .................. 2,000 194,250
Ben Franklin Retail Stores, Inc.*... 250 687
Circuit City Stores, Inc. .......... 4,300 118,787
Dayton-Hudson Corp. ................ 1,800 135,000
Eckerd (Jack) Corp.*................ 1,100 49,087
Gap, Inc. .......................... 3,500 147,000
Heilig-Meyers Co. .................. 2,000 36,750
J.C. Penney Co., Inc. .............. 1,000 47,625
Kroger Corp.*....................... 3,700 138,750
May Department Stores Co. .......... 4,200 177,450
Petrie Stores Corp. ................ 2,700 7,425
Price Costco, Inc.*................. 3,000 45,750
Toys 'R' Us, Inc.*.................. 3,920 85,260
TJX Companies, Inc. ................ 4,600 86,825
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
RETAIL & MERCHANDISING (CONT'D)
Waban, Inc.*........................ 600 $ 11,250
Wal-Mart Stores, Inc. .............. 4,000 89,500
--------
1,371,396
--------
STEEL -- 0.2%
Nucor............................... 2,000 114,250
--------
TELECOMMUNICATIONS -- 2.9%
Ameritech Corp. .................... 2,700 159,300
Aspect Telecommunications Corp.*.... 600 20,100
AT&T Corp. ......................... 6,100 394,975
Bell Atlantic Corp. ................ 900 60,188
BellSouth Corp. .................... 4,000 174,000
Glenayre Technologies, Inc.*........ 1,050 65,361
GTE Corp. .......................... 4,800 211,200
Novell, Inc.*....................... 1,200 17,100
Pacific Telesis Group............... 4,000 134,500
SBC Communications, Inc. ........... 4,700 270,250
Southern New England
Telecommunications Corp. ......... 1,400 55,650
Tellabs, Inc.*...................... 1,000 37,000
U.S. West, Inc. .................... 1,600 57,200
3Com Corp.*......................... 848 39,538
--------
1,696,362
--------
TRANSPORTATION SERVICES -- 0.3%
PHH Corp. .......................... 2,100 98,175
TNT Freightways Corp. .............. 600 12,075
WMX Technologies, Inc. ............. 2,700 80,663
--------
190,913
--------
UTILITIES-ELECTRIC -- 1.4%
Centerior Energy Corp. ............. 17,200 152,650
Duke Power Co. ..................... 3,100 146,862
Entergy Corp. ...................... 2,600 76,050
FPL Group, Inc. .................... 800 37,100
Niagara Mohawk Power Corp. ......... 11,600 111,650
Public Service Co. of New Mexico*... 2,800 49,350
SCEcorp............................. 6,900 122,475
Texas Utilities Co. ................ 1,400 57,575
Unicom Corp. ....................... 1,900 62,225
--------
815,937
--------
UTILITIES-GAS -- 0.1%
Atlanta Gas Light Co. .............. 3,800 75,050
--------
TOTAL COMMON STOCK
(COST $20,016,957).................... 23,518,061
--------
PREFERRED STOCK -- 0.0%
INDUSTRIAL
Teledyne, Inc. Cl-E
(COST $513)....................... 72 1,035
--------
AMERICAN DEPOSITORY RECEIPTS -- 3.9%
AUTOMOBILES -- 0.1%
Honda Motor Co. LTD. ............... 1,600 67,200
--------
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
CHEMICALS -- 0.1%
AKZO Nobel NV....................... 1,000 $ 58,000
--------
CONSUMER GOODS & SERVICES -- 0.1%
Hanson PLC.......................... 2,700 41,175
U.S. Industries, Inc.*.............. 135 2,481
--------
43,656
--------
FOOD PROCESSING -- 0.4%
Cadbury Schweppes PLC............... 3,473 115,477
Unilever PLC........................ 1,300 109,850
--------
225,327
--------
INFORMATION PROCESSING -- 0.4%
Hitachi LTD. ....................... 2,400 241,200
--------
INTEGRATED PETROLEUM -- 0.1%
Shell Transport & Trading-NY........ 1,000 81,375
--------
OIL & GAS -- 1.1%
British Petroleum Co. PLC........... 800 81,700
Repsol SA........................... 3,000 98,625
Royal Dutch Petroleum Co. .......... 3,100 437,488
Societe National Elf Aquitaine...... 2,000 73,500
--------
691,313
--------
PHARMACEUTICALS -- 0.4%
Smithkline Beecham PLC (Unit)....... 4,600 255,300
--------
RETAIL FOOD CHAINS -- 0.1%
Ito-Yokado Co., LTD. ............... 200 49,225
--------
TELECOMMUNICATIONS -- 0.9%
British Telecommunications PLC...... 2,000 113,000
Ericsson, (L.M.) Telephone Co. ..... 4,800 93,600
Hong Kong Telecommunications
LTD. ............................. 9,000 159,750
Telefonica de Espana................ 1,600 67,000
Telefonos de Mexico SA.............. 600 19,125
Vodafone Group PLC.................. 2,000 70,500
--------
522,975
--------
UTILITIES-ELECTRIC -- 0.2%
Empresa Nacional de Electridad...... 1,900 108,775
--------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $2,078,757)..................... 2,344,346
--------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
AMERICAN DEPOSITORY SECURITIES -- 0.0%
FINANCIAL SERVICES
Grupo Financiero Bancomer*
(COST $36,750).................... 1,400 $ 8,470
--------
FOREIGN STOCKS -- 10.1%
AEROSPACE -- 0.2%
Mitsubishi Heavy
Industry -- (JPN)................. 17,000 135,414
--------
AUTOMOBILES -- 0.7%
Man AG -- (DEM)..................... 1,000 271,929
Schweizerischer
Bankverein -- (SW)*............... 300 122,518
--------
394,447
--------
BEVERAGES -- 0.2%
Louis Vuitton Moet
Hennessy -- (FRF)................. 660 137,458
--------
BUILDING & REAL ESTATE -- 0.2%
DBS Land -- (SNG)................... 25,000 84,500
Hopewell Holding -- (HK)............ 59,463 34,221
--------
118,721
--------
BUSINESS SERVICES -- 0.1%
Generale Des Eaux -- (FRF).......... 480 47,917
--------
CHEMICALS -- 0.2%
Bayer AG -- (DEM)................... 320 84,964
L'air Liquide -- (FRF).............. 300 49,678
--------
134,642
--------
CONGLOMERATES -- 0.3%
BTR PLC -- (UK)..................... 27,000 137,939
Lonrho PLC -- (UK).................. 22,000 60,126
--------
198,065
--------
COSMETICS-TOILETRY -- 0.2%
Kao Corp. -- (JPN).................. 11,000 136,276
--------
DIVERSIFIED -- 0.2%
Sime Darby -- (MALA)................ 50,000 132,905
--------
ELECTRICAL EQUIPMENT -- 0.5%
BBC Brown Boveri
AG-Bearer -- (SW)................. 80 92,951
Getronics Geneue
Electric -- (NETH)................ 1,800 84,128
Mitsubishi Electric
Corp. -- (JPN).................... 17,000 122,251
--------
299,330
--------
ELECTRONICS -- 0.3%
Sharp Corp. -- (JPN)................ 9,000 143,728
--------
ENTERTAINMENT -- 0.5%
Hutchison Whampoa LTD. -- (HK)...... 48,000 292,380
--------
FINANCIAL-BANK & TRUST -- 1.6%
Bank of Scotland -- (UK)............ 20,208 88,177
Bankgesellschaft Berlin
AG -- (DEM)....................... 545 139,081
Deutsche Bank AG -- (DEM)........... 1,600 75,973
ING Groep -- (NETH)................. 4,000 267,215
Mediobanca -- (ITL)................. 7,000 48,451
Societe Generale -- (FRF)........... 1,212 149,721
Toronto Dominion Bank -- (CAN)...... 4,100 72,265
Union Bank of Switzerland -- (SW)... 100 108,385
--------
949,268
--------
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
FINANCIAL SERVICES -- 0.1%
Gemina SPA -- (ITL)................. 50,000 $ 21,467
Pearson PLC -- (UK)................. 5,600 54,263
--------
75,730
--------
FOOD PROCESSING -- 0.4%
Eridania Beghin-Say -- (FRF)........ 400 68,606
Nestle SA -- (SW)................... 150 165,959
--------
234,565
--------
GENERAL MERCHANDISERS -- 0.4%
Carrefour Supermarch SA -- (FRF).... 150 90,995
Tesco PLC -- (UK)................... 25,174 116,101
--------
207,096
--------
MACHINERY -- 0.2%
Sig Schweiz
Industries-Bearer -- (SW)......... 70 146,276
--------
OFFICE EQUIPMENT -- 0.2%
Ricoh Corp. -- (JPN)................ 13,000 142,180
--------
OIL & GAS -- 0.3%
Lion Nathan LTD. -- (NZD)........... 50,000 119,227
Societe National Elf
Aquitaine -- (FRF)................ 1,100 81,037
--------
200,264
--------
PAPER & FOREST PRODUCTS -- 0.1%
Kimberly-Clark de Mexico SA --
(MEX)............................. 2,000 30,234
--------
PHARMACEUTICALS -- 0.7%
Astra AB Cl-B -- (SW)............... 5,500 217,699
Ciba Geigy AG Bearer -- (SW)........ 150 131,362
Gehe AG (New) -- (DEM)*............. 25 12,472
Gehe AG -- (DEM)*................... 100 51,248
--------
412,781
--------
PRINTING & PUBLISHING -- 0.2%
Dai Nippon -- (JPN)................. 8,000 135,501
--------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
PUBLISHING -- 0.3%
Elsevier NV --(NETH)................ 12,000 $ 160,030
--------
RETAIL GROCERY -- 0.1%
Ito-Yokado Co., LTD. -- (JPN)....... 1,000 61,556
--------
SPECIALTY CHEMICALS -- 0.3%
BASF AG Ord. (New) -- (DEM)......... 400 90,085
Technip SA -- (FRF)................. 1,000 68,811
--------
158,896
--------
TELEPHONES -- 0.8%
Telecom Italia Mobile -- (ITL)*..... 75,000 131,964
Telecom Italia SPA -- (ITL)......... 75,000 116,619
Telecom Corp. of New Zealand LTD. --
(NZD)............................. 22,000 94,859
Telekom Malaysia Berhad -- (MALA)... 16,000 124,754
--------
468,196
--------
TIRE & RUBBER -- 0.2%
Bridgestone Corp. -- (JPN).......... 8,000 126,984
--------
TRANSPORTATION -- 0.2%
KLM Royal Dutch Airlines NV --
(NETH)............................ 3,000 105,440
--------
TRANSPORTATION EQUIPMENT -- 0.2%
Swire Pacific LTD. Cl-A -- (HK)..... 14,000 108,634
--------
UTILITIES-ELECTRIC -- 0.2%
Veba AG -- (DEM).................... 2,500 107,028
--------
TOTAL FOREIGN STOCKS
(COST $5,611,127)..................... 6,001,942
--------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
--------- ------
<S> <C> <C> <C>
CORPORATE BONDS -- 19.2%
AEROSPACE -- 0.2%
Boeing Co.
6.35%.................... 06/15/03 $ 120 123,300
-----------
AUTOMOBILES -- 0.1%
Daimler-Benz Auto
Grantor Trust
3.90%.................... 10/15/98 63 62,167
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
AUTOMOTIVE PARTS-
EQUIPMENT -- 0.7%
Exide Corp.
10.75%................... 12/15/02 $ 125 $ 135,313
Pep Boys Manny Moe & Jack
8.88%.................... 04/15/96 250 252,188
-----------
387,501
-----------
BANKING -- 0.4%
Banesto, Inc.
8.25%.................... 07/28/02 50 51,750
Bank of Nova Scotia
6.25%.................... 09/15/08 50 49,375
NationsBank Texas
6.75%.................... 08/15/00 150 155,625
-----------
256,750
-----------
BEVERAGES & BOTTLING -- 0.5%
Coca-Cola Bottling Group
9.00%.................... 11/15/03 100 100,500
Dr. Pepper Bottling Holding
Co., Senior Discount
Notes
11.63%................... 02/15/03 140 111,125
Texas Bottling Group
9.00%.................... 11/15/03 100 99,750
-----------
311,375
-----------
BROADCASTING -- 0.4%
Sinclair Broadcasting Group
10.00%................... 09/30/05 100 102,500
Young Broadcasting, Senior
Subordinate Notes
10.13%................... 02/15/05 100 106,000
-----------
208,500
-----------
BUILDING & REAL ESTATE -- 0.4%
B.F. Saul REIT Senior Notes
11.63%................... 04/01/02 100 103,750
The Rouse Co., Notes
8.50%.................... 01/15/03 120 132,750
-----------
236,500
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
CABLE TELEVISION -- 0.6%
Continental Cablevision
9.00%.................... 09/01/08 $ 100 $ 105,000
Fundy Cable LTD.
11.00%................... 11/15/05 125 130,625
Rogers Cablesystems, Senior
Notes
10.00%................... 03/15/05 125 134,688
-----------
370,313
-----------
CHEMICALS -- 0.2%
Arcadian Partners LP,
Senior Notes Cl-B
10.75%................... 05/01/05 100 110,000
-----------
CONGLOMERATES -- 0.5%
Alpine Group, Inc.
12.25%................... 07/15/03 100 98,000
Tenneco, Inc.
8.00%.................... 11/15/99 55 58,644
7.88%.................... 10/01/02 150 162,938
-----------
319,582
-----------
CONSUMER NON-DURABLES -- 0.2%
Herff Jones, Inc., Senior
Subordinate Notes Cl-B
11.00%................... 08/15/05 100 107,250
-----------
CONTAINERS -- 0.4%
Owens Illinois, Inc.
11.00%................... 12/01/03 125 141,563
Riverwood International
Corp.
11.25%................... 06/15/02 100 108,750
-----------
250,313
-----------
ELECTRIC POWER -- 0.4%
Potomac Capital
6.19%.................... 04/28/97 250 250,650
-----------
ENERGY -- 0.5%
Ferrellgas LP Financial
Corp.
10.00%................... 08/01/01 100 107,000
Gulf Canada Resources LTD.
9.63%.................... 07/01/05 100 105,000
Petroleum Heat & Power
10.13%................... 04/01/03 100 95,375
-----------
307,375
-----------
ENTERTAINMENT & LEISURE -- 0.7%
TCI Communications, Inc.
8.65%.................... 09/15/04 200 221,750
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
Time Warner Entertainment
Debenture
7.25%.................... 09/01/08 $ 100 $ 101,125
United Artists Theatre
9.30%.................... 07/01/15 100 100,500
-----------
423,375
-----------
FINANCE & CREDIT -- 2.4%
Advanta Corp.
7.07%.................... 09/15/97 235 239,994
Aristar, Inc.
8.88%.................... 08/15/98 200 214,000
7.88%.................... 02/15/99 200 212,000
Associates Corp. of North
America
8.63%.................... 06/15/97 10 10,438
Chrysler Financial Corp.
8.46%.................... 01/19/00 200 217,000
Commercial Credit Notes
8.13%.................... 03/01/97 5 5,156
CoreStates Home Loan Equity
6.65%.................... 05/15/09 84 84,985
Ford Motor Credit Co.
9.45%.................... 05/20/97 50 52,625
General Motors Acceptance
Corp.
7.75%.................... 04/15/97 50 51,375
8.38%.................... 05/01/97 10 10,363
General Motors Acceptance
Corp., Grantor Trust
6.30%.................... 06/15/99 44 44,221
Household Finance Corp.
6.96%.................... 04/27/98 300 308,625
-----------
1,450,782
-----------
FINANCIAL-BANK & TRUST -- 0.4%
Ciesco LP
7.38%.................... 04/19/00 250 263,438
-----------
FINANCIAL SERVICES -- 0.5%
Lehman Brothers Holdings,
Inc.
7.63%.................... 06/15/97 65 66,706
Smith Barney Holdings
6.63%.................... 06/01/00 200 204,500
-----------
271,206
-----------
FOOD & TOBACCO -- 0.2%
Consolidated Cigar, Senior
Subordinate Notes
10.50%................... 03/01/03 100 102,500
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
FOREIGN GOVERNMENT -- 0.1%
Export-Import Korea Notes
6.50%.................... 05/15/00 $ 40 $ 40,900
-----------
HEALTHCARE -- 0.2%
Tenet Healthcare Corp.
8.63%.................... 12/01/03 90 94,613
-----------
HOTEL/GAMING -- 0.7%
Bally Park Place Funding
9.25%.................... 03/15/04 100 101,250
Grand Casino
10.13%................... 12/01/03 125 130,625
President Riverboat Casino
13.00%................... 09/15/01 100 84,000
Trump Taj Mahal
11.35%................... 11/15/99 100 96,250
-----------
412,125
-----------
INDUSTRIAL -- 1.1%
Coinmach Corp., Senior
Notes
11.75%................... 11/15/05 100 101,250
Raytheon Co.
6.50%.................... 07/15/05 350 360,938
Westinghouse Electric Corp.
8.88%.................... 06/01/01 200 208,250
-----------
670,438
-----------
INSURANCE -- 0.1%
New York Life Insurance
7.50%.................... 12/15/23 100 101,625
-----------
MANUFACTURING -- 0.8%
American Standard, Senior
Debenture Notes
11.38%................... 05/15/04 75 83,063
9.25%.................... 12/01/16 25 26,125
Ametek, Inc.
9.75%.................... 03/15/04 100 106,250
Coltec Industries
10.25%................... 04/01/02 125 129,375
IMO Industries, Senior
Subordinate Debentures
12.00%................... 11/01/01 100 102,250
-----------
447,063
-----------
NATURAL RESOURCES -- 0.0%
Gulf Canada Resources LTD.
9.25%.................... 01/15/04 25 25,469
-----------
OTHER INDUSTRIAL
MATERIALS -- 0.2%
HMC Acquisition Properties
9.00%.................... 12/15/07 100 101,000
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
PACKAGING -- 0.5%
Container Corp. of America,
Senior Notes
11.25%................... 05/01/04 $ 100 $ 104,125
Portola Packaging, Inc.,
Senior Notes
10.75%................... 10/01/05 100 103,250
Stone Container Corp.,
Senior Notes
9.88%.................... 02/01/01 100 97,875
-----------
305,250
-----------
PAPER & PAPER PRODUCTS -- 0.2%
Repap Wisconsin, Inc.
9.25%.................... 02/01/02 100 95,500
-----------
RESTAURANTS -- 0.2%
McDonald's Corp.
6.63%.................... 09/01/05 100 103,750
-----------
RETAIL -- 0.1%
Southland Corp.
5.00%.................... 12/15/03 100 83,875
-----------
RETAIL GROCERY -- 0.1%
Ralph's Grocery Co., Senior
Note
10.45%................... 06/15/04 50 50,875
-----------
RETAIL MERCHANDISING -- 0.5%
Federated Department
Stores, Inc.
8.13%.................... 10/15/02 125 125,781
Kmart Corp., Medium Term
Notes
8.50%.................... 05/09/97 100 98,250
Wal-Mart Stores, Inc.
7.25%.................... 06/01/13 85 90,950
-----------
314,981
-----------
SAVINGS & LOAN ASSOCIATIONS -- 0.2%
H.F. Ahmanson & Co.
9.88%.................... 11/15/99 100 112,625
-----------
SERVICE -- 0.2%
Alliance Entertainment
11.25%................... 07/15/05 100 101,000
-----------
SPECIALTY CHEMICALS -- 0.5%
Agricultural Minerals, Inc.
10.75%................... 09/30/03 100 110,250
IMC Fertilizer Group
9.45%.................... 12/15/11 100 106,875
Scott Co.
9.88%.................... 08/01/04 100 107,250
-----------
324,375
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS -- 0.9%
Mobilemedia Corp.
9.38%.................... 11/01/07 $ 125 $ 129,375
Paging Network, Inc.,
Senior Subordinate Notes
8.88%.................... 02/01/06 125 128,438
United Telecommunications
Debentures
9.75%.................... 04/01/00 250 284,375
-----------
542,188
-----------
TEXTILES -- 0.2%
Dan River, Inc., Senior
Subordinate Notes
10.13%................... 12/15/03 100 92,500
-----------
TRANSPORTATION -- 0.3%
Federal Express
6.25%.................... 04/15/98 70 70,788
Sea Containers LTD.
12.50%................... 11/15/04 100 108,000
Southwest Airlines Co.
9.25%.................... 02/15/98 25 26,625
-----------
205,413
-----------
UTILITIES-ELECTRIC -- 2.3%
Commonwealth Edison
7.00%.................... 02/15/97 50 50,625
Consumers Power Co.
6.00%.................... 07/01/97 65 65,163
6.63%.................... 10/01/98 50 50,313
Florida Power & Light
5.70%.................... 03/05/98 200 201,250
Gulf States Utilities
5.38%.................... 02/01/97 128 127,840
Monongahela Power
8.50%.................... 06/01/22 150 159,938
Pacific Gas & Electric
Corp.
6.75%.................... 12/01/00 200 202,500
Public Service Electric &
Gas First Mortgage
7.00%.................... 09/01/24 300 295,125
Southern California Edison
Notes
6.50%.................... 06/01/01 100 102,500
Wisconsin Electric Power
Co.
5.88%.................... 10/01/97 100 100,625
-----------
1,355,879
-----------
TOTAL CORPORATE BONDS
(COST $11,013,689)........... 11,394,321
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
MEDIUM TERM NOTES -- 0.7%
BANKING -- 0.2%
U.S. Bancorp
6.72%.................... 06/01/98 $ 100 $ 102,750
FINANCE & CREDIT -- 0.1%
Associates Corp. of North
America
7.70%.................... 03/15/00 50 53,250
UTILITIES-ELECTRIC -- 0.4%
Commonwealth Edison
9.00%.................... 10/15/99 250 271,875
-----------
TOTAL MEDIUM TERM NOTES
(COST $419,951).............. 427,875
-----------
ZERO COUPON BONDS -- 0.2%
FINANCIAL-BANK & TRUST -- 0.1%
Coleman Holdings
9.18%.................... 05/27/98 100 81,000
-----------
RETAIL FOOD CHAINS -- 0.1%
Pathmark Stores
6.18%.................... 11/01/03 100 61,000
-----------
TOTAL ZERO COUPON BONDS
(COST $142,664).............. 142,000
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 16.6%
FEDERAL HOME LOAN BANK
CONSOLIDATED DISCOUNT NOTES -- 6.1%
5.53%...................... 01/16/96 3,621 3,612,657
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 6.4%
9.50%...................... 10/15/09 29 31,675
10.00%..................... 11/15/09 38 42,032
11.50%..................... 06/15/10 52 59,187
12.00%..................... 09/15/13 1 1,637
12.00%..................... 01/15/14 7 8,402
10.50%..................... 08/15/15 15 16,490
11.50%..................... 09/15/15 160 180,865
11.50%..................... 11/15/15 59 66,721
8.00%...................... 05/15/16 33 34,340
8.50%...................... 06/15/16 44 46,431
9.00%...................... 07/15/16 18 19,051
8.00%...................... 12/15/16 59 61,032
9.00%...................... 12/15/16 3 2,839
8.00%...................... 02/15/17 115 119,438
8.00%...................... 05/15/17 64 66,992
9.00%...................... 05/15/17 110 116,610
8.00%...................... 06/15/17 30 31,209
9.50%...................... 11/15/18 5 5,675
9.50%...................... 03/15/19 17 18,454
9.50%...................... 01/15/20 11 11,965
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (CONT'D)
9.50%...................... 06/15/20 $ 14 $ 15,251
8.00%...................... 06/15/22 182 189,674
8.00%...................... 09/15/22 35 36,989
8.00%...................... 07/15/23 90 93,521
7.00%...................... 09/15/23 394 398,481
6.50%...................... 02/15/24 726 720,704
6.50%...................... 04/15/24 91 90,278
6.50%...................... 05/15/24 900 893,083
7.50%...................... 06/15/24 93 95,664
7.00%...................... 12/15/25 294 297,768
-----------
3,772,458
-----------
FEDERAL HOME LOAN MORTGAGE CORP. -- 4.0%
5.47%...................... 01/22/96 2,391 2,383,371
7.50%...................... 07/15/20 15 15,353
-----------
2,398,724
-----------
TENNESSEE VALLEY AUTHORITY NOTES -- 0.1%
7.75%...................... 12/15/22 10 10,450
7.25%...................... 07/15/43 20 20,850
6.88%...................... 12/15/43 40 40,100
-----------
71,400
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $9,746,084).................... 9,855,239
-----------
U.S. TREASURY OBLIGATIONS -- 8.5%
U.S. TREASURY BONDS -- 1.9%
11.63%..................... 11/15/02 100 134,771
7.13%...................... 02/15/23 240 274,502
7.63%...................... 02/15/25 300 366,690
6.83%...................... 08/15/25 300 338,397
-----------
1,114,360
-----------
U.S. TREASURY NOTES -- 6.6%
6.50%...................... 09/30/96 80 80,700
7.25%...................... 11/30/96 240 244,219
6.13%...................... 05/31/97 450 455,697
6.13%...................... 05/15/98 100 102,052
5.13%...................... 12/31/98 50 49,856
6.75%...................... 05/31/99 460 480,695
6.88%...................... 03/31/00 250 264,382
6.25%...................... 05/31/00 100 103,451
6.13%...................... 09/30/00 150 154,610
5.63%...................... 11/30/00 275 277,739
5.75%...................... 08/15/03 965 977,979
7.50%...................... 02/15/05 250 283,537
5.88%...................... 11/15/05 425 434,707
-----------
3,909,624
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $4,688,436)............ 5,023,984
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY***
MATURITY (000) VALUE
--------- ------------ ----------
<S> <C> <C> <C>
FOREIGN BONDS -- 2.8%
AUSTRALIA -- 0.0%
Australian Government
9.50%............... 08/15/03 20 $ 16,081
----------
BELGIUM -- 0.1%
Belgium Kingdom
Government
7.25%............... 04/29/04 1,550 55,013
----------
CANADA -- 0.2%
Canadian Government
6.50%............... 06/01/04 110 77,857
9.75%............... 06/01/21 10 9,106
----------
86,963
----------
DENMARK -- 0.1%
Denmark Government
7.00%............... 12/15/04 275 49,322
----------
FRANCE -- 0.2%
France O.A.T.
8.25%............... 02/27/04 264 59,791
8.50%............... 04/25/23 50 11,542
French Treasury Bills
8.50%............... 03/12/97 75 15,914
----------
87,247
----------
GERMANY -- 0.6%
German Government
8.50%............... 08/21/00 375 298,651
6.50%............... 07/15/03 110 79,888
----------
378,539
----------
ITALY -- 0.3%
Italian Government
11.50%.............. 03/01/03 275,000 180,650
8.50%............... 08/01/04 45,000 24,976
----------
205,626
----------
JAPAN -- 0.9%
International Bank
Recovery &
Development
6.75%............... 03/15/00 14,000 162,432
Japan Government
4.50%............... 06/20/03 33,500 358,410
----------
520,842
----------
NETHERLANDS -- 0.1%
Netherland Government
5.75%............... 01/15/04 115 71,234
----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY***
MATURITY (000) VALUE
--------- ------------ ----------
<S> <C> <C> <C>
SPAIN -- 0.1%
Spanish Government
8.00%............... 05/30/04 6,400 $ 48,007
----------
UNITED KINGDOM -- 0.2%
United Kingdom Gilt
9.00%............... 03/03/00 85 142,634
----------
TOTAL FOREIGN BONDS
(COST $1,477,645)....... 1,661,508
----------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
-------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 2.1%
Coca-Cola Co. Bottling
Co.
6.00%................ 01/12/96 $ 400 399,267
Dupont (E.I.) de
Nemours & Co.
5.75%................ 01/17/96 500 498,722
Tampa Electric Co.
6.00%................ 01/08/96 339 338,605
-----------
TOTAL COMMERCIAL PAPER
(COST $1,236,594)........ 1,236,594
-----------
TOTAL INVESTMENTS
(COST $56,469,167**) -- 103.7%....... 61,615,375
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (3.7%)............... (2,216,244)
-----------
NET ASSETS -- 100.0%................... $59,399,131
==========
<CAPTION>
<S> <C> <C> <C>
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation................. $5,733,908
Gross depreciation................. (587,700)
---------
Net appreciation................... $5,146,208
---------
---------
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1995.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
COVERED EXPIRATION UNREALIZED
TYPE BY CONTRACT MONTH DEPRECIATION
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Buy UK 28,940 01/96 $ (241)
</TABLE>
<TABLE>
<CAPTION>
COUNTRY/CURRENCY ABBREVIATIONS
- ------------------------------------------------------------
<S> <C>
CAN - Canada/Canadian Dollar NZD - New Zealand/
DEM - Germany/German New Zealand Dollar
Deutschemark MALA - Malaysia/Malaysian
FRF - France/French Franc Ringgit
HK - Hong Kong/Hong Kong MEX - Mexico/Mexican Peso
Dollar SNG - Singapore/Singapore
ITL - Italy/Italian Lira Dollar
JPN - Japan/Japanese Yen SW - Switzerland/Swiss Franc
NETH - Netherlands/ UK - United Kingdom/British
Netherland Guilder Pound
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
** Also cost for Federal income tax purposes.
*** Currency of countries indicated.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
PIMCO TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- -----------
<S> <C> <C> <C>
CORPORATE BONDS -- 8.3%
AIRLINES -- 1.5%
American Air Equipment
10.19%................ 05/26/15 $ 250 $ 308,780
AMR Corp.
10.45%................ 11/15/11 100 124,250
United Air Lines, Inc.
10.67%................ 05/01/04 500 606,875
10.02%................ 03/22/14 2,000 2,393,755
-----------
3,433,660
-----------
ELECTRIC POWER -- 1.5%
Cleveland Electric
9.11%................. 07/22/96 250 253,125
8.75%................. 11/15/05 100 99,500
CMS Energy Corp.
9.50%................. 10/01/97 150 157,688
Commonwealth Edison
Corp.
6.50%................. 07/15/97 750 757,500
Illinois Power Co.
5.85%................. 10/01/96 2,000 2,000,000
-----------
3,267,813
-----------
FINANCIAL -- 0.4%
Ohio Edison First Mortgage
8.50%................. 05/01/96 1,000 1,008,750
-----------
INDUSTRIAL -- 0.3%
Arkla, Inc.
9.20%................. 12/18/97 500 528,750
-----------
OIL -- 0.7%
Occidental Petroleum Corp.
9.63%................. 07/01/99 500 510,625
11.75%................ 03/15/11 1,000 1,058,750
-----------
1,569,375
-----------
PUBLISHING -- 1.7%
Time Warner, Inc.
7.45%................. 02/01/98 2,000 2,062,500
6.84%................. 08/15/00 437 437,000
7.98%................. 08/15/04 262 277,720
8.11%................. 08/15/06 525 565,031
8.18%................. 08/15/07 525 570,281
-----------
3,912,532
-----------
REAL ESTATE -- 2.2%
Spieker Properties
6.95%................. 12/15/02 5,000 5,018,750
-----------
TOTAL CORPORATE BONDS
(COST $17,842,452)........ 18,739,630
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- -----------
<S> <C> <C> <C>
SOVEREIGN ISSUES -- 1.9%
Republic of Argentina
FRB
6.81%................. 03/31/05 $ 3,000 $ 2,124,375
United Mexican States
Cl-B
6.25%................. 12/31/19 1,500 984,375
United Mexican States
Cl-C
6.97%................. 12/31/19 1,000 722,500
United Mexican States
Cl-D
6.55%................. 12/31/19 500 361,250
United Mexican States
(Rights)*............. 3,807 0
-----------
TOTAL SOVEREIGN ISSUES
(COST $4,251,622)......... 4,192,500
-----------
MORTGAGE BACKED SECURITIES -- 1.7%
Countrywide Adjustable
Rate Mortgage
6.70%................. 03/25/24 1,476 1,514,874
7.66%................. 11/25/24 1,529 1,568,524
Guardian Adjustable Rate
Mortgage
7.14%................. 12/25/19 100 71,116
Saxon Adjustable Rate
Mortgage
7.79%................. 05/25/24 742 765,223
-----------
TOTAL MORTGAGE BACKED SECURITIES
(COST $3,859,629)......... 3,919,737
-----------
COLLATERALIZED MORTGAGE SECURITIES -- 5.6%
Citicorp Mortgage
Securities, Inc.
7.73%................. 10/25/22 875 878,543
Collateralized Mortgage
Security Corp.
7.99%................. 05/01/17 495 509,976
Mortgage Capital Trust
VI
9.50%................. 02/01/18 1,327 1,363,293
Prudential Securities
CMO Trust
7.50%................. 03/25/19 292 291,076
Prudential-Bache CMO
Trust
8.40%................. 03/20/21 2,977 3,169,690
Resolution Trust Corp.
8.00%................. 09/25/21 712 721,516
Rothschild L.F. Mortgage
Trust
9.95%................. 08/01/17 3,390 3,689,666
Ryland Mortgage
Securities Corp.
7.91%................. 09/25/23 1,929 1,958,277
-----------
TOTAL COLLATERALIZED MORTGAGE SECURITIES
(COST $12,154,765)........ 12,582,037
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
PIMCO TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- -----------
<S> <C> <C> <C>
MEDIUM TERM NOTES -- 1.8%
FINANCE
General Motors
Acceptance Corp.
6.70%................. 05/20/96 $ 2,000 $ 2,008,160
7.75%................. 07/18/96 2,000 2,022,420
-----------
(COST $4,002,777)... 4,030,580
-----------
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY****
(000)
------------
<S> <C> <C> <C>
FOREIGN BONDS -- 4.7%
CANADA -- 1.3%
Canadian Government
8.75%................. 12/01/05 3,500 2,865,011
-----------
GERMANY -- 3.4%
German Government
6.25%................. 01/04/24 11,900 7,732,834
-----------
TOTAL FOREIGN BONDS
(COST $10,194,113)........ 10,597,845
-----------
<CAPTION>
PAR
(000)
-------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 18.1%
FEDERAL HOME LOAN MORTGAGE
CORP. -- 4.0%
8.25%................... 08/01/17 $ 761 791,936
7.00%***................ 04/25/19 625 68,339
6.09%................... 02/01/24 3,917 4,005,508
8.00%................... 01/16/26 4,000 4,145,625
-----------
9,011,408
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 3.0%
5.55%................... 02/13/96 1,000 993,272
9.40%................... 07/25/03 426 447,547
6.25%***................ 05/25/08 236 76,812
6.50%***................ 06/25/14 3,000 262,734
8.50%................... 11/25/18 2,066 2,063,741
6.90%................... 05/25/23 179 160,475
7.29%................... 01/01/24 670 688,985
7.00%................... 04/25/24 562 523,762
6.23%................... 04/01/25 1,560 1,628,675
-----------
6,846,003
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION -- 11.1%
7.00%................... 06/20/22 3,046 3,104,598
7.38%................... 04/20/23 3,938 3,997,391
6.50%................... 10/20/23 846 860,037
7.50%................... 12/20/23 482 492,285
7.25%................... 09/20/24 1,791 1,835,079
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- -----------
<S> <C> <C> <C>
6.50%................... 10/20/24 $ 4,677 $ 4,776,027
6.50%................... 01/22/26 10,000 9,918,750
-----------
24,984,167
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $40,350,525)........ 40,841,578
-----------
U.S. TREASURY OBLIGATIONS -- 30.9%
U.S. TREASURY BILLS -- 0.5%
5.22%#.................. 02/08/96 55 54,682
5.27%#.................. 02/08/96 105 104,393
5.29%#.................. 02/08/96 55 54,682
5.34%#.................. 02/08/96 105 104,393
5.35%#.................. 02/08/96 40 39,769
5.39%#.................. 02/08/96 40 39,769
5.45%#.................. 02/08/96 95 94,451
5.27%................... 02/15/96 150 149,011
5.28%................... 02/15/96 100 99,340
5.31%#.................. 02/22/96 330 327,640
-----------
1,068,130
-----------
U.S. TREASURY NOTES -- 30.4%
4.38%................... 08/15/96 10,000 9,948,599
6.50%................... 09/30/96 40,000 40,350,000
6.38%................... 08/15/02 17,400 18,273,130
-----------
68,571,729
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $69,158,328)........ 69,639,859
-----------
COMMERCIAL PAPER -- 11.4%
Abbott Laboratories
5.62%................. 01/09/96 4,100 4,094,880
BellSouth Telecomm, Inc.
5.75%................. 01/12/96 700 698,770
5.75%................. 01/09/96 2,500 2,496,806
Canadian Wheat Board
5.49%................. 03/05/96 700 692,809
General Electric Capital Corp.
5.65%................. 01/31/96 4,100 4,080,696
Hewlett-Packard Co.
5.67%................. 01/09/96 700 699,092
5.55%................. 03/05/96 2,800 2,771,234
5.53%................. 03/12/96 3,500 3,460,287
Mexico Treasury Bills
16.59%................ 01/18/96 600 597,642
National Rural Utility
5.55%................. 03/18/96 1,500 1,481,700
Pitney Bowes Credit,
Inc.
5.66%................. 01/26/96 1,200 1,195,283
Procter & Gamble Co.
5.67%................. 01/24/96 3,500 3,486,996
-----------
TOTAL COMMERCIAL PAPER
(COST $25,757,788)........ 25,756,195
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
PIMCO TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------ -----------
<S> <C> <C>
OPTIONS -- 0.0%
CME Put Option on Eurodollar
Futures, Strike Price $90.75,
Expire 06/17/96.................. $ 750 $ 0
CME Put Option on Eurodollar
Futures, Strike Price $91.00,
Expire 06/17/96.................. 1,500 1,500
Written CME Put Option on
Eurodollar Futures, Strike Price
$94.00,
Expire 03/18/96.................. 2,000 (2,000)
-----------
TOTAL OPTIONS
(COST ($29,962))..................... (500)
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------
<S> <C> <C>
SHORT TERM INVESTMENTS -- 1.3%
Temporary Investment Cash
Fund.......................... 1,451,819 1,451,819
Temporary Investment Fund....... 1,451,818 1,451,818
-----------
(COST $2,903,637)............. 2,903,637
-----------
TOTAL INVESTMENTS (COST
$190,445,674**) -- 85.7%.......... 193,203,098
OTHER ASSETS LESS
LIABILITIES -- 14.3%.............. 32,132,331
-----------
NET ASSETS -- 100.0%................ $225,335,429
============
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation.............. $3,026,754
Gross depreciation.............. (299,974)
---------
Net appreciation................ $2,726,780
---------
---------
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1995:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT UNREALIZED
COVERED EXPIRATION APPRECIATION/
TYPE BY CONTRACT MONTH (DEPRECIATION)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Sell CAN 153,125 01/96 $ 16
Sell DEM 7,106,000 01/96 2,078
Sell DEM 4,524,850 12/96 (28,308)
--------
$(26,214)
========
</TABLE>
# Securities with an aggregate market value of $819,779, which have been
segregated with the custodian to cover margin requirements for the following
open futures contracts at December, 31, 1995:
<TABLE>
<CAPTION>
UNREALIZED
TYPE CONTRACTS APPRECIATION
<S> <C> <C>
- ----------------------------------------------------------
U.S. Treasury 5 Year Note (03/96) 350 $301,172
U.S. Treasury 10 Year Note (03/96) 196 211,500
U.S. Treasury 30 Year Note (03/96) 104 143,000
German Treasury 10 Year Note (03/96) 60 88,435
--------
$744,107
========
</TABLE>
COUNTRY/CURRENCY ABBREVIATIONS
- ----------------------------------------------------------
CAN - Canada/Canadian Dollar
DEM - Germany/German Deutschemark
- --------------------------------------------------------------------------------
* Non-income producing securities.
** Cost for Federal income tax purposes was $190,476,318.
*** Interest Only Securities.
**** Currency of countries indicated.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
INVESCO EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK -- 64.5%
AEROSPACE -- 2.0%
Boeing Co........................ 20,000 $ 1,567,500
Lockheed Martin Corp............. 25,000 1,975,000
----------
3,542,500
----------
AIRLINES -- 0.6%
KLM Royal Dutch Airlines......... 30,000 1,057,500
----------
AUTOMOBILES -- 1.4%
Chrysler Corp. .................. 10,000 553,750
Ford Motor Co. .................. 30,000 870,000
General Motors Corp. Cl-H........ 20,000 982,500
----------
2,406,250
----------
AUTOMOTIVE PARTS-EQUIPMENT -- 1.3%
Borg Warner Automotive Corp. .... 40,000 1,280,000
Eaton Corp. ..................... 20,000 1,072,500
----------
2,352,500
----------
BANKING -- 0.7%
BankAmerica Corp. ............... 20,000 1,295,000
----------
BEVERAGES -- 1.0%
Seagram Co. LTD. ................ 50,000 1,731,250
----------
BREWERIES & DISTILLERS -- 1.6%
Anheuser-Busch Companies,
Inc. .......................... 25,000 1,671,875
Coors (Adolph) Co. Cl-B.......... 50,000 1,106,250
----------
2,778,125
----------
BROADCASTING -- 1.2%
Comcast Corp. Special Cl-A....... 35,000 636,563
U.S. West Media Group............ 80,000 1,520,000
----------
2,156,563
----------
BUILDING & BUILDING SUPPLIES -- 0.5%
Masco Corp....................... 30,000 941,250
----------
CHEMICALS -- 6.2%
Agrium, Inc. .................... 70,000 3,150,000
Arco Chemical Co. ............... 20,000 972,500
Lawter International, Inc. ...... 100,000 1,162,500
Olin Corp. ...................... 35,000 2,598,750
Vigoro Corp. .................... 50,000 3,087,500
----------
10,971,250
----------
COMPUTERS -- 1.8%
Honeywell, Inc. ................. 30,000 1,458,750
International Business Machines
Corp. ......................... 18,000 1,651,500
----------
3,110,250
----------
CONGLOMERATES -- 0.8%
Tenneco, Inc. ................... 30,000 1,488,750
----------
ELECTRICAL EQUIPMENT -- 1.1%
General Electric Co. ............ 27,000 1,944,000
----------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
ELECTRONICS -- 1.2%
Hewlett-Packard Co. ............. 15,000 $ 1,256,250
Intel Corp. ..................... 15,000 851,250
----------
2,107,500
----------
ENGINEERING & CONSTRUCTION -- 2.0%
Fluor Corp. ..................... 14,000 924,000
Foster Wheeler Corp. ............ 60,000 2,550,000
----------
3,474,000
----------
ENTERTAINMENT -- 1.5%
Time Warner, Inc. ............... 25,000 946,875
Walt Disney Co. ................. 30,000 1,770,000
----------
2,716,875
----------
FINANCIAL-BANK & TRUST -- 3.9%
Bank of New York Co., Inc. ...... 20,000 975,000
Chase Manhattan Corp. ........... 30,000 1,818,750
Citicorp......................... 15,000 1,008,750
Mellon Bank Corp. ............... 30,000 1,612,500
NDB Bancorp, Inc. ............... 36,200 1,429,900
----------
6,844,900
----------
FINANCIAL SERVICES -- 2.2%
American Express Co. ............ 20,000 827,500
Beneficial Corp. ................ 15,000 699,375
H&R Block, Inc. ................. 60,000 2,430,000
----------
3,956,875
----------
FOODS -- 2.6%
General Mills, Inc. ............. 25,000 1,443,750
Heinz, H.J. Co. ................. 33,000 1,093,125
Philip Morris Companies, Inc. ... 15,000 1,357,500
Quaker Oats Co. ................. 20,000 690,000
----------
4,584,375
----------
HOTELS & MOTELS -- 0.8%
Hilton Hotels Corp. ............. 23,000 1,414,500
----------
INSURANCE -- 2.1%
Allmerica Property & Casualty,
Inc. .......................... 80,000 2,160,000
Ohio Casualty Corp. ............. 40,000 1,550,000
----------
3,710,000
----------
MANUFACTURING -- 2.3%
Allied-Signal, Inc. ............. 25,000 1,187,500
Eastman Kodak Co. ............... 25,000 1,675,000
Whitman Corp. ................... 50,000 1,162,500
----------
4,025,000
----------
MEDICAL -- 0.6%
Baxter International, Inc. ...... 25,000 1,046,875
----------
MEDICAL PRODUCTS -- 1.3%
Becton Dickinson & Co. .......... 30,000 2,250,000
----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
INVESCO EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
METALS & MINING -- 0.8%
ASARCO, Inc. .................... 25,000 $ 800,000
Newmont Mining Corp. ............ 12,994 587,979
----------
1,387,979
----------
MISCELLANEOUS -- 0.8%
Service Corp. International...... 32,000 1,408,000
----------
OIL -- 3.0%
Amoco Corp. ..................... 14,000 1,006,250
Atlantic Richfield Co. .......... 8,000 886,000
Chevron Corp. ................... 20,000 1,050,000
Exxon Corp. ..................... 12,000 961,500
Mobil Corp. ..................... 12,000 1,344,000
----------
5,247,750
----------
OIL & GAS -- 0.5%
Sonat, Inc. ..................... 25,000 890,625
----------
OIL EQUIPMENT & SERVICES -- 3.8%
Dresser Industries, Inc. ........ 70,000 1,706,250
Halliburton Co. ................. 35,000 1,771,875
Schlumberger LTD. ............... 11,000 761,750
Union Pacific Resources Group.... 100,000 2,537,500
----------
6,777,375
----------
PAPER & FOREST PRODUCTS -- 0.5%
Champion International Corp. .... 20,000 840,000
----------
PHARMACEUTICALS -- 2.6%
Abbott Laboratories.............. 20,000 835,000
American Home Products Corp. .... 15,000 1,455,000
Pharmacia & Upjohn, Inc. ........ 58,000 2,247,500
----------
4,537,500
----------
PUBLISHING -- 0.7%
R.R. Donnelley & Sons Co. ....... 30,000 1,181,250
----------
RAILROADS -- 2.8%
Canadian National Railways*...... 35,550 533,250
Illinois Central Corp. .......... 25,000 959,375
Kansas City Southern Industries,
Inc. .......................... 40,000 1,830,000
Union Pacific Corp. ............. 25,000 1,650,000
----------
4,972,625
----------
REAL ESTATE -- 1.2%
Patriot American Hospitality..... 80,000 2,060,000
----------
RETAIL FOOD CHAINS -- 0.5%
Albertson's, Inc. ............... 30,000 986,250
----------
RETAIL-SPECIALTY -- 1.5%
Jostens, Inc. ................... 30,000 727,500
Limited, Inc. ................... 60,000 1,042,500
Melville Corp. .................. 30,000 922,500
----------
2,692,500
----------
TELECOMMUNICATIONS -- 4.9%
AT&T Corp. ...................... 40,000 2,590,000
Bell Atlantic Corp. ............. 15,000 1,003,125
GTE Corp. ....................... 20,000 880,000
NYNEX Corp. ..................... 25,000 1,350,000
U.S. West, Inc. ................. 80,000 2,860,000
----------
8,683,125
----------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
TRANSPORTATION -- 0.2%
Overseas Shipholding Group,
Inc. .......................... 17,000 $ 323,000
----------
TOTAL COMMON STOCK
(COST $97,722,347)................. 113,894,067
----------
PREFERRED STOCK -- 0.6%
GOLD MINING
Amax Gold, Inc. $3.75 Cl-B
(COST $996,575)................ 20,000 1,090,000
----------
AMERICAN DEPOSITORY RECEIPTS -- 0.8%
ELECTRONICS -- 0.4%
Nokia Corp. C1-A ................ 20,000 777,500
----------
TELECOMMUNICATIONS -- 0.4%
Cable & Wireless PLC............. 30,000 633,750
----------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $1,830,404).................. 1,411,250
----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- ------
<S> <C> <C> <C>
CORPORATE BONDS -- 12.8%
AIRLINES -- 0.3%
Delta Air Lines, Inc.
9.30%................... 01/02/11 $ 500 592,125
------------
BROADCASTING -- 1.8%
Allbritton Communications
Co., Senior Subordinate
Notes
11.50%.................. 08/15/04 1,000 1,055,000
Benedek Broadcast Corp.,
Senior Secured Notes
11.88%.................. 03/01/05 500 525,000
Granite Broadcasting
Corp., Senior
Subordinate Notes
10.38%.................. 05/15/05 1,000 1,030,000
Outlet Broadcasting, Inc.
10.88%.................. 07/15/03 500 560,000
------------
3,170,000
------------
CABLE TELEVISION -- 2.2%
Cablevision Industries,
Debentures Cl-B
9.25%................... 04/01/08 1,000 1,070,000
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
INVESCO EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ ------------
<S> <C> <C> <C>
CABLE TELEVISION (CONT'D)
Century Communications
11.88%.................. 10/15/03 $1,000 $ 1,076,250
Diamond Cable Co.
5.75%................... 12/15/05 2,000 1,165,000
Marcus Cable Co.
5.24%................... 12/15/05 900 612,000
------------
3,923,250
------------
CAPITAL GOODS -- 0.2%
Jones Intercable, Senior
Subordinate Debentures
10.50%.................. 03/01/08 250 273,750
------------
CHEMICALS -- 0.6%
Rexene Corp.
11.75%.................. 12/01/04 500 528,750
Sifto Canada, Inc.
8.50%................... 07/15/00 500 482,500
------------
1,011,250
------------
ENTERTAINMENT -- 0.9%
Viacom, Inc., Subordinate
Debentures
8.00%................... 07/07/06 1,500 1,533,750
------------
FINANCE -- 1.2%
Associates Corp. of North
America
8.55%................... 07/15/09 425 510,531
Empress River Casino
10.75%.................. 04/01/02 500 516,250
General Motors Acceptance
Corp.
7.13%................... 06/01/99 500 520,625
Tembec Finance
9.88%................... 09/30/05 500 495,000
------------
2,042,406
------------
HEALTHCARE -- 0.6%
Tenet Healthcare Corp.
9.63%................... 09/01/02 500 551,250
8.63%................... 12/01/03 500 525,625
------------
1,076,875
------------
INDUSTRIAL -- 0.8%
Crown Paper Co.
11.00%.................. 09/01/05 500 438,750
Lenfest Communications,
Inc., Senior Notes
8.38%................... 11/01/05 1,000 1,006,250
------------
1,445,000
------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ ------------
<S> <C> <C> <C>
OIL & GAS -- 0.3%
Transtexas Gas
11.50%.................. 06/15/02 $ 500 $ 515,000
------------
PAPER & PAPER PRODUCTS -- 0.3%
Repap New Brunswick
10.63%.................. 04/15/05 500 491,875
------------
PUBLISHING -- 0.8%
News America Holdings
8.50%................... 02/15/05 1,000 1,128,750
8.50%................... 02/23/25 250 289,375
------------
1,418,125
------------
RAILROADS -- 0.6%
Southern Pacific Railroad,
Senior Notes
9.38%................... 08/15/05 1,000 1,091,250
------------
RECREATIONAL -- 0.1%
United Artists Theatre
11.50%.................. 05/01/02 175 187,688
------------
RETAIL DRUGS -- 0.4%
Revco D.S., Inc.
9.13%................... 01/15/00 650 699,563
------------
TELECOMMUNICATIONS -- 0.5%
Centennial Cellular,
Senior Notes
8.88%................... 11/01/01 1,000 980,000
------------
TRANSPORTATION -- 0.6%
Overseas Shipholding
Group, Inc.
8.00%................... 12/01/03 1,000 1,033,521
------------
UTILITIES -- 0.6%
Commonwealth Edison Corp.
8.38%................... 10/15/06 1,000 1,132,500
------------
TOTAL CORPORATE BONDS
(COST $22,023,553).......... 22,617,928
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 5.9%
FEDERAL HOME LOAN MORTGAGE
CORP. -- 4.9%
6.50%..................... 06/01/10 949 955,734
7.50%..................... 07/01/09 889 915,498
6.50%..................... 10/01/10 1,948 1,960,956
6.50%..................... 11/01/10 1,954 1,967,223
7.00%..................... 04/01/24 968 977,949
7.00%..................... 07/01/24 873 882,215
8.00%..................... 12/01/24 930 964,500
------------
8,624,075
------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
INVESCO EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ ------------
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 1.0%
7.50%..................... 10/15/23 $1,797 $ 1,849,890
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $9,990,980)........... 10,473,965
------------
U.S. TREASURY OBLIGATIONS -- 9.9%
U.S. TREASURY BONDS -- 2.8%
7.63%..................... 02/15/25 4,000 4,889,200
------------
U.S. TREASURY NOTES -- 7.1%
5.38%..................... 11/30/97 3,000 3,010,350
5.88%..................... 06/30/00 1,000 1,021,520
6.50%..................... 05/15/05 8,000 8,518,639
------------
12,550,509
------------
TOTAL U.S. TREASURY
OBLIGATIONS
(COST $16,864,826).......... 17,439,709
------------
COMMERCIAL PAPER -- 2.0%
General Electric Capital
Corp.
5.91%
(COST $3,500,000)..... 01/04/96 3,500 3,500,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
SHORT TERM INVESTMENTS --
MONEY MARKET FUNDS -- 2.4%
Temporary Investment Cash
Fund......................... 2,157,381 $ 2,157,381
Temporary Investment Fund...... 2,157,381 2,157,381
------------
(COST $4,314,762)............ 4,314,762
------------
TOTAL INVESTMENTS
(COST $157,243,447**) -- 98.9%... 174,741,681
OTHER ASSETS LESS
LIABILITIES -- 1.1%.............. 1,974,186
------------
NET ASSETS -- 100.0%............... $176,715,867
===========
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is
as follows:
Gross appreciation......................... $18,956,413
Gross depreciation......................... (1,458,179)
----------
Net appreciation........................... $17,498,234
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
** Also cost for Federal income tax purposes.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK -- 82.5%
AUTOMOTIVE PARTS-EQUIPMENT -- 0.3%
Top Source Technologies,
Inc.*......................... 46,000 $ 322,000
-----------
BROADCASTING -- 1.2%
Comcast U.K. Cable Partners*.... 45,000 562,500
SFX Broadcasting Cl-A*.......... 18,700 565,675
-----------
1,128,175
-----------
BUILDING & BUILDING SUPPLIES -- 1.6%
Harsco Corp..................... 25,000 1,453,125
-----------
BUSINESS SERVICES -- 0.5%
Norrell Corp.................... 17,000 499,375
-----------
COMMERCIAL SERVICES -- 2.1%
Medaphis Corp.*................. 32,000 1,184,000
Meta Group, Inc................. 22,875 700,547
-----------
1,884,547
-----------
COMMUNICATION EQUIPMENT -- 0.6%
Anadigics, Inc.*................ 26,000 552,500
-----------
COMPUTER SERVICES &
SOFTWARE -- 17.6%
Adobe Systems, Inc.............. 13,000 806,000
Astea International, Inc.*...... 29,800 681,675
Avant Corp...................... 39,450 759,413
Broadway & Seymour, Inc.*....... 18,175 295,344
Computron Software, Inc.*....... 41,300 743,400
Dendrite International, Inc.*... 62,075 1,117,350
Dialogic Corp................... 12,000 462,000
Eagle Point Software Corp.*..... 32,200 692,300
Geoworks........................ 49,100 932,900
GT Interactive Software......... 43,750 612,500
HCIA, Inc.*..................... 27,500 1,285,625
Informix Corp.*................. 19,500 585,000
Madge NV........................ 25,000 1,118,750
Manugistics Group, Inc.......... 10,425 153,769
Network General Corp.*.......... 23,000 767,625
Parametric Technology Corp.*.... 14,000 931,000
Platinum Technology............. 25,500 468,563
PRI Automation, Inc.*........... 22,750 799,094
Scopus Technology, Inc.......... 18,125 457,656
7th Level, Inc.................. 18,000 252,000
Symantec Corp................... 23,000 534,750
Sync Research, Inc.............. 8,650 391,413
Triple P NV..................... 46,700 467,000
Wonderware Corp................. 34,700 594,238
-----------
15,909,365
-----------
COMPUTERS -- 6.3%
Alantec Corp.*.................. 28,000 1,631,000
Computervision Corp............. 55,000 845,625
Gandalf Technologies, Inc.*..... 31,000 527,000
Mylex Corp...................... 40,250 769,781
Printronix, Inc.*............... 21,850 305,900
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Radisys Corp.................... 46,900 $ 551,075
Stormedia, Inc.*................ 27,800 1,014,700
-----------
5,645,081
-----------
CONSUMER GOODS & SERVICES -- 0.9%
Quicksilver, Inc.*.............. 25,000 854,688
-----------
ELECTRICAL EQUIPMENT -- 2.2%
Microchip Technology, Inc.*..... 23,050 841,325
Sanmina Holdings*............... 22,325 1,158,109
-----------
1,999,434
-----------
ELECTRICAL MACHINERY -- 0.5%
Tegal Corp...................... 40,525 415,381
-----------
ELECTRONICS -- 7.4%
Altera Corp.*................... 7,000 348,250
DSP Group, Inc.*................ 54,700 629,050
LAM Research Corp.*............. 10,000 457,500
LSI Logic Corp.*................ 15,000 491,250
Maxim Integrated Products,
Inc.*......................... 33,000 1,270,500
Orbit Semiconductor, Inc.*...... 43,175 420,956
Speedfam International, Inc..... 65,250 734,063
Tencor Instruments.............. 19,075 464,953
Teradyne, Inc.*................. 25,000 625,000
Tylan General, Inc.............. 69,000 845,250
Vitesse Semiconductor, Inc...... 31,000 395,250
-----------
6,682,022
-----------
ENTERTAINMENT -- 1.1%
Anchor Gaming*.................. 16,275 370,256
Movie Gallery, Inc.*............ 11,900 362,950
WMS Industries, Inc.*........... 16,000 262,000
-----------
995,206
-----------
ENVIRONMENTAL CONTROL -- 0.8%
United Waste Systems............ 20,000 745,000
-----------
FINANCIAL SERVICES -- 2.1%
Banco Latinoamericano de
Exportaciones SA.............. 24,000 1,116,000
Credit Acceptance Corp.......... 20,075 416,556
Mercury Finance Co.............. 30,000 397,500
-----------
1,930,056
-----------
FOOD PRODUCTS -- 0.3%
General Nutrition
Companies, Inc.*.............. 10,000 230,000
-----------
FUNERAL SERVICES -- 0.6%
Loewen Group, Inc............... 22,125 560,039
-----------
HEALTHCARE -- 0.8%
Healthsource, Inc.*............. 20,000 720,000
-----------
HOME FURNISHINGS &
HOUSEWARES -- 0.1%
Catalina Lighting, Inc.*........ 18,025 87,872
-----------
HOTELS & GAMING -- 1.5%
Trump Hotels & Casino Resort*... 61,700 1,326,550
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
INSURANCE -- 0.7%
HCC Insurance Holdings, Inc.*... 18,000 $ 666,000
-----------
INSURANCE-LIFE -- 1.0%
Reliastar Financial Corp........ 20,000 887,500
-----------
LEISURE TIME -- 0.2%
Golf Enterprises, Inc........... 30,000 217,500
-----------
MANUFACTURING -- 4.1%
Asyst Technologies, Inc.*....... 45,900 1,617,975
Authentic Fitness Corp.......... 40,000 830,000
Plantronics, Inc.*.............. 14,000 505,750
Wolverine World Wide, Inc....... 22,500 708,750
-----------
3,662,475
-----------
MEDICAL & MEDICAL SERVICES -- 4.6%
Gulf South Medical Supply*...... 30,000 907,500
Horizon Healthcare Corp.*....... 29,725 750,556
Multicare Companies, Inc.*...... 36,000 864,000
Orthodontic Centers of America,
Inc.*......................... 16,000 772,000
Sola International, Inc......... 33,000 833,250
-----------
4,127,306
-----------
OIL & GAS -- 1.3%
Seitel, Inc.*................... 32,300 1,142,613
-----------
OIL & GAS-EQUIPMENT &
SERVICES -- 1.0%
Falcon Drilling Co., Inc.*...... 60,000 900,000
-----------
PHARMACEUTICALS -- 1.9%
Pharmaceutical Resources,
Inc.*......................... 35,900 269,250
Watson Pharmaceuticals, Inc.*... 30,000 1,470,000
-----------
1,739,250
-----------
PUBLISHING -- 0.2%
Desktop Data, Inc.*............. 9,500 232,750
-----------
RESTAURANTS -- 0.6%
Doubletree Corp.*............... 21,400 561,750
-----------
RETAIL -- 7.2%
Creative Computers Corp.*....... 64,350 1,174,388
Henry Schein, Inc............... 31,200 920,400
Insight Enterprises, Inc........ 43,000 537,500
Maxim Group..................... 26,475 357,413
Officemax, Inc.*................ 21,840 488,670
Proffitt's, Inc.*............... 26,975 708,094
The Sports Authority, Inc.*..... 19,200 391,200
Tiffany & Co. (New)............. 9,000 454,500
Trend-Lines, Inc. Cl-A*......... 55,000 550,000
U.S. Office Products Co.*....... 41,500 944,125
-----------
6,526,290
-----------
TELECOMMUNICATIONS -- 3.9%
Arch Communications
Group, Inc.................... 20,000 480,000
Frontier Corp................... 32,000 960,000
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Intermedia Communications of
Florida, Inc.*................ 32,000 $ 560,000
LCI International, Inc.*........ 48,250 989,125
Worldcom, Inc.*................. 15,000 528,750
-----------
3,517,875
-----------
TELECOMMUNICATIONS-EQUIPMENT -- 1.9%
Inter-Tel, Inc. Cl-A............ 55,125 847,547
Periphonics Corp................ 30,000 832,500
-----------
1,680,047
-----------
TEXTILES -- 3.1%
Nautica Enterprises, Inc.*...... 30,000 1,312,500
Supreme International Corp...... 42,000 672,000
Warnaco Group, Inc. Cl-A........ 31,000 775,000
-----------
2,759,500
-----------
TRANSPORTATION -- 2.0%
Mark VII, Inc.*................. 30,000 474,375
Western Pacific Airlines,
Inc........................... 23,150 387,763
Wisconsin Central Transport
Corp.*........................ 14,775 971,456
-----------
1,833,594
-----------
TRUCKING -- 0.3%
Celadon Group, Inc.*............ 28,000 252,000
-----------
TOTAL COMMON STOCK
(COST $62,330,368)................ 74,646,866
-----------
AMERICAN DEPOSITORY RECEIPTS -- 0.7%
DRUGS
Teva Pharmaceutical
Industries LTD.
(COST $304,524)............. 13,000 602,875
-----------
FOREIGN STOCKS -- 4.7%
BROADCASTING -- 0.9%
Flextech PLC -- (UK)*........... 107,000 784,248
-----------
GLASS-PRODUCTS -- 0.9%
Hoya Corp. -- (JPN)............. 25,000 858,982
-----------
MANUFACTURING -- 0.7%
Hunter Douglas -- (NETH)........ 13,356 619,235
-----------
RESTAURANTS -- 0.7%
J.D. Wetherspoon -- (UK)........ 60,000 598,155
-----------
RETAIL-MERCHANDISING -- 0.8%
Next PLC Ord. -- (UK)........... 100,000 708,097
-----------
TRANSPORTATION-EQUIPMENT -- 0.7%
IHC Caland -- (NETH)............ 20,000 673,023
-----------
TOTAL FOREIGN STOCKS
(COST $3,501,612)................. 4,241,740
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 10.5%
Allergan, Inc.
5.82%................ 01/02/96 $ 440 $ 439,929
American General
Finance Corp.
5.63%................ 01/02/96 955 954,851
Ciesco, LP
5.75%................ 01/04/96 1,365 1,364,346
Ford Motor Credit Co.
5.77%................ 01/11/96 985 983,421
General Electric
Capital Corp.
5.80%................ 01/03/96 935 934,699
Pacific Bell
5.80%................ 01/08/96 1,000 998,867
PHH Corp.
5.85%................ 01/10/96 1,540 1,537,748
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
Raytheon Co.
5.65%................ 01/05/96 $1,115 $ 1,114,300
Texaco, Inc.
5.80%................ 01/09/96 1,200 1,198,453
-----------
TOTAL COMMERCIAL PAPER
(COST $9,526,614)........ 9,526,614
-----------
TOTAL INVESTMENTS
(COST $75,663,118 **) -- 98.4%...... 89,018,095
OTHER ASSETS LESS
LIABILITIES -- 1.6%................. 1,441,611
-----------
NET ASSETS -- 100.0%.................. $90,459,706
===========
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation.......................... $17,000,989
Gross depreciation.......................... (3,646,012)
-----------
Net appreciation............................ $13,354,977
===========
COUNTRY ABBREVIATIONS
- ----------------------------------------------------------
JPN - Japan
NETH - Netherlands
UK - United Kingdom
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
** Also cost for Federal income tax purposes.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
FOREIGN STOCKS -- 84.9%
ARGENTINA -- 0.1%
Compania Naviera Perez Compac
S.A.C.F.I.M.F.A............... 35,014 $ 185,574
Sociedad Comercial del Plata*... 14,380 38,107
Telecom Argentina Stet-Fran Tel
SA Cl-B....................... 10,450 49,324
-----------
273,005
-----------
AUSTRALIA -- 1.7%
Amcor LTD. ..................... 21,000 148,426
Australian Gas Light Co. ....... 104,321 391,951
Broken Hill Proprietary Co.
LTD. ......................... 32,747 462,907
Burns Philip & Co. LTD. ........ 78,783 176,428
Coca-Cola Amatil LTD. .......... 22,251 177,631
Fletcher Challenge Forest
Division LTD. ................ 1,702 2,406
Lend Lease Corp. ............... 19,486 282,700
News Corp. ..................... 45,228 241,602
Publishing & Broadcasting....... 49,300 172,024
Sydney Harbour Casino
Holdings*..................... 88,000 111,301
Tab Corp. ...................... 71,000 200,729
TNT LTD., Convertible
PFD. Cl-A..................... 150,000 213,154
Westpac Banking Corp. .......... 71,000 314,828
WMC LTD. ....................... 34,377 220,979
Woodside Petroleum LTD. ........ 52,000 266,171
-----------
3,383,237
-----------
AUSTRIA -- 0.2%
Creditanstalt-Bankverein
PFD. ......................... 1,600 82,222
Energie Versorgung Nieder....... 520 71,448
Flughafen Wien AG............... 1,581 105,086
Oesterreichsche Elektrizitats... 1,800 108,214
-----------
366,970
-----------
BELGIUM -- 1.0%
Generale de Banque SA........... 1,330 470,647
Kredietbank NV.................. 3,370 920,859
Societe Generale de Belgique.... 220 18,184
U.C.B. NPV...................... 474 630,310
-----------
2,040,000
-----------
BRAZIL -- 0.3%
Brazil Fund, Inc.***............ 29,290 618,751
-----------
CANADA -- 0.3%
Alcan Aluminum LTD. ............ 13,510 418,724
Macmillan Bloedel LTD. ......... 8,290 102,471
Royal Bank of Canada............ 5,140 119,069
-----------
640,264
-----------
CHILE -- 0.5%
Five Arrows Chile Investment
Trust***...................... 118,730 351,440
Genesis Chile Fund***........... 9,350 378,675
The Chile Fund***............... 9,294 241,644
-----------
971,759
-----------
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
DENMARK -- 0.2%
Den Danske Bank AB.............. 3,630 $ 250,354
Teledanmark Cl-B................ 1,180 64,383
Unidanmark...................... 3,310 163,912
-----------
478,649
-----------
FINLAND -- 0.1%
Nokia Series PFD. Cl-A.......... 7,004 275,446
-----------
FRANCE -- 7.0%
Accor........................... 4,480 579,953
Assurances Generales de
France........................ 6,123 205,038
Carrefour Supermarch SA......... 2,035 1,234,504
Castorama Duois Investisse...... 1,996 326,859
Charguers SA.................... 2,344 466,646
Cie des Gaz Petrole............. 2,392 189,992
Cie des Gaz Petrole
(Warrants)*................... 217 1,850
Credit Local Ord. .............. 1,928 154,319
Ecco Ste Ord. .................. 3,904 590,682
Generale des Eaux............... 17,980 1,794,879
GTM Entrepose SA................ 2,500 175,345
Guilbert SA..................... 1,480 173,762
Hermes International............ 152 28,553
L'Oreal......................... 870 232,888
LaFarge-Coppee SA............... 6,641 427,817
Lapeyre......................... 5,525 275,263
Legrand......................... 2,600 401,348
Louis Vuitton Moet Hennessy..... 4,430 922,634
Pinault Printemps Redoute....... 3,763 750,679
Poliet-Ex Lambert Freres........ 4,950 402,064
Rexel........................... 1,175 198,412
Sanofi SA....................... 2,527 161,965
Societe Generale................ 1,470 181,593
Societe Nationale Elf
Aquitaine..................... 7,780 573,154
Sodexho SA...................... 1,150 338,132
St. Gobain*..................... 8,260 914,124
Television Francais............. 10,240 1,097,703
Total Cl-B...................... 8,910 601,277
Valeo........................... 7,504 347,505
-----------
13,748,940
-----------
GERMANY -- 4.1%
Allianz Holdings Reg'd. ........ 581 1,140,773
Altana AG....................... 362 210,759
Ava Allgemeine Handels
Der Verbrau................... 130 43,962
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
GERMANY (CONT'D)
Bayer AG........................ 2,878 $ 764,149
Bilfinger & Berger Bau AG....... 630 239,402
Buderus AG...................... 407 158,918
Deutsche Bank AG................ 10,210 484,801
Fielmann AG PFD. ............... 1,348 69,740
Gehe AG*........................ 1,664 852,768
Gehe AG (New)*.................. 406 202,547
Hoechst AG...................... 742 201,771
Hornbach Baumarkt AG............ 1,300 55,927
Hornbach Holding AG PFD. ....... 3,350 284,500
Krones AG PFD. ................. 456 184,409
Mannesmann AG................... 1,748 556,381
Praktiker Bau Und Heimwerker
Market*....................... 3,779 108,559
Rhoen-Klinicum AG............... 5,760 572,305
Schering AG..................... 6,473 430,119
Siemens AG...................... 326 179,116
Veba AG......................... 18,060 773,173
Veba AG (Warrants)*............. 1,220 194,373
Volkswagen AG................... 1,095 367,240
Volkswagen International Finance
(Warrants)*................... 370 31,216
-----------
8,106,908
-----------
HONG KONG -- 4.0%
Dao Heng Bank Group............. 117,000 420,646
First Pacific Co. .............. 638,845 710,525
Guangdong Investment LTD. ...... 589,000 354,204
Guangzhou Investment Co.
LTD. ......................... 1,828,000 349,884
Guoco Group LTD. ............... 150,000 723,579
Hong Kong Land Holdings......... 595,831 1,102,287
Hutchison Whampoa LTD. ......... 260,000 1,583,726
Maanshan Iron and Steel......... 710,000 99,167
Shanghai Petrochemical Co.
LTD. ......................... 1,060,000 305,015
Swire Pacific LTD. Cl-A......... 92,000 713,879
Wharf Holdings.................. 383,000 1,275,445
Yizheng Chemical Fibre Co. ..... 822,000 184,972
-----------
7,823,329
-----------
ITALY -- 1.8%
Assicurazioni Generali.......... 30,756 744,456
Banca Fideuram SPA.............. 126,770 146,442
Danieli & Co. .................. 14,954 40,480
Danieli & Co. (Warrants)*....... 875 457
Ente Nazionale
Idrocarburi (ENI)*............ 49,000 171,199
Instituto Mobiliare Italiano.... 13,000 81,838
Instituto National
Assicurazioni................. 57,480 76,170
Italgas Ord. ................... 61,936 188,323
Mondadori (Arnoldo)
Editore SPA................... 13,399 116,066
Ras Ord. ....................... 2,410 27,377
Rinascente...................... 22,800 137,934
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Sasib di Risp................... 47,260 $ 115,435
Sasib SPA....................... 13,598 59,922
SME (Meridionale di
Finanziara)................... 36,752 75,077
Stet di Risp.................... 73,220 149,344
Stet Ord. ...................... 156,480 442,301
Stet (Warrants)*................ 1,000 14,920
Telecom Italia Mobile*.......... 199,773 351,505
Telecom Italia SPA.............. 268,453 417,425
Telecom Italia SPA di Risp...... 100,718 123,131
Union Cem March Emil SPA*....... 8,642 46,515
-----------
3,526,317
-----------
JAPAN -- 21.8%
Advantest Co. LTD. ............. 4,000 205,188
Alps Electric Co. LTD. ......... 31,000 357,046
Amada Co. ...................... 65,000 641,696
Canon, Inc. .................... 72,000 1,303,136
Citizen Watch Co. .............. 34,000 259,969
Dai Ichi Seiyaku................ 59,000 839,431
Dai Nippon Screen
Manufacturing................. 57,000 499,826
Daifuku Co. LTD. ............... 14,000 197,832
Daiwa House Industry Co. ....... 69,000 1,135,308
DDI Corp. ...................... 45 348,432
East Japan Railway Co. ......... 185 898,858
Fanuc Co. ...................... 16,000 692,218
Hitachi LTD. ................... 100,000 1,006,581
Hitachi Zosen Corp. ............ 96,000 497,096
Honda Motor Co. LTD. ........... 23,000 474,158
Inax............................ 32,000 303,523
Ishihara Sangyo Kaisha LTD.*.... 36,000 116,725
Ito-Yokado Co. LTD. ............ 21,000 1,292,683
Kokuyo Co. LTD. ................ 28,000 650,407
Komatsu LTD. ................... 77,000 633,469
Komori Corp. ................... 22,000 553,620
Kumagai Gumi Co. ............... 60,000 240,999
Kuraray Co. LTD. ............... 59,000 645,277
Kyocera......................... 22,000 1,633,178
Makita Electric Corp. .......... 43,000 686,702
Matsushita Electric Industrial
Co. .......................... 65,000 1,056,911
Mauri Co. ...................... 49,000 1,019,648
Mitsubishi Corp. ............... 42,000 516,260
Mitsubishi Heavy Industry....... 183,000 1,457,695
Mitsubishi Paper Mills LTD. .... 44,000 264,460
Mitsui Fudosan.................. 95,000 1,167,731
Mitsui Petrochemical
Industries.................... 29,000 237,176
Murata Manufacturing Co. ....... 18,000 662,021
National House Industrial
Co. .......................... 18,000 329,268
NEC Corp. ...................... 104,000 1,268,293
Nippon Hodo..................... 17,000 287,940
Nippon Steel Corp. ............. 350,000 1,199,187
Nippon Telegraph & Telephone
Corp. ........................ 84 678,862
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
JAPAN (CONT'D)
Nippondenso Co. LTD. ........... 71,000 $ 1,326,268
Nomura Securities Co. LTD. ..... 67,000 1,459,059
Pioneer Electronic Corp. ....... 33,000 603,659
Sangetsu Co. ................... 11,000 276,810
Sankyo Pharmaceuticals.......... 41,000 920,635
Sega Enterprises................ 6,700 369,628
Sekisui Chemical Co. LTD. ...... 74,000 1,088,657
Sekisui House................... 53,000 677,120
Seven Eleven Japan Co. LTD. .... 7,000 493,225
Sharp Corp. .................... 70,000 1,117,886
Shin-Etsu Chemical Co. ......... 23,000 476,384
Sony Corp. ..................... 18,400 1,102,362
Sumitomo Corp. ................. 108,000 1,097,561
Sumitomo Electric Industries.... 102,000 1,224,158
Sumitomo Forestry Co. LTD. ..... 38,000 581,107
TDK Corp. ...................... 17,000 867,112
Teijin LTD. .................... 105,000 536,585
Tokio Marine & Fire
Insurance Co. ................ 31,000 405,052
Tokyo Electron LTD. ............ 12,000 464,576
Tokyo Steel Manufacturing....... 30,000 551,684
Toppan Printing Co. LTD. ....... 22,000 289,586
Yurtec Corp. ................... 21,750 381,025
-----------
42,568,949
-----------
KOREA -- 1.3%
Choung Bank Co. ................ 20,000 255,588
Hanil Bank...................... 11,000 126,533
Hanil Securities Co. ........... 10,060 120,036
Kookmin Bank*................... 10,739 209,356
Korea Electric Power Corp. ..... 12,600 554,256
Pohang Iron & Steel Co. ........ 6,030 436,631
Samsung Co. LTD. (New)*......... 60 10,906
Samsung Electronics Co.*........ 1,940 355,155
Samsung Electronics Co.
(New)*........................ 205 37,263
Seoul Bank...................... 16,000 139,808
Yukong.......................... 5,471 190,370
Yukong LTD. (1st New)*.......... 284 9,845
-----------
2,445,747
-----------
MALAYSIA -- 2.8%
Affin Holdings Berhad........... 463,000 893,400
Affin Holdings (Warrants)*...... 72,600 47,744
Berjaya Sports Toto............. 158,000 367,095
Commerce Asset Holdings Berhad
(Warrants)*................... 74,000 190,872
MBF Capital Berhad.............. 251,000 254,025
Multi-Purpose Holdings BHD...... 383,000 561,062
Renong Berhad................... 329,000 487,139
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Technology Resources
Industry*..................... 408,000 $ 1,205,009
United Engineers................ 231,000 1,473,655
-----------
5,480,001
-----------
MEXICO -- 0.6%
Cemex SA Cl-B................... 39,999 143,633
Fomento Ecenomico Mexicano SA... 58,849 136,041
Gruma SA de CV BCP*............. 22,333 63,809
Grupo Embotellador de Mexico
Cl-B NPV*..................... 10,080 4,385
Grupo Embotellador de Mexico SA
de CV Cl-B/D/L*............... 148,677 249,082
Grupo Financiero Banamex Cl-B... 90,270 150,528
Grupo Financiero Banamex Cl-L... 736 1,082
Grupo Financiero
Bancomer Cl-L*................ 1,725 444
Grupo Industrial Maseca SA de CV
Cl-B.......................... 156,955 95,804
Grupo Modelo Cl-C............... 12,116 56,489
Grupo Sidek SA de CV*........... 36,774 15,760
Kimberly-Clark de Mexico SA..... 12,254 185,242
-----------
1,102,299
-----------
NETHERLANDS -- 8.9%
ABN AMRO Holdings NV............ 11,880 541,178
Ahold NV........................ 9,340 381,236
AKZO Nobel NV................... 1,902 219,986
CSM NV.......................... 19,284 841,204
Elsevier NV..................... 246,049 3,281,267
Fortis Amev NV.................. 7,927 531,035
Hagemeyer NV.................... 4,242 221,524
ING Groep NV.................... 18,540 1,238,542
Koninklijke Nederland........... 13,138 477,314
Nutricia Verenigde Bedrijven.... 3,480 281,488
Polygram NV..................... 19,217 1,020,308
Royal Dutch Petroleum Co. ...... 20,836 2,911,093
Unilever PLC.................... 7,150 1,004,752
Wolters Kluwer.................. 47,754 4,517,391
-----------
17,468,318
-----------
NEW ZEALAND -- 0.6%
Air New Zealand LTD. ........... 57,000 193,638
Carter Holt Harvey LTD. ........ 78,000 168,159
Fernz Corp. .................... 43,100 113,755
Fletcher Challenge LTD. ........ 49,000 113,001
Fletcher Challenge
Forest Division............... 121,952 173,683
Telecom Corp. of New Zealand
LTD. ......................... 78,000 336,319
-----------
1,098,555
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
NORWAY -- 1.4%
Bergesen Cl-A Ord. ............. 5,170 $ 102,942
Kvaerner AS..................... 6,050 214,159
Norsk Hydro AS.................. 30,390 1,277,456
Orkla Cl-A...................... 19,470 969,192
Saga Petroleum.................. 8,260 103,119
-----------
2,666,868
-----------
PERU -- 0.0%
Telefonica de Peru.............. 26,690 56,563
-----------
PORTUGAL -- 0.3%
Jeronimo Martins................ 11,070 614,589
-----------
SINGAPORE -- 2.5%
DBS Land........................ 101,000 341,380
Development Bank Singapore
(Foreign)..................... 30,000 373,356
Far East-Levingston Shipbuilding
LTD. ......................... 30,000 141,069
Jurong Shipyard................. 33,000 254,349
Keppel Corp. ................... 20,000 178,193
Neptune Orient Lines............ 76,000 85,448
Overseas Union Bank
LTD. (Foreign)................ 81,000 558,443
Overseas Union Enterprises...... 50,000 252,793
Sembawang Shipyard.............. 47,000 260,890
Singapore International
Airlines...................... 28,000 261,349
Singapore Land.................. 106,000 685,829
Singapore Press Holdings
(Foreign)..................... 21,000 371,235
Total Access Communications*.... 12,000 78,000
United Industrial Corp. ........ 174,000 171,022
United Overseas Bank LTD. ...... 74,400 715,486
United Overseas Bank LTD.
(Warrants)*................... 27,092 109,196
-----------
4,838,038
-----------
SPAIN -- 2.2%
Banco de Santander SA........... 11,626 585,870
Banco Popular Espanol........... 1,600 296,169
Centros Comerciales Pryca
Ord. ......................... 20,089 423,058
Empresa Nacional de
Electridad.................... 18,678 1,061,794
Fomentos de Construcciones
y Contra...................... 2,730 210,087
Gas Natural SDG................. 3,088 482,939
Iberdrola SA.................... 46,483 426,944
Repsol SA....................... 17,044 560,612
Sevillana de Electricidad....... 28,475 221,957
-----------
4,269,430
-----------
SWEDEN -- 2.0%
AGA AB Cl-B..................... 2,500 31,432
ASEA AB Cl-A.................... 3,790 367,906
Astra AB Cl-B................... 40,300 1,595,139
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Atlas Copco AB Cl-B............. 21,740 $ 327,188
Electrolux Co. ................. 13,060 535,608
Esselte......................... 5,800 86,854
Hennes & Mauritz AB Cl-B........ 4,870 271,187
Sandvik AB Cl-A................. 3,610 63,295
Sandvik AB Cl-B................. 22,210 389,415
Scribona Cl-B................... 5,500 58,770
Stora Kopparbergs Cl-B.......... 16,600 198,615
-----------
3,925,409
-----------
SWITZERLAND -- 3.9%
BBC Brown Boveri AG-Bearer...... 1,079 1,253,672
Ciba Geigy AG................... 570 501,647
CS Holdings..................... 3,860 395,773
Nestle SA....................... 1,478 1,635,245
Roche Holding AG-Genussshein.... 215 1,701,097
Sandoz AG....................... 997 912,886
Swiss Bank Corp. ............... 1,560 637,094
Union Bank of Switzerland....... 530 574,439
-----------
7,611,853
-----------
THAILAND -- 0.9%
Advanced Information Services
(Foreign)..................... 10,400 182,485
Advanced Information Services
(Local)....................... 8,000 141,644
Bangkok Bank PLC................ 32,500 394,800
Bank of Ayudhya LTD. ........... 31,600 176,880
Land and House Public Co. ...... 4,400 72,314
Siam Cement Co. LTD. ........... 3,000 166,256
Siam Commercial Bank............ 22,900 301,818
Thai Farmer Bank (Foreign)...... 24,200 244,017
-----------
1,680,214
-----------
UNITED KINGDOM -- 14.4%
Abbey National PLC.............. 138,000 1,362,899
Argos PLC....................... 85,160 788,151
Argyll Group PLC................ 121,660 642,324
Asda Group PLC.................. 377,450 647,663
British Airports Authorities
PLC........................... 20,440 153,940
British Gas PLC................. 86,210 340,031
British Petroleum Co. PLC....... 53,840 450,631
Cable & Wireless PLC............ 138,000 985,745
Cadbury Schweppes PLC........... 117,456 970,319
Caradon PLC..................... 181,700 551,606
Coats Viyella PLC............... 74,270 201,827
Compass Group PLC............... 56,000 425,665
East Midlands Electricity PLC... 54,385 563,291
Electrocomponents PLC........... 35,000 195,658
GKN PLC......................... 13,000 157,256
Glaxo Wellcome PLC.............. 85,000 1,207,724
Grand Metropolitan Ord. PLC..... 155,300 1,118,966
Guinness Ord. .................. 124,640 917,410
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
UNITED KINGDOM (CONT'D)
Heywood Williams Group Ord. .... 32,010 $ 122,278
Hillsdown Holdings PLC.......... 55,160 144,757
Kingfisher PLC.................. 127,950 1,076,880
Ladbroke Group PLC.............. 103,000 234,316
Laing (John) PLC Cl-A NV........ 70,000 301,096
London Electricity Ord. PLC..... 64,770 577,316
National Grid PLC*.............. 94,011 291,239
National Westminster Ord. PLC... 228,670 2,304,525
Rank Organisation PLC Reg'd. ... 113,120 818,565
Reed International PLC.......... 137,370 2,094,744
Rolls-Royce PLC................. 60,140 176,503
RTZ Corp. Ord. PLC Reg'd. ...... 60,600 880,798
Sears Holdings PLC.............. 44,490 71,849
Shell Transport & Trading Co.
Ord. PLC...................... 116,000 1,534,706
Smith David Holdings PLC........ 97,900 431,746
Smithkline Beecham (Units)...... 220,220 2,400,609
Spring Ram Corp. PLC............ 12,000 5,031
T & N Corp. PLC................. 133,680 336,286
Tesco PLC....................... 102,000 470,418
Tomkins Ord. PLC................ 283,220 1,240,225
United News and Media PLC....... 105,470 908,975
-----------
28,103,968
-----------
TOTAL FOREIGN STOCKS
(COST $153,238,339)............... 166,184,376
-----------
AMERICAN DEPOSITORY RECEIPTS -- 2.8%
A.F.P. Provida SA............... 1,152 31,824
Banco de Galicia
Buenos Aires SA............... 6,207 128,019
Buenos Aires Embotelladora...... 1,535 31,659
Cemex SA*....................... 50,068 338,741
Cervecerias Unidas (CCU)........ 3,628 84,351
Cesp-Cia Energetica
de Sao Paolo*................. 5,020 43,835
Chilectra Metropolitana SA...... 3,196 154,450
Chilgener SA.................... 4,371 109,275
Cifra SA de CV NPV*............. 432,174 454,215
Companhia Energetica de Minas
Geras......................... 6,068 134,230
Compania de Telefonos
de Chile SA................... 2,020 167,408
Electrobras-Centrais Eletr
Bras.......................... 16,358 221,324
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Empresa National
de Electridad SA.............. 14,096 $ 320,684
Enersis SA...................... 5,314 151,449
Enron Global Power & Pipeline... 1,356 33,731
Huaneng Power
International, Inc.*.......... 35,000 503,125
Panamerica Beverages, Inc. ..... 7,120 227,840
Repsol SA....................... 110 3,616
Sociedad Comercial del Plata*... 1,640 43,468
Telebras........................ 23,784 1,126,767
Telecome Argentina Cl-B......... 941 44,815
Telecomunicacoes Brasileiras
SA............................ 217 10,449
Telefonica de Argentina......... 14,780 402,755
Telekomunikasi Indonesia*....... 16,000 404,000
Uniao Siderurgicas de Minas
Gerais SA..................... 23,370 189,951
-----------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $6,564,517)................. 5,361,981
-----------
AMERICAN DEPOSITORY SECURITIES -- 0.6%
Banco Frances del Rio de la
Plata......................... 2,643 71,031
Sociedad Anoni.................. 13,600 294,100
Telefonos de Mexico SA.......... 22,584 719,865
Transportadora de Gas del Sur... 2,632 33,887
Usinas Siderurgicas de Minas
Gerais SA..................... 11,100 90,221
-----------
TOTAL AMERICAN DEPOSITORY SECURITIES
(COST $1,196,437)................. 1,209,104
-----------
GLOBAL DEPOSITORY RECEIPTS -- 0.4%
Grupo Televisia................. 12,639 284,378
Samsung Electronics def
del (New)*.................... 92 8,878
Samsung Electronics def del*.... 62 5,983
Samsung Electronics N/V*........ 6,000 360,000
Samsung Electronics Rfd.*....... 593 35,580
Samsung Electronics
Rfd. (New)*................... 11 1,062
-----------
TOTAL GLOBAL DEPOSITORY RECEIPTS
(COST $837,943)................... 695,881
-----------
GLOBAL DEPOSITORY SECURITIES -- 0.0%
Grupo Financiero Bancomer C1-B
(COST $62,422)................ 2,330 13,980
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY****
MATURITY (000) VALUE
--------- ------------ ------------
<S> <C> <C> <C>
FOREIGN BONDS -- 0.0%
BELGIUM -- 0.0%
Kredietbank NV
5.75%.............. 11/30/03 900 $ 32,749
------------
ITALY -- 0.0%
Danieli & Co.
7.25%.............. 01/01/00 5,250 2,935
------------
TOTAL FOREIGN BONDS
(COST $29,798)................... 35,684
------------
TOTAL INVESTMENTS
(COST $161,929,456**) -- 88.7%... 173,501,006
OTHER ASSETS LESS
LIABILITIES -- 11.3%............. 22,166,287
------------
NET ASSETS -- 100.0%............... $195,667,293
===========
<CAPTION>
<S> <C> <C> <C>
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation........................... $19,515,366
Gross depreciation........................... (8,309,983)
----------
Net appreciation............................. $11,205,383
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
** Cost for Federal income tax purposes was $162,295,623.
*** Closed-end funds.
**** Currency of countries indicated.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
AST SCUDDER INTERNATIONAL BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY**
MATURITY (000) VALUE
--------- ---------- -----------
<S> <C> <C> <C>
FOREIGN BONDS -- 87.6%
ARGENTINA -- 0.6%
Republic of Argentina
FRB Cl-L
6.81%............... 03/31/05 375 $ 265,547
-----------
AUSTRALIA -- 7.4%
Australian Government
10.00%.............. 10/15/07 1,100 920,936
New South Wales
Treasury Corp.
6.50%............... 05/01/06 2,100 1,354,391
Queensland Treasury
Corp.
8.00%............... 08/14/01 1,485 1,106,408
-----------
3,381,735
-----------
BRAZIL -- 0.6%
Brazil DCB
7.31%............... 04/15/12 500 286,250
-----------
CANADA -- 2.2%
Canadian Government
8.50%............... 03/01/00 580 456,042
8.75%............... 12/01/05 525 429,752
Province of Ontario
9.00%............... 09/15/04 140 113,886
-----------
999,680
-----------
DENMARK -- 4.3%
Denmark Government
9.00%............... 11/15/00 4,400 879,081
8.00%............... 05/15/03 4,675 892,352
7.00%............... 12/15/04 1,000 178,795
-----------
1,950,228
-----------
EUROPEAN CURRENCY UNIT -- 2.0%
Council of Europe
9.00%............... 11/14/01 625 890,100
-----------
FRANCE -- 6.9%
Credit Local de France
8.88%............... 06/10/02 2,200 505,921
France O.A.T.
5.50%............... 04/25/04 3,200 610,924
7.25%............... 04/25/06 3,400 723,868
Republic of Portugal
7.70%............... 06/07/05 2,500 537,583
Societe Nationale
de Chemins XW
7.75%............... 03/01/02 3,600 784,686
-----------
3,162,982
-----------
GERMANY -- 14.8%
Bundesobligation
7.00%............... 01/13/00 1,400 1,058,249
Deutsche Finance BV
6.00%............... 11/11/03 450 318,156
General Electric
Capital Corp.
7.25%............... 02/03/00 1,580 1,165,556
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY**
MATURITY (000) VALUE
--------- ---------- -----------
<S> <C> <C> <C>
German Government
6.50%............... 07/15/03 1,200 $ 870,674
Inter-America
Development Bank
7.00%............... 06/08/05 1,100 806,132
Republic of Austria
8.00%............... 06/17/02 2,000 1,553,479
Republic of Finland
5.50%............... 02/09/01 1,400 983,963
_________
6,756,209
---------
ITALY -- 9.7%
Eurofima
11.13%.............. 02/02/00 1,950,000 1,264,400
European Bank
Reconstruction &
Development
9.75%............... 07/28/00 800,000 496,695
European Investment
Bank
10.15%.............. 07/06/98 1,700,000 1,075,543
Italian Government
10.50%.............. 04/15/98 150,000 95,071
8.50%............... 01/01/99 865,000 524,391
8.50%............... 01/01/04 1,720,000 963,785
-----------
4,419,885
-----------
JAPAN -- 12.5%
Asian Development Bank
3.13%............... 06/29/05 85,000 822,687
Export-Import Bank of
Japan
4.38%............... 10/01/03 136,000 1,446,283
Japan Development Bank
6.50%............... 09/20/01 120,000 1,417,683
Republic of Austria
6.25%............... 10/16/03 65,000 777,741
World Bank Notes
5.25%............... 03/20/02 110,000 1,236,994
5,701,388
NETHERLANDS -- 3.3%
Netherland Government
7.75%............... 01/15/00 700 480,931
6.50%............... 04/15/03 1,600 1,045,429
-----------
1,526,360
-----------
NEW ZEALAND -- 4.7%
Electric Corp. of
New Zealand
10.00%.............. 10/15/01 900 649,832
New Zealand Government
8.00%............... 11/15/06 2,155 1,490,454
-----------
2,140,286
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
AST SCUDDER INTERNATIONAL BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY**
MATURITY (000) VALUE
--------- ---------- -----------
<S> <C> <C> <C>
POLAND -- 1.9%
Republic of Poland
Discount FRN
7.13%............... 10/27/24 150 $ 113,250
Republic of Poland PDI
Variable Rate
3.75%............... 10/27/14 1,150 744,625
-----------
857,875
-----------
SOUTH AFRICA -- 1.0%
Republic of South
Africa
12.00%.............. 02/28/05 1,790 435,582
-----------
SWEDEN -- 7.0%
Kingdom of Sweden
Bonds
6.00%............... 02/09/05 4,400 559,726
Swedish Government
11.00%.............. 01/21/99 4,000 647,242
10.25%.............. 05/05/00 1,700 274,400
10.25%.............. 05/05/03 10,500 1,732,512
-----------
3,213,880
-----------
UNITED KINGDOM -- 8.7%
Abbey National
Treasury
6.00%............... 08/10/99 995 1,495,830
Barclays Bank PLC
6.50%............... 02/16/04 925 1,323,265
European Investment
Bank
9.50%............... 12/09/09 150 265,300
Government of United
Kingdom
9.50%............... 01/15/99 345 579,594
International Bank
Reconstructive &
Development
9.25%............... 07/20/07 100 171,486
United Kingdom
Treasury
6.75%............... 11/26/04 90 133,816
-----------
3,969,291
-----------
TOTAL FOREIGN BONDS
(COST $39,064,161)...... 39,957,278
-----------
<CAPTION>
PAR
(000)
----------
<S> <C> <C> <C>
SOVEREIGN ISSUES -- 0.8%
Mexican States Cl-A
6.77%
(COST $358,228)........... 12/31/19 $ 500 360,938
-----------
<CAPTION>
SHARES
----------
<S> <C> <C> <C>
FOREIGN STOCKS -- 0.0%
MEXICO
Mexican Value Recovery
Cl-A (Rights)*
(COST $0)......... 769,000 0
-----------
<CAPTION>
VALUE
-----------
<S> <C> <C> <C>
OPTIONS -- 0.0%
Written Call Option on British
Pounds, Strike Price GBP 1.54,
Expire 01/04/96................ $ (14,418)
Written Call Option on German
Deutschemark, Strike Price DEM
1.33, Expire 01/26/96.......... 0
Written Call Option on Italian
Lira, Strike Price ITL 1590.75,
Expire 01/18/96................ (1,087)
Written Call Option on Swedish
Krona, Strike Price SEK 6.64,
Expire 01/09/96................ (5,716)
Written Call Option on Swedish
Krona, Strike Price SEK 6.68,
Expire 01/08/96................ (452)
Put Option on Australian Dollar,
Strike Price AUD .72, Expire
02/01/96....................... 1,147
Put Option on German
Deutschemark, Strike Price DEM
1.45, Expire 01/26/96.......... 11,163
Put Option on French Francs,
Strike Price FRF 5.00, Expire
02/01/96....................... 2,048
Put Option on French Francs,
Strike Price FRF 5.05, Expire
03/01/96....................... 4,480
Put Option on French Francs,
Strike Price FRF 5.22, Expire
01/12/96....................... 100
Put Option on Japanese Yen,
Strike Price JPY 103.80, Expire
01/29/96....................... 12,503
Written Put Option on Japanese
Yen, Strike Price JPY 107.00,
Expire 01/29/96................ (2,482)
Put Option on New Zealand Dollar,
Strike Price NZD .64, Expire
02/01/96....................... 769
-----------
TOTAL OPTIONS (COST $36,393)......... 8,055
-----------
TOTAL INVESTMENTS
(COST $39,458,782*) -- 88.4%....... 40,326,271
OTHER ASSETS LESS
LIABILITIES -- 11.6%............... 5,275,704
-----------
NET ASSETS -- 100.0%................. $45,601,975
===========
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation........................... $1,164,210
Gross depreciation........................... (297,905)
---------
Net appreciation............................. $ 866,305
---------
---------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
AST SCUDDER INTERNATIONAL BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Foreign currency exchange contracts outstanding at December 31, 1995:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT UNREALIZED
COVERED EXPIRATION APPRECIATION/
TYPE BY CONTRACT MONTH (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------
(Dollar Based)
Buy AUD 1,541,039 01/96 $ 10,255
Sell AUD 3,853,826 01/96 10,943
Buy DEM 428,986 01/96 (391)
Buy DEM 608,326 02/96 143
Sell DEM 428,986 01/96 5,877
Sell DEM 608,326 02/96 1,678
Buy ECU 247,601 02/96 (6,122)
Sell ECU 247,601 02/96 4,215
Buy FRF 5,340,866 01/96 (731)
Sell FRF 5,340,866 01/96 4,807
Buy JPN 142,153,246 02/96 (17,778)
Sell JPN 87,630,868 02/96 12,252
Buy UK 216,353 01/96 103
Sell UK 216,353 01/96 2,073
Buy ZAR 1,647,162 01/96 4,552
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION APPRECIATION/
BUY SELL MONTH (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------
DEM 1,555,476 ECU 856,152 01/96 $ (9,710)
DEM 1,621,588 UK 736,453 01/96 (11,879)
ECU 856,152 DEM 1,567,372 01/96 1,405
ECU 383,500 JPN 49,072,660 01/96 14,721
JPN 112,313,159 ECU 855,467 01/96 (5,020)
JPN 76,375,863 FRF 3,732,571 01/96 (21,697)
JPN 119,012,704 UK 749,674 01/96 (9,727)
UK 744,752 DEM 1,656,844 01/96 156
--------------
$ (9,875)
=============
</TABLE>
COUNTRY/CURRENCY ABBREVIATIONS
- ----------------------------------------------------------
<TABLE>
<S> <C>
AUD - Australia/Australian JPN - Japan/Japanese Yen
Dollar UK - United Kingdom/British
DEM - Germany/German Pound
Deutschemark ZAR - South Africa/South
ECU - European Currency Unit African Rand
FRF - France/French Franc
</TABLE>
- --------------------------------------------------------------------------------
* Cost for Federal income tax purposes was $39,459,966.
** Currency of countries indicated.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
BERGER CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- -----------
<S> <C> <C>
COMMON STOCK -- 82.3%
AEROSPACE -- 1.5%
Boeing Co. .................... 9,000 $ 705,375
-----------
AUTOMOBILES -- 1.5%
Chrysler Corp. ................ 12,000 664,500
-----------
AUTOMOTIVE PARTS-EQUIPMENT -- 0.6%
Lear Seating Corp.*............ 10,000 290,000
-----------
BIOPHARMACEUTICALS -- 2.9%
Amgen, Inc.*................... 14,000 831,250
Curative Technology, Inc.*..... 35,000 498,750
-----------
1,330,000
-----------
BUSINESS SERVICES -- 0.8%
Paging Network, Inc.*.......... 15,000 365,625
-----------
COMMUNICATIONS -- 2.8%
GTECH Holdings Group*.......... 12,000 312,000
Micro Warehouse, Inc.*......... 11,000 475,750
Western Atlas, Inc.*........... 10,000 505,000
-----------
1,292,750
-----------
COMPUTER SERVICES &
SOFTWARE -- 4.2%
American Online, Inc. ......... 10,000 375,000
Bay Networks, Inc. ............ 13,500 555,187
First Data Corp. .............. 5,550 371,156
Oracle Systems Corp.*.......... 10,000 423,750
Parametric Technology Corp.*... 3,000 199,500
-----------
1,924,593
-----------
COMPUTERS -- 2.4%
Cisco Systems, Inc.*........... 7,500 559,688
EMC Corp.*..................... 35,000 538,125
-----------
1,097,813
-----------
DRUGS -- 2.9%
Merck & Co., Inc. ............. 10,000 657,500
Watson Pharmaceuticals,
Inc.*........................ 14,000 686,000
-----------
1,343,500
-----------
ELECTRICAL EQUIPMENT -- 0.7%
Sanmina Holdings*.............. 6,500 337,188
-----------
ELECTRONIC COMPONENTS -- 4.0%
Elsag Bailey Process NV*....... 20,000 537,500
Intel Corp. ................... 9,000 510,750
Solectron Corp.*............... 18,000 794,250
-----------
1,842,500
-----------
ELECTRONICS -- 2.9%
Dovatron International,
Inc.*........................ 8,000 270,000
Input Output, Inc.*............ 10,000 577,500
Motorola, Inc. ................ 3,000 171,000
SCI Systems, Inc.*............. 9,000 279,000
-----------
1,297,500
-----------
<CAPTION>
SHARES VALUE
-------- -----------
<S> <C> <C>
ENVIRONMENTAL INSTRUMENTS -- 1.4%
Thermo Electron Corp.*......... 12,000 $ 624,000
-----------
FINANCIAL -- 0.5%
First USA, Inc. ............... 5,000 221,875
-----------
FINANCIAL SERVICES -- 1.8%
H&R Block, Inc. ............... 13,000 526,500
Waterhouse Investment
Services, Inc. .............. 12,500 309,375
-----------
835,875
-----------
HEALTHCARE -- 7.7%
Health Management Association,
Inc. C1-A.................... 22,500 587,812
Healthsouth Rehabilitation
Corp.*....................... 20,000 582,500
Horizon Healthcare Corp.*...... 25,000 631,250
Oxford Health Plans, Inc. ..... 7,500 554,063
Total Renal Care Holdings*..... 18,000 531,000
United Healthcare Corp......... 10,000 655,000
-----------
3,541,625
-----------
HOSPITAL-INFORMATION SYSTEM -- 1.3%
HBO & Co. ..................... 8,000 613,000
-----------
INSURANCE -- 3.6%
Conseco, Inc. ................. 10,000 626,250
Tidewater, Inc. ............... 18,000 567,000
USF&G Corp. ................... 28,000 472,500
-----------
1,665,750
-----------
MACHINERY-MINING -- 1.0%
Case Corp. .................... 10,000 457,500
-----------
MANUFACTURING -- 2.4%
Black & Decker Corp. .......... 15,000 528,750
Eastman Kodak Co. ............. 8,500 569,500
-----------
1,098,250
-----------
MEDIA -- 0.8%
New World Communications, Inc.
Cl-A*........................ 22,000 385,000
-----------
MEDICAL & MEDICAL SERVICES -- 6.4%
Apria Healthcare Group,
Inc. ........................ 20,000 565,000
Columbia Healthcare Corp. ..... 12,000 609,000
Conmed Corp. .................. 21,000 525,000
IDEXX Laboratories, Inc. ...... 15,000 705,000
Lincare Holdings, Inc.*........ 22,000 550,000
-----------
2,954,000
-----------
MEDICAL PRODUCTS -- 4.0%
Boston Scientific Corp.*....... 9,000 441,000
Guidant........................ 17,000 718,250
Lunar Corp. ................... 24,000 660,000
-----------
1,819,250
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
BERGER CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- -----------
<S> <C> <C>
OFFICE EQUIPMENT -- 2.2%
Officemax, Inc.*............... 14,000 $ 313,250
Staples, Inc.*................. 13,000 316,875
Viking Office Products,
Inc.*........................ 8,000 372,000
-----------
1,002,125
-----------
OIL & GAS-EQUIPMENT & SERVICES -- 7.9%
Baker Hughes, Inc. ............ 25,000 609,375
BJ Services Co.*............... 25,000 725,000
Dresser Industries, Inc. ...... 20,000 487,500
Halliburton Co. ............... 12,000 607,500
Schlumberger LTD. ............. 8,000 554,000
Sonat Offshore Drilling,
Inc. ........................ 15,000 671,250
-----------
3,654,625
-----------
PHARMACEUTICALS -- 3.1%
Biochem Pharmaceutical,
Inc.*........................ 20,000 802,500
Pfizer, Inc. .................. 10,000 630,000
-----------
1,432,500
-----------
PUBLISHING -- 0.7%
Time Warner, Inc. ............. 8,000 303,000
-----------
RECREATIONAL -- 0.5%
Mirage Resorts, Inc.*.......... 7,000 241,500
-----------
RETAIL -- 2.9%
Federated Department Stores,
Inc.*........................ 15,000 412,500
General Nutrition Companies,
Inc.*........................ 20,000 460,000
Nine West Group, Inc. ......... 12,000 450,000
-----------
1,322,500
-----------
RETAIL MAIL ORDER -- 1.5%
CUC International, Inc. ....... 20,000 682,500
-----------
TELECOMMUNICATIONS -- 3.3%
ECI Telecom LTD. .............. 25,000 570,312
Intelcom Group, Inc.*.......... 20,000 247,500
Worldcom, Inc.*................ 20,000 705,000
-----------
1,522,812
-----------
TEXTILES -- 1.2%
Tommy Hilfiger Corp.*.......... 13,000 550,875
-----------
TRANSPORTATION -- 0.9%
Western Pacific Airlines,
Inc.*........................ 25,000 418,750
-----------
TOTAL COMMON STOCK
(COST $33,195,213)............... 37,838,656
-----------
<CAPTION>
SHARES VALUE
-------- -----------
<S> <C> <C>
AMERICAN DEPOSITORY RECEIPTS -- 5.8%
ELECTRONICS -- 1.3%
Nokia Corp. C1-A .............. 16,000 $ 622,000
-----------
MANUFACTURING -- 1.3%
Luxottica Group SPA............ 10,000 585,000
-----------
OIL & GAS -- 0.6%
Petroleum Geo Services*........ 12,000 300,000
-----------
PHARMACEUTICALS -- 0.8%
Elan Corp. PLC*................ 7,500 364,687
-----------
PUBLISHING -- 0.6%
News Corp. LTD. ............... 12,500 267,188
-----------
RETAIL -- 1.2%
Fila Holding SPA............... 12,000 546,000
-----------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $2,432,529)................ 2,684,875
-----------
SHORT TERM INVESTMENTS --
MONEY MARKET FUNDS -- 4.2%
Temporary Investment Cash
Fund......................... 963,888 963,888
Temporary Investment Fund...... 963,887 963,887
-----------
(COST $1,927,775)............ 1,927,775
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- -----------
<S> <C> <C> <C>
U.S. TREASURY BILLS -- 8.2%
5.28%
(COST
$3,779,491)..... 01/11/96 $ 3,785 3,779,491
-----------
TOTAL INVESTMENTS
(COST
$41,335,008**) -- 100.5%........ 46,230,797
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.5)%.......... (252,037)
-----------
NET ASSETS -- 100.0%.............. $45,978,760
==========
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation.......................... $5,560,455
Gross depreciation.......................... (664,666)
---------
Net appreciation............................ $4,895,789
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
** Also cost for Federal income tax purposes.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
SELIGMAN HENDERSON INTERNATIONAL SMALL CAP PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
FOREIGN STOCKS -- 85.3%
AUSTRALIA -- 1.1%
Futuris Corp. LTD. .............. 170,000 $ 166,952
Skilled Engineering Pty LTD. .... 55,000 139,945
-------
306,897
-------
AUSTRIA -- 1.5%
Bau Holding AG................... 2,200 118,730
Bau Holding AG -- Vorzug......... 8,350 313,953
-------
432,683
-------
BELGIUM -- 1.6%
D'ieteren Trading NV............. 5,550 468,152
-------
DENMARK -- 1.7%
Danske Traelast.................. 7,390 499,028
-------
FINLAND -- 2.9%
Lassila & Tikanoja Oy............ 6,800 254,922
Nokian Renkaat Oy................ 56,250 569,227
-------
824,149
-------
FRANCE -- 5.8%
Christian Dalloz*................ 120 24,992
Montupet......................... 4,433 488,784
Sylea............................ 7,255 524,404
Technip SA....................... 8,900 612,414
-------
1,650,594
-------
GERMANY -- 5.8%
APCOA Parking AG*................ 7,090 465,185
Hornbach Baumarkt AG............. 13,000 559,266
Jean Pascale AG.................. 8,080 247,887
Jean Pascale AG (Rights)*........ 2,020 59,155
Kiekert AG*...................... 5,200 309,999
-------
1,641,492
-------
HONG KONG -- 2.3%
Jardine International Motor
Holdings....................... 144,000 163,882
Manhattan Card Co. LTD. ......... 399,500 170,497
New Asia Realty & Trust Co.
Cl-A........................... 84,000 160,778
Yue Yuen Industrial Holding...... 582,000 154,299
-------
649,456
-------
INDONESIA -- 1.2%
PT Darya Varia Lab*.............. 38,000 69,163
PT Mulia Industrindo............. 67,000 187,128
Sorini Corp. .................... 16,000 80,805
-------
337,096
-------
ITALY -- 0.7%
Stayer SPA*...................... 123,200 201,649
-------
JAPAN -- 21.9%
Aiya Co. LTD. ................... 16,000 201,316
Asahi Diamond Industry Co.,
LTD. .......................... 16,000 224,545
Asatsu, Inc. .................... 4,100 172,222
Danto Corp. ..................... 16,000 198,219
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Danto Rfd. Corp. ................ 1,800 $ 22,300
Enplas Corp. .................... 5,000 93,399
Fujitsu Business Systems......... 7,000 184,282
Glory LTD. ...................... 6,000 220,674
Higashi Nihon House.............. 15,000 246,806
Hitachi Medical Corp. ........... 14,000 200,542
Hokushin......................... 17,000 202,381
Horiba Instruments............... 15,000 194,541
Ichiyoshi Securities............. 32,000 216,802
Iino Kaiun*...................... 31,000 176,423
Kentucky Fried Chicken........... 14,000 230,352
Mitsui Home Co. LTD. ............ 14,000 223,577
Nakayama Steel Works Ord. ....... 50,000 274,874
Namura Shipbuilding.............. 39,000 215,157
Nichicon......................... 13,000 191,250
Nippon Seiki..................... 14,000 168,022
Nittetsu Mining.................. 20,000 199,381
Rengo Co. LTD. .................. 39,000 260,453
Sagami Chain Co. LTD. ........... 12,000 198,606
Sanyo Special Steel Co. ......... 66,000 286,179
Sodick*.......................... 21,000 197,154
Sumitomo Sitix Corp. ............ 6,000 109,175
Tokai Senko K.K.*................ 8,000 31,823
Toyo Ink Manufacturing........... 50,000 246,806
Tsubakimoto Precision Products... 15,000 207,607
Tsudakoma........................ 35,000 220,190
Tsutsumi Jewelry Co. LTD. ....... 4,000 200,155
Xebio Co. LTD. .................. 6,000 211,963
-------
6,227,176
-------
MALAYSIA -- 0.6%
Asas Dunia Berhad................ 15,000 42,530
Chemical Co. of Malaysia
Berhad......................... 25,000 49,716
Sistem Televisyen Malaysia....... 26,000 93,684
-------
185,930
-------
NETHERLANDS -- 1.7%
Otra NV.......................... 28,080 498,710
-------
NORWAY -- 3.5%
Ekornes AS*...................... 42,000 457,965
Fokus Bank AS*................... 100,000 540,455
-------
998,420
-------
SINGAPORE -- 1.6%
Bukit Sembawang Estates LTD. .... 7,500 164,404
Comfort Group LTD. .............. 168,000 142,554
Courts LTD. ..................... 95,000 145,100
-------
452,058
-------
SWEDEN -- 9.5%
BT Industries AB................. 45,000 494,394
Cardo AB*........................ 16,400 304,824
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
SELIGMAN HENDERSON INTERNATIONAL SMALL CAP PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
SWEDEN (CONT'D)
Finnveden AB-B*.................. 29,000 $ 296,787
Forsheda Cl-B.................... 24,185 382,185
Iro AB........................... 44,600 503,424
Kalmar Industries................ 27,775 459,816
Rottneros AB..................... 246,200 259,372
-------
2,700,802
-------
SWITZERLAND -- 3.3%
Foto Laboratory SA............... 1,210 482,615
Lem Holding...................... 203 71,639
Sig Schweiz Industries........... 366 371,300
-------
925,554
-------
THAILAND -- 0.6%
Loxley Co. LTD. ................. 9,000 167,924
-------
UNITED KINGDOM -- 18.0%
Ashtead Group PLC................ 108,000 290,133
Capital Radio PLC................ 45,000 372,449
David Brown Group PLC............ 102,657 314,038
Domnick Hunter Group PLC......... 60,000 303,736
Frost Group PLC.................. 73,833 223,570
Hamleys PLC...................... 55,000 298,068
Hodder Headline PLC.............. 48,730 190,689
IBC Group PLC.................... 60,000 266,468
ISA International PLC............ 150,000 356,378
Pet City Holdings PLC*........... 48,000 284,729
Pizzaexpress PLC................. 96,100 323,825
Polypipe PLC..................... 113,300 307,890
Ruberoid PLC..................... 104,000 230,939
Stoves PLC*...................... 65,000 262,431
Tilbury Douglas PLC.............. 32,000 221,125
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Trifast PLC...................... 50,000 $ 292,711
Wace Group PLC................... 95,000 361,424
Wellington Holdings PLC.......... 55,000 211,808
-------
5,112,411
-------
TOTAL INVESTMENTS
(COST $24,295,226**) -- 85.3%...... 24,280,181
OTHER ASSETS LESS
LIABILITIES -- 14.7%............... 4,175,022
-------
NET ASSETS -- 100.0%................. $28,455,203
=======
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross appreciation............... $ 1,278,860
Gross depreciation............... (1,293,905)
----------
Net depreciation................. $ (15,045)
----------
----------
</TABLE>
Foreign currency exchange contracts outstanding at December 31, 1995:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT UNREALIZED
COVERED EXPIRATION APPRECIATION/
TYPE BY CONTRACT MONTH (DEPRECIATION)
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Buy FIM 410,018 01/96 $ 88
Buy HK 104,173 01/96 (3)
Buy THB 1,032,192 01/96 (65)
Buy UK 70,770 01/96 (214)
Sell JPN 191,776,500 02/96 31,307
$ 31,113
</TABLE>
COUNTRY/CURRENCY ABBREVIATIONS
- ----------------------------------------------------------
FIM - Finland/Finnish Markka
HK - Hong Kong/Hong Kong Dollar
JPN - Japan/Japanese Yen
THB - Thailand/Thai Baht
UK - United Kingdom/British Pound
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
** Also cost for Federal income tax purposes.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCK -- 63.9%
CHEMICALS -- 3.8%
Dupont (E.I.) de Nemours & Co. .... 3,200 $ 223,600
Petrolite Corp. ................... 4,400 125,400
----------
349,000
----------
FOREST PRODUCTS -- 4.3%
Georgia Pacific Corp. ............. 2,900 199,012
International Paper Co. ........... 5,300 200,737
----------
399,749
----------
MANUFACTURING -- 0.5%
Oakley, Inc.*...................... 1,300 44,200
----------
METALS & MINING -- 13.3%
Applied Extrusion Technologies,
Inc. ............................ 7,100 88,750
Barrick Gold Corp.................. 4,700 123,963
Cambior, Inc. ..................... 12,000 130,500
Freeport McMoran Copper Co.,
Inc. ............................ 2,900 81,200
Greenstone Resources LTD.*......... 20,200 57,444
Newmont Mining Corp. .............. 4,600 208,150
Pegasus Gold, Inc.*................ 8,700 120,713
Santa Fe Pacific Gold Corp. ....... 13,600 164,900
TVX Gold, Inc.*.................... 36,100 257,213
----------
1,232,833
----------
OIL & GAS -- 26.4%
Amerada Hess Corp. ................ 3,400 180,200
Atlantic Richfield Co. ............ 3,700 409,775
Cross Timbers Oil Co. ............. 3,500 61,687
HS Resources, Inc.*................ 8,000 103,000
Mobil Corp. ....................... 2,900 324,800
Noble Affiliates, Inc. ............ 7,300 218,087
Oryx Energy Co.*................... 6,400 85,600
Sun, Inc. ......................... 4,000 109,500
Tejas Power Corp.*................. 9,000 82,125
Ultramar Corp. .................... 4,000 103,000
Union Texas Petroleum Holdings,
Inc. ............................ 15,100 292,563
United Meridian Corp.*............. 9,600 166,800
USX Marathon Group................. 13,300 259,350
Wainoco Oil Corp.*................. 15,400 50,050
----------
2,446,537
----------
OIL & GAS-EQUIPMENT & SERVICES -- 8.8%
Camco International, Inc. ......... 4,500 126,000
Cooper Cameron Corp.*.............. 3,900 138,450
Halliburton Co. ................... 2,500 126,562
Nowsco Well Service................ 7,300 93,987
Oceaneering International, Inc.*... 10,300 132,613
Schlumberger LTD. ................. 2,800 193,900
Weatherford Enterra, Inc. ......... 253 7,305
----------
818,817
----------
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
PACKAGING & PAPER PRODUCTS -- 2.3%
Jefferson Smurfit Corp.*........... 22,700 $ 215,650
----------
PAPER & FOREST PRODUCTS -- 1.3%
Kimberly-Clark Corp. .............. 1,400 115,850
Schweitzer Manduit
International, Inc.*............. 140 3,238
----------
119,088
----------
RAILROADS -- 1.7%
Canadian National Railways*........ 10,500 157,500
----------
STEEL -- 1.5%
Nucor Corp. ....................... 2,400 137,100
----------
TOTAL COMMON STOCK
(COST $5,630,748).................... 5,920,474
----------
AMERICAN DEPOSITORY RECEIPTS -- 11.3%
OIL & GAS -- 9.8%
Repsol SA.......................... 11,300 371,488
Royal Dutch Petroleum Co. ......... 3,800 536,275
----------
907,763
----------
OIL & GAS-EQUIPMENT & SERVICES -- 1.5%
Coflexip........................... 7,400 139,675
----------
TOTAL AMERICAN DEPOSITORY RECEIPTS
(COST $957,901)...................... 1,047,438
----------
FOREIGN STOCKS -- 5.7%
METALS & MINING
Anglo American Plantinum
Corp. -- (ZAR)................... 14,500 82,533
Bougainville Copper
LTD. -- (AUD)*................... 50,000 22,320
Dayton Mining Corp. -- (CAN)*...... 17,900 74,572
Golden Shamrock Mines
LTD. -- (AUD)*................... 117,600 72,620
Golden Shamrock Mines
LTD. -- (CAN)*................... 15,700 9,775
Greenstone Resources
LTD. -- (CAN)*................... 8,000 23,029
Loki Gold Corp.
(Warrants) -- (CAN)*............. 61,000 94,503
Lonrho PLC -- (UK)................. 17,600 48,101
Potgietersrust Platinums
LTD. -- (ZAR).................... 16,900 101,989
----------
TOTAL FOREIGN STOCKS
(COST $525,578)...................... 529,442
----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
SHORT TERM INVESTMENTS --
MONEY MARKET FUNDS -- 1.4%
Temporary Investment Cash Fund..... 65,353 $ 65,353
Temporary Investment Fund.......... 65,352 65,352
----------
(COST $130,705).................... 130,705
----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- ------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 15.9%
Dun & Bradstreet Corp.
5.80%................... 01/02/96 $ 227 226,963
Federal Home Loan
Mortgage Corp.
5.50%................... 01/05/96 1,250 1,249,236
----------
TOTAL COMMERCIAL PAPER
(COST $1,476,199)........... 1,476,199
----------
TOTAL INVESTMENTS
(COST $8,721,131**) -- 98.3%.......... 9,104,258
OTHER ASSETS LESS LIABILITIES -- 1.7%... 157,335
----------
NET ASSETS -- 100.0%.................... $9,261,593
==========
<CAPTION>
<S> <C> <C> <C>
NOTES TO SCHEDULE OF
INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is
as follows:
Gross appreciation........................... $ 526,841
Gross depreciation........................... (145,958)
--------
Net appreciation............................. $ 380,883
==========
</TABLE>
COUNTRY/CURRENCY ABBREVIATIONS
- ----------------------------------------------------------
AUD - Australia/Australian Dollar
CAN - Canada/Canadian Dollar
UK - United Kingdom/British Pound
ZAR - South Africa/South African Rand
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
** Cost for Federal income tax purposes was $8,723,375.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
PIMCO LIMITED MATURITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
CORPORATE BONDS -- 1.6%
ELECTRIC POWER
CMS Energy Corp.
9.50%................... 10/01/97 $ 1,000 $ 1,051,250
Texas Utilities Co.
6.38%................... 05/01/99 1,500 1,499,856
-----------
TOTAL CORPORATE BONDS
(COST $2,499,976).................. 2,551,106
-----------
COLLATERALIZED MORTGAGE SECURITIES -- 1.0%
Merrill Lynch Mortgage
Investors C1-B
7.67% (COST
$1,513,304)........... 06/15/21 1,491 1,543,139
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 21.0%
FEDERAL HOME LOAN BANK -- 0.4%
5.70%..................... 01/02/96 700 699,889
-----------
FEDERAL HOME LOAN MORTGAGE CORP. -- 3.2%
8.00%..................... 01/16/26 5,000 5,182,031
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 10.3%
5.37%..................... 03/12/96 1,000 989,064
6.38%..................... 01/01/25 924 936,685
5.88%..................... 05/01/25 2,028 2,069,013
6.36%..................... 01/24/26 12,500 12,640,600
-----------
16,635,362
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 7.1%
7.25%..................... 07/20/17 404 413,865
7.25%..................... 08/20/17 494 505,617
7.25%..................... 09/20/17 418 429,091
7.00%..................... 01/15/24 56 56,771
7.00%..................... 02/15/24 62 62,589
7.00%..................... 04/15/24 440 445,611
7.38%..................... 05/20/24 4,402 4,495,266
7.00%..................... 06/15/24 63 63,552
7.25%..................... 07/20/24 540 553,013
7.00%..................... 07/15/25 458 464,347
7.00%..................... 08/15/25 1,930 1,954,280
7.00%..................... 01/22/26 2,000 2,022,500
-----------
11,466,502
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $33,729,071)................. 33,983,784
-----------
U.S. TREASURY OBLIGATIONS -- 12.4%
U.S. TREASURY BILLS -- 0.0%
5.27%#.................... 02/08/96 $ 10 $ 9,942
5.30%#.................... 02/08/96 60 59,653
5.00%#.................... 02/15/96 15 14,901
5.35%#.................... 02/15/96 10 9,934
-----------
94,430
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
U.S. TREASURY NOTES -- 12.4%
4.38%..................... 08/15/96 5,000 4,974,300
6.50%..................... 09/30/96 15,000 15,131,250
-----------
20,105,550
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $20,168,250)................. 20,199,980
-----------
COMMERCIAL PAPER -- 10.8%
Abbott Laboratories
5.62%................... 01/09/96 2,000 1,997,502
BellSouth Telecomm, Inc.
5.75%................... 01/09/96 1,000 998,722
Canadian Wheat Board
5.58%................... 03/01/96 1,000 990,305
5.49%................... 03/05/96 1,300 1,286,644
Commonwealth Bank of
Australia
5.54%................... 03/13/96 2,500 2,471,250
Hewlett-Packard Co.
5.53%................... 03/12/96 2,000 1,977,307
General Electric Capital
Corp.
5.84%................... 01/26/96 300 298,783
5.65%................... 01/31/96 900 895,762
KFW International Finance
Corp.
5.53%................... 03/06/96 800 791,659
National Rural Utility
5.55%................... 03/06/96 800 791,659
5.63%................... 03/08/96 500 494,633
5.55%................... 03/18/96 2,000 1,975,600
Pitney Bowes Credit, Inc.
5.66%................... 01/26/96 100 99,607
Shell Oil Co.
5.65%................... 01/26/96 2,500 2,490,191
-----------
TOTAL COMMERCIAL PAPER
(COST $17,564,082)................. 17,559,624
-----------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
PIMCO LIMITED MATURITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS --
MONEY MARKET FUNDS -- 0.4%
Temporary Investment Cash Fund... 289,707 $ 289,707
Temporary Investment Fund........ 289,706 289,706
-----------
(COST $579,413)................ 579,413
-----------
TOTAL INVESTMENTS
(COST $76,054,096*) -- 47.2%....... 76,417,046
OTHER ASSETS LESS
LIABILITIES -- 52.8%............... 85,523,348
-----------
NET ASSETS -- 100.0%................. $161,940,394
===========
NOTES TO SCHEDULE OF INVESTMENTS:
The aggregate unrealized appreciation (depreciation) on a tax
basis is
as follows:
Gross appreciation......................... $368,223
Gross depreciation......................... (5,273)
-------
Net appreciation........................... $362,950
========
</TABLE>
# Securities with an aggregate market value of $94,430, which have been
segregated with the custodian to cover margin requirements for the following
open futures contracts at December 31, 1995:
<TABLE>
<CAPTION>
UNREALIZED
TYPE CONTRACTS APPRECIATION
----------------------------------------------------------
<S> <C> <C>
U.S. Treasury 5 Year Note (03/96) 90 $ 92,813
U.S. Treasury 10 Year Note (03/96) 20 32,500
------------
$125,313
============
</TABLE>
- --------------------------------------------------------------------------------
* Also cost for Federal income tax purposes.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELIGMAN AST AST
HENDERSON LORD ABBETT AST FEDERATED PHOENIX PHOENIX
INTERNATIONAL GROWTH AND JANCAP MONEY UTILITY BALANCED FEDERATED CAPITAL
EQUITY INCOME GROWTH MARKET INCOME ASSET HIGH YIELD GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(1)
------------- ----------- --------- --------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in
securities at
value (A)
(Note 1)..... $ 250,018 $ 223,536 $444,152 $343,207 $106,505 $187,234 $ 81,780 $ --
Cash in bank,
including
foreign
currency
holdings..... 17,183 -- -- 2 4 1 -- 19,240
Receivable for
securities
sold......... 93 -- 246 -- -- -- -- --
Receivable for
dividends and
interest..... 769 505 224 2,776 374 1,136 1,775 11
Receivable for
fund shares
sold......... 2,671 66,117 2,282 -- 735 69,718 1,478 --
Deferred
organization
costs (Note
1)........... 17 -- -- -- -- -- -- --
Other assets... 16 -- -- -- -- -- -- --
Unrealized
appreciation
on foreign
currency
exchange
contracts and
futures (Note
1)........... 546 -- 280 -- -- -- -- --
-------- -------- -------- -------- ------- -------- ------- -------
TOTAL
ASSETS... 271,313 290,158 447,184 345,985 107,618 258,089 85,033 19,251
-------- -------- -------- -------- ------- -------- ------- -------
LIABILITIES
Cash
overdraft.... -- -- -- -- -- -- -- --
Payable for
securities
purchased.... 2,975 1,228 15,450 -- 143 2,729 1,275 --
Payable for
fund shares
redeemed..... -- -- -- -- -- -- -- 19,228
Unrealized
depreciation
on foreign
currency
exchange
contracts and
futures (Note
1)........... -- -- -- -- -- -- -- --
Advisory fee
payable (Note
2)........... 197 136 327 98 59 107 49 9
Shareholder
servicing fee
payable (Note
2)........... 22 18 36 30 9 15 7 2
Accrued
expenses..... 63 27 50 58 8 32 10 12
Dividends
payable (Note
1)........... -- -- -- 1,574 -- -- -- --
-------- -------- -------- -------- ------- -------- ------- -------
TOTAL
LIABILITIES... 3,257 1,409 15,863 1,760 219 2,883 1,341 19,251
-------- -------- -------- -------- ------- -------- ------- -------
NET ASSETS........ $ 268,056 $ 288,749 $431,321 $344,225 $107,399 $255,206 $ 83,692 $ --
======== ======== ======== ======== ======= ======== ======= =======
COMPONENTS OF NET
ASSETS
Common stock
(unlimited number
of shares
authorized, $.001
par value per
share)........... $ 15 $ 19 $ 28 $ 344 $ 9 $ 20 $ 8 $ --
Additional paid-in
capital.......... 239,727 254,072 334,097 343,732 95,017 224,886 77,593 --
Undistributed net
investment income
(loss)........... 2,901 3,534 1,412 -- 4,023 5,212 4,026 --
Accumulated net
realized gain
(loss) on
investments and
foreign currency
transactions..... 6,014 7,113 23,307 149 (2,772 ) 8,809 (24) --
Accumulated net
unrealized
appreciation on
investments,
foreign currency
transactions, and
forward currency
contracts........ 19,399 24,011 72,477 -- 11,122 16,279 2,089 --
-------- -------- -------- -------- ------- -------- ------- -------
NET ASSETS........ $ 268,056 $ 288,749 $431,321 $344,225 $107,399 $255,206 $ 83,692 $ --
======== ======== ======== ======== ======= ======== ======= =======
Shares of common
stock
outstanding...... 14,726 19,278 28,014 344,076 8,997 20,363 7,511 --
Net asset value,
offering and
redemption price
per share (Note
1)............... $ 18.20 $ 14.98 $ 15.40 $ 1.00 $ 11.94 $ 12.53 $ 11.14 $ --
======== ======== ======== ======== ======= ======== ======= =======
(A) Investments at
cost............. $ 231,160 $ 199,525 $371,968 $343,207 $ 95,383 $170,955 $ 79,691 $ --
======== ======== ======== ======== ======= ======== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
(1) See Note 6.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
T. ROWE PIMCO
PRICE TOTAL INVESCO FOUNDERS T. ROWE PRICE EAGLE AST SCUDDER BERGER
ASSET RETURN EQUITY CAPITAL INTERNATIONAL GROWTH INTERNATIONAL CAPITAL
ALLOCATION BOND INCOME APPRECIATION EQUITY EQUITY BOND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(1) PORTFOLIO PORTFOLIO
---------- --------- -------- ------------ ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 61,615 $193,203 $174,742 $ 89,018 $ 173,501 $ -- $40,326 $46,231
-- 452 1 85 21,226 5,263 4,140 --
-- -- -- -- 46 -- -- --
453 2,784 1,062 18 548 6 1,483 23
367 42,734 1,066 2,780 617 -- 167 137
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- 182 -- -- -- -- -- --
------- -------- ------- ------- -------- ------ ------- -------
62,435 239,355 176,871 91,901 195,938 5,269 46,116 46,391
------- -------- ------- ------- -------- ------ ------- -------
344 -- -- -- -- -- -- --
2,621 13,864 -- 1,351 12 -- 449 371
-- -- -- -- -- 5,255 -- --
-- 26 -- -- -- -- 10 --
38 95 109 64 158 2 36 27
5 15 14 7 16 -- 4 4
28 20 32 19 85 12 15 10
-- -- -- -- -- -- -- --
------- -------- ------- ------- -------- ------ ------- -------
3,036 14,020 155 1,441 271 5,269 514 412
------- -------- ------- ------- -------- ------ ------- -------
$ 59,399 $225,335 $176,716 $ 90,460 $ 195,667 $ -- $45,602 $45,979
======= ======== ======= ======= ======== ====== ======= =======
$ 5 $ 20 $ 14 $ 6 $ 18 $ -- $ 4 $ 4
52,646 209,801 150,532 75,443 183,647 -- 43,117 41,133
1,269 5,951 3,658 (141) 1,601 -- 1,865 150
331 6,094 5,013 1,797 (1,173) -- (241) (204)
5,148 3,469 17,499 13,355 11,574 -- 857 4,896
------- -------- ------- ------- -------- ------ ------- -------
$ 59,399 $225,335 $176,716 $ 90,460 $ 195,667 $ -- $45,602 $45,979
======= ======== ======= ======= ======== ====== ======= =======
4,944 19,865 14,133 6,350 18,365 -- 4,301 3,707
$ 12.01 $ 11.34 $ 12.50 $ 14.25 $ 10.65 $ -- $ 10.60 $ 12.40
======= ======== ======= ======= ======== ====== ======= =======
$ 56,469 $190,446 $157,243 $ 75,663 $ 161,929 $ -- $39,459 $41,335
======= ======== ======= ======= ======== ====== ======= =======
<CAPTION>
SELIGMAN T. ROWE PIMCO
HENDERSON PRICE LIMITED
INTERNATIONAL NATURAL MATURITY
SMALL CAP RESOURCES BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ---------
<S> <C> <C> <C>
$24,280 $ 9,104 $ 76,417
3,983 -- --
-- -- 1,034
46 4 454
625 716 104,848
-- -- --
-- -- --
31 -- 24
------- ------ --------
28,965 9,824 182,777
------- ------ --------
-- -- --
469 548 20,793
-- -- --
-- -- --
22 4 28
2 1 4
17 9 12
-- -- --
------- ------ --------
510 562 20,837
------- ------ --------
$28,455 $ 9,262 $161,940
======= ====== ========
$ 3 $ 1 $ 15
28,356 8,817 160,498
72 30 765
8 31 174
16 383 488
------- ------ --------
$28,455 $ 9,262 $161,940
======= ====== ========
2,756 834 15,465
$ 10.33 $ 11.11 $ 10.47
======= ====== ========
$24,295 $ 8,721 $ 76,054
======= ====== ========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELIGMAN AST AST
HENDERSON LORD ABBETT AST FEDERATED PHOENIX PHOENIX
INTERNATIONAL GROWTH AND JANCAP MONEY UTILITY BALANCED FEDERATED CAPITAL
EQUITY INCOME GROWTH MARKET INCOME ASSET HIGH YIELD GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ----------- --------- --------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
(NOTE 1)
Interest......... $ 847 $ 729 $ 2,275 $19,996 $ 476 $ 5,318 $4,538 $ 146
Dividends........ 4,186 4,197 3,110 -- 4,366 1,380 -- 182
-------- -------- ------- ------ ------- ------- ------ ------
Total
Investment
Income..... 5,033 4,926 5,385 19,996 4,842 6,698 4,538 328
-------- -------- ------- ------ ------- ------- ------ ------
EXPENSES
Investment
advisory fees
(Note 2)....... 2,454 1,060 2,977 1,674 601 1,108 347 144
Shareholder
servicing fees
(Note 2)....... 245 141 331 335 88 159 46 19
Administration
and accounting
fees........... 227 141 278 280 87 159 75 75
Custodian fees... 153 30 70 95 25 40 17 24
Professional
fees........... 38 20 47 47 13 23 6 2
Registration
fees........... (30) (15) (33) (57) (6) (18 ) (7) (5)
Trustees' fees
and expenses
(Note 2)....... 10 5 12 12 4 6 1 1
Insurance fees... 7 3 8 11 2 4 1 1
Amortization of
organization
costs (Note
1)............. 1 -- 2 2 -- 1 -- --
Miscellaneous
expenses....... 18 7 7 7 5 6 26 3
-------- -------- ------- ------ ------- ------- ------ ------
Total
Expenses... 3,123 1,392 3,699 2,406 819 1,488 512 264
Less:
Advisory
fee waivers
and expense
reimbursements
(Note 2)... (255) -- -- (402) -- -- -- (43)
-------- -------- ------- ------ ------- ------- ------ ------
Net
Expenses... 2,868 1,392 3,699 2,004 819 1,488 512 221
-------- -------- ------- ------ ------- ------- ------ ------
Net Investment
Income (Loss)...... 2,165 3,534 1,686 17,992 4,023 5,210 4,026 107
REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS (NOTE
1)
Net realized gain
(loss) on
investments and
foreign
currency
transactions... 8,916 7,136 38,435 156 358 9,100 124 5,417
Net unrealized
appreciation
(depreciation)
on investments,
foreign
currency
transactions,
and forward
currency
contracts...... 13,385 23,471 58,329 -- 16,069 18,547 3,479 (136)
-------- -------- ------- ------ ------- ------- ------ ------
Net Increase in
Net Assets
resulting from
Operations..... $24,466 $34,141 $98,450 $18,148 $20,450 $32,857 $7,629 $ 5,388
======== ======== ======= ====== ======= ======= ====== ======
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on May 2, 1995.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
T. ROWE TOTAL INVESCO FOUNDERS T. ROWE PRICE EAGLE AST SCUDDER BERGER
PRICE ASSET RETURN EQUITY CAPITAL INTERNATIONAL GROWTH INTERNATIONAL CAPITAL
ALLOCATION BOND INCOME APPRECIATION EQUITY EQUITY BOND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------- ------- ------------ ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,368 $ 6,857 $2,789 $ 419 $ 632 $ 28 $ 2,127 $ 329
400 -- 1,943 88 2,694 84 -- 72
------ ------- ------- ------- ------- ----- ------ ------
1,768 6,857 4,732 507 3,326 112 2,127 401
------ ------- ------- ------- ------- ----- ------ ------
314 652 821 487 1,412 46 276 161
37 100 109 54 141 6 28 21
75 105 110 76 141 72 83 53
35 24 25 35 140 12 30 10
5 13 14 7 18 1 3 3
(8) (16) (23 ) (9) (38) (1) (5) (1)
1 3 3 2 5 -- 1 1
1 3 3 1 5 -- 1 --
-- -- 1 -- -- -- -- --
18 7 11 5 48 5 5 3
------ ------- ------- ------- ------- ----- ------ ------
478 891 1,074 658 1,872 141 422 251
(16) -- -- -- -- (69) -- --
------ ------- ------- ------- ------- ----- ------ ------
462 891 1,074 658 1,872 72 422 251
------ ------- ------- ------- ------- ----- ------ ------
1,306 5,966 3,658 (151) 1,454 40 1,705 150
483 6,557 5,268 2,836 (908) 1,216 13 (195)
5,440 4,574 19,246 10,589 15,141 21 1,290 4,860
------ ------- ------- ------- ------- ----- ------ ------
$ 7,229 $17,097 $28,172 $ 13,274 $15,687 $ 1,277 $ 3,008 $ 4,815
====== ======= ======= ======= ======= ===== ====== ======
<CAPTION>
SELIGMAN T. ROWE PIMCO
HENDERSON PRICE LIMITED
INTERNATIONAL NATURAL MATURITY
SMALL CAP RESOURCES BOND
PORTFOLIO (1) PORTFOLIO(1) PORTFOLIO(1)
------------- ---------- -----------
<S> <C> <C> <C>
$ 110 $ 30 $ 906
73 31 --
---- --- -----
183 61 906
---- --- -----
76 21 101
8 2 16
14 13 16
10 3 3
1 -- 3
-- -- --
-- -- --
-- -- --
-- -- --
2 3 2
---- --- -----
111 42 141
-- (11) --
---- --- -----
111 31 141
---- --- -----
72 30 765
8 31 174
16 383 488
---- --- -----
$ 96 $444 $ 1,427
==== === =====
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELIGMAN HENDERSON
INTERNATIONAL EQUITY LORD ABBETT GROWTH AND
PORTFOLIO INCOME PORTFOLIO JANCAP GROWTH PORTFOLIO
---------------------------- ---------------------------- ----------------------------
1995 1994 1995 1994 1995 1994
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..... $ 2,165 $ 1,164 $ 3,534 $ 1,700 $ 1,686 $ 1,245
Net realized gain (loss) on
investments and foreign
currency transactions.......... 8,916 10,789 7,136 1,699 38,435 (15,037)
Net unrealized appreciation
(depreciation) on investments,
foreign currency transactions,
and forward currency
contracts...................... 13,385 (11,302) 23,471 (1,797) 58,329 4,596
-------- --------- -------- ------- -------- --------
Net Increase (Decrease) in Net
Assets from Operations....... 24,466 651 34,141 1,602 98,450 (9,196)
-------- --------- -------- ------- -------- --------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Dividends to shareholders from
net investment income.......... -- (309) (1,700) (559) (1,363) (447)
Distributions to shareholders
from capital gains............. (12,667) (1,751) (1,699) (922) -- --
-------- --------- -------- ------- -------- --------
Total Dividends and
Distributions to
Shareholders............... (12,667) (2,060) (3,399) (1,481) (1,363) (447)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold........ 105,273 199,458 170,735 43,721 135,311 117,459
Net asset value of shares issued
in reinvestment of dividends
and distributions.............. 12,667 2,060 3,399 1,481 1,363 447
Cost of shares redeemed.......... (99,733) (112,705) (8,177) (1,658) (48,085) (20,470)
-------- --------- -------- ------- -------- --------
Increase (Decrease) in Net
Assets from Capital Share
Transactions................. 18,207 88,813 165,957 43,544 88,589 97,436
-------- --------- -------- ------- -------- --------
Total Increase (Decrease) in
Net Assets................. 30,006 87,404 196,699 43,665 185,676 87,793
-------- --------- -------- ------- -------- --------
NET ASSETS
Beginning of Period.............. 238,050 150,646 92,050 48,385 245,645 157,852
-------- --------- -------- ------- -------- --------
End of Period.................... $ 268,056 $ 238,050 $ 288,749 $ 92,050 $ 431,321 $245,645
======== ========= ======== ======= ======== ========
SHARES ISSUED AND REDEEMED
Shares sold...................... 6,250 11,116 11,930 3,682 9,644 10,265
Shares issued in reinvestment of
dividends and distributions.... 823 117 276 118 119 37
Shares redeemed.................. (5,865) (6,401) (600) (139) (3,650) (1,801)
-------- --------- -------- ------- -------- --------
Net Increase (Decrease) in
Shares Outstanding........... 1,208 4,832 11,606 3,661 6,113 8,501
======== ========= ======== ======= ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on January 4, 1994.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED UTILITY INCOME AST PHOENIX BALANCED ASSET
AST MONEY MARKET PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------ ------------------------------ ------------------------------
1995 1994 1995 1994 1995 1994
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 17,992 $ 9,697 $ 4,023 $ 3,376 $ 5,210 $ 3,869
156 (7) 358 (3,130) 9,100 (291)
-- -- 16,069 (4,810) 18,547 (3,287)
--------- --------- -------- -------- -------- --------
18,148 9,690 20,450 (4,564) 32,857 291
--------- --------- -------- -------- -------- --------
(17,992) (9,697) (3,376) (884) (3,867) (724)
-- (19) -- (109) -- (180)
--------- --------- -------- -------- -------- --------
(17,992) (9,716) (3,376) (993) (3,867) (904)
674,956 510,604 43,009 33,886 92,940 63,156
17,896 8,496 3,376 993 3,867 904
(637,371) (344,560) (27,265) (15,760) (16,215) (9,414)
--------- --------- -------- -------- -------- --------
55,481 174,540 19,120 19,119 80,592 54,646
--------- --------- -------- -------- -------- --------
55,637 174,514 36,194 13,562 109,582 54,033
--------- --------- -------- -------- -------- --------
288,588 114,074 71,205 57,643 145,624 91,591
--------- --------- -------- -------- -------- --------
$ 344,225 $ 288,588 $ 107,399 $ 71,205 $ 255,206 $145,624
========= ========= ======== ======== ======== ========
674,956 510,604 4,009 3,338 7,580 6,038
17,896 8,496 344 96 367 86
(637,371) (344,560) (2,569) (1,562) (1,473) (904)
--------- --------- -------- -------- -------- --------
55,481 174,540 1,784 1,872 6,474 5,220
========= ========= ======== ======== ======== ========
<CAPTION>
FEDERATED HIGH YIELD
PORTFOLIO
-----------------------------
1995 1994(1)
------------- ------------
<S> <C> <C>
$ 4,026 $ 1,210
124 (147)
3,479 (1,390)
-------- --------
7,629 (327)
-------- --------
(1,210) --
-- --
-------- --------
(1,210) --
75,531 32,507
1,210 --
(20,776) (10,872)
-------- --------
55,965 21,635
-------- --------
62,384 21,308
-------- --------
21,308 --
-------- --------
$ 83,692 $ 21,308
======== ========
7,197 3,302
124 --
(2,008) (1,104)
-------- --------
5,313 2,198
======== ========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AST PHOENIX CAPITAL GROWTH T. ROWE PRICE ASSET PIMCO TOTAL RETURN BOND
PORTFOLIO* ALLOCATION PORTFOLIO PORTFOLIO
---------------------------- ---------------------------- ----------------------------
1995 1994(1) 1995 1994(1) 1995 1994(1)
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..... $ 107 $ 116 $ 1,306 $ 489 $ 5,966 $ 1,256
Net realized gain (loss) on
investments
and foreign currency
transactions................... 5,417 (705) 483 (152) 6,557 (463)
Net unrealized appreciation
(depreciation) on investments,
foreign currency transactions,
and forward currency
contracts...................... (136) 136 5,440 (292) 4,574 (1,104)
-------- ------- ------- ------- ------- -------
Net Increase (Decrease) in Net
Assets from Operations....... 5,388 (453) 7,229 45 17,097 (311)
-------- ------- ------- ------- ------- -------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Dividends to shareholders from
net investment income.......... (116) -- (525) -- (1,271) --
Distributions to shareholders
from
capital gains.................. -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Total Dividends and
Distributions to
Shareholders............... (116) -- (525) -- (1,271) --
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold........ 6,536 16,685 31,289 24,603 199,583 49,723
Net asset value of shares issued
in reinvestment of dividends
and distributions.............. 116 -- 525 -- 1,271 --
Cost of shares redeemed.......... (26,769) (1,387) (2,582) (1,185) (37,838) (2,919)
-------- ------- ------- ------- ------- -------
Increase (Decrease) in Net
Assets from
Capital Share Transactions... (20,117) 15,298 29,232 23,418 163,016 46,804
-------- ------- ------- ------- ------- -------
Total Increase (Decrease) in
Net Assets................. (14,845) 14,845 35,936 23,463 178,842 46,493
-------- ------- ------- ------- ------- -------
NET ASSETS
Beginning of Period.............. 14,845 -- 23,463 -- 46,493 --
-------- ------- ------- ------- ------- -------
End of Period.................... $ -- $ 14,845 $59,399 $ 23,463 $ 225,335 $ 46,493
======== ======= ======= ======= ======= =======
SHARES ISSUED AND REDEEMED
Shares sold...................... 633 1,735 2,775 2,481 18,460 5,067
Shares issued in reinvestment of
dividends and distributions.... 12 -- 52 -- 128 --
Shares redeemed.................. (2,234) (146) (244) (120) (3,491) (299)
-------- ------- ------- ------- ------- -------
Net Increase (Decrease) in
Shares Outstanding........... (1,589) 1,589 2,583 2,361 15,097 4,768
======== ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
* See Note 6.
(1) Commenced operations on January 4, 1994.
(2) Commenced operations on May 3, 1994.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOUNDERS CAPITAL APPRECIATION T. ROWE PRICE INTERNATIONAL
INVESCO EQUITY INCOME
PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
------------------------------ ------------------------------ ------------------------------
1995 1994(1) 1995 1994(1) 1995 1994(1)
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,658 $ 1,056 $ (151) $ 290 $ 1,454 $ 268
5,268 (255) 2,836 (1,039) (908) (16)
19,246 (1,748) 10,589 2,767 15,141 (3,567)
-------- ------- -------- ------- -------- --------
28,172 (947) 13,274 2,018 15,687 (3,315)
-------- ------- -------- ------- -------- --------
(1,056) -- (280) -- (121) --
-- -- -- -- (249) --
-------- ------- -------- ------- -------- --------
(1,056) -- (280) -- (370) --
93,257 66,925 62,848 29,373 101,284 122,535
1,056 -- 280 -- 370 --
(9,914) (777) (14,221) (2,832) (30,055) (10,469)
-------- ------- -------- ------- -------- --------
84,399 66,148 48,907 26,541 71,599 112,066
-------- ------- -------- ------- -------- --------
111,515 65,201 61,901 28,559 86,916 108,751
-------- ------- -------- ------- -------- --------
65,201 -- 28,559 -- 108,751 --
-------- ------- -------- ------- -------- --------
$ 176,716 $ 65,201 $ 90,460 $ 28,559 $ 195,667 $108,751
======== ======= ======== ======= ======== ========
8,188 6,769 4,764 2,908 10,012 12,383
105 -- 26 -- 41 --
(850) (79) (1,074) (274) (2,997) (1,074)
-------- ------- -------- ------- -------- --------
7,443 6,690 3,716 2,634 7,056 11,309
======== ======= ======== ======= ======== ========
<CAPTION>
EAGLE GROWTH EQUITY AST SCUDDER INTERNATIONAL
PORTFOLIO* BOND PORTFOLIO
------------------------------- ------------------------------
1995 1994(2) 1995 1994(2)
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
$ 40 $ 10 $ 1,705 $ 421
1,216 (42) 13 (254)
21 (21) 1,290 (432)
-------- ------ ------- -------
1,277 (53) 3,008 (265)
-------- ------ ------- -------
(10) -- (263) --
-- -- -- --
-------- ------ ------- -------
(10) -- (263) --
5,636 3,841 30,340 16,273
10 -- 263 --
(10,392) (309) (2,964) (790)
-------- ------ ------- -------
(4,746) 3,532 27,639 15,483
-------- ------ ------- -------
(3,479) 3,479 30,384 15,218
-------- ------ ------- -------
3,479 -- 15,218 --
-------- ------ ------- -------
$ -- $3,479 $45,602 $ 15,218
======== ====== ======= =======
516 381 2,996 1,654
1 -- 27 --
(867) (31) (295) (81)
-------- ------ ------- -------
(350) 350 2,728 1,573
======== ====== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELIGMAN
HENDERSON T. ROWE PRICE
INTERNATIONAL NATURAL PIMCO LIMITED
BERGER CAPITAL GROWTH SMALL CAP RESOURCES MATURITY BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------- ------------- ------------- -------------
1995 1994(3) 1995(4) 1995(4) 1995(4)
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ 150 $ 3 $ 72 $ 30 $ 765
Net realized gain (loss) on investments and
foreign
currency transactions........................ (195) (9) 8 31 174
Net unrealized appreciation (depreciation) on
investments, foreign currency transactions,
and forward currency contracts............... 4,860 36 16 383 488
------- ------ ------- ------ --------
Net Increase (Decrease) in Net Assets
from Operations............................ 4,815 30 96 444 1,427
------- ------ ------- ------ --------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment
income....................................... (3) -- -- -- --
Distributions to shareholders from capital
gains........................................ -- -- -- -- --
------- ------ ------- ------ --------
Total Dividends and Distributions to
Shareholders............................. (3) -- -- -- --
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold...................... 42,283 3,077 29,685 9,686 166,622
Net asset value of shares issued in
reinvestment of dividends and
distributions................................ 3 -- -- -- --
Cost of shares redeemed........................ (4,149) (77) (1,326) (868) (6,109)
------- ------ ------- ------ --------
Increase (Decrease) in Net Assets from
Capital Share Transactions................. 38,137 3,000 28,359 8,818 160,513
------- ------ ------- ------ --------
Total Increase (Decrease) in Net Assets.... 42,949 3,030 28,455 9,262 161,940
------- ------ ------- ------ --------
NET ASSETS
Beginning of Period............................ 3,030 -- -- -- --
------- ------ ------- ------ --------
End of Period.................................. $45,979 $3,030 $28,455 $ 9,262 $ 161,940
======= ====== ======= ====== ========
SHARES ISSUED AND REDEEMED
Shares sold.................................... 3,773 312 2,884 918 16,062
Shares issued in reinvestment of dividends and
distributions................................ -- -- -- -- --
Shares redeemed................................ (370) (8) (128) (84) (597)
------- ------ ------- ------ --------
Net Increase (Decrease) in Shares
Outstanding................................ 3,403 304 2,756 834 15,465
======= ====== ======= ====== ========
</TABLE>
- --------------------------------------------------------------------------------
(3) Commenced operations on October 20, 1994.
(4) Commenced operations on May 2, 1995.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELIGMAN HENDERSON INTERNATIONAL EQUITY PORTFOLIO
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period...................... $ 17.61 $ 17.34 $ 12.74 $ 13.90 $ 12.99
-------- -------- -------- ------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss)............................ 0.14 0.10 0.14 (0.17) 0.01
Net Realized & Unrealized Gains (Losses) on Investments
and Foreign Currency Transactions..................... 1.44 0.36 4.46 (0.99) 0.90
-------- -------- -------- ------- -------
Total Increase (Decrease) From Investment
Operations....................................... 1.58 0.46 4.60 (1.16) 0.91
-------- -------- -------- ------- -------
Less Dividends and Distributions
Dividends from Net Investment Income.................... -- (0.03) -- -- --
Distributions from Net Realized Capital Gains........... (0.99) (0.16) -- -- --
-------- -------- -------- ------- -------
Total Dividends and Distributions.................. (0.99) (0.19) -- -- --
-------- -------- -------- ------- -------
Net Asset Value at End of Period............................ $ 18.20 $ 17.61 $ 17.34 $ 12.74 $ 13.90
-------- -------- -------- ------- -------
Total Return................................................ 10.00% 2.64% 36.11% (8.35%) 7.01%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's).................. $268,056 $238,050 $150,646 $24,998 $15,892
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense Reimbursement... 1.17% 1.22% 1.52% 2.50% 2.50%
Before Advisory Fee Waiver and Expense
Reimbursement...................................... 1.27% 1.32% 1.52% 2.50% 2.82%
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and Expense Reimbursement... 0.88% 0.55% 0.28% (1.62%) 0.12%
Before Advisory Fee Waiver and Expense
Reimbursement...................................... 0.78% 0.46% 0.28% (1.62%) (0.20%)
Portfolio Turnover Rate..................................... 58.62% 48.69% 31.69% 54.56% 58.74%
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LORD ABBETT GROWTH AND INCOME PORTFOLIO
-----------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993 1992(2)
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period................................. $ 12.00 $ 12.06 $ 10.70 $ 10.00
-------- ------- ------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss)....................................... 0.16 0.20 0.11 0.07
Net Realized & Unrealized Gains (Losses) on Investments and Foreign
Currency Transactions............................................ 3.22 0.06 1.35 0.63
-------- ------- ------- -------
Total Increase (Decrease) From Investment Operations.......... 3.38 0.26 1.46 0.70
-------- ------- ------- -------
Less Dividends and Distributions
Dividends from Net Investment Income............................... (0.20) (0.12) (0.04) --
Distributions from Net Realized Capital Gains...................... (0.20) (0.20) (0.06) --
-------- ------- ------- -------
Total Dividends and Distributions............................. (0.40) (0.32) (0.10) --
-------- ------- ------- -------
Net Asset Value at End of Period....................................... $ 14.98 $ 12.00 $ 12.06 $ 10.70
-------- ------- ------- -------
Total Return........................................................... 28.91% 2.22% 13.69% 7.00%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)............................. $288,749 $92,050 $48,385 $10,159
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense Reimbursement.............. 0.99% 1.06% 1.22% 0.99%(1)
Before Advisory Fee Waiver and Expense Reimbursement............. 0.99% 1.06% 1.33% 1.75%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and Expense Reimbursement.............. 2.50% 2.45% 2.05% 2.49%(1)
Before Advisory Fee Waiver and Expense Reimbursement............. 2.50% 2.45% 1.94% 1.73%(1)
Portfolio Turnover Rate................................................ 50.28% 60.47% 56.70% 34.29%
</TABLE>
- --------------------------------------------------------------------------------
(1) Annualized.
(2) Commenced operations on May 1, 1992.
(3) Commenced operations on November 6, 1992.
(4) Commenced operations on November 10, 1992.
(5) Commenced operations on May 4, 1993.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANCAP GROWTH PORTFOLIO AST MONEY MARKET PORTFOLIO
---------------------------------------------- -----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------- -----------------------------------------------
1995 1994 1993 1992(3) 1995 1994 1993 1992(4)
-------- -------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 11.22 $ 11.78 $ 10.53 $ 10.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------- -------- ------- -------
0.06 0.06 0.03 (0.01) 0.0494 0.0369 0.0252 0.0032
4.18 (0.59) 1.22 0.54 -- -- -- --
-------- -------- -------- ------- -------- -------- ------- -------
4.24 (0.53) 1.25 0.53 0.0494 0.0369 0.0252 0.0032
-------- -------- -------- ------- -------- -------- ------- -------
(0.06) (0.03) -- -- (0.0494) (0.0367) (0.0252) (0.0032)
-- -- -- -- -- (0.0002) -- --
-------- -------- -------- ------- -------- -------- ------- -------
(0.06) (0.03) -- -- (0.0494) (0.0369) (0.0252) (0.0032)
-------- -------- -------- ------- -------- -------- ------- -------
$ 15.40 $ 11.22 $ 11.78 $ 10.53 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------- -------- ------- -------
37.98% (4.51%) 11.87% 5.30% N/A N/A N/A N/A
$431,321 $245,645 $157,852 $15,218 $344,225 $288,588 $114,074 $ 4,294
1.12% 1.18% 1.22% 1.33%(1) 0.60% 0.64% 0.65% 0.65%(1)
1.12% 1.18% 1.22% 2.21%(1) 0.72% 0.76% 0.84% 1.15%(1)
0.51% 0.62% 0.35% (0.90%)(1) 5.38% 3.90% 2.53% 2.43%(1)
0.51% 0.62% 0.35% (1.78%)(1) 5.26% 3.78% 2.34% 1.93%(1)
113.32% 93.92% 92.16% 1.52% N/A N/A N/A N/A
<CAPTION>
FEDERATED UTILITY
INCOME PORTFOLIO
- ----------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
- ----------------------------------
1995 1994 1993(5)
- -------- ------- -------
<S> <C> <C> <C>
$ 9.87 $ 10.79 $ 10.00
- -------- ------- -------
0.40 0.46 0.17
2.09 (1.20) 0.62
- -------- ------- -------
2.49 (0.74) 0.79
- -------- ------- -------
(0.42) (0.16) --
-- (0.02) --
- -------- ------- -------
(0.42) (0.18) --
- -------- ------- -------
$ 11.94 $ 9.87 $ 10.79
- -------- ------- -------
26.13% (6.95%) 7.90%
$107,399 $71,205 $57,643
0.93% 0.99% 1.18%(1)
0.93% 0.99% 1.18%(1)
4.58% 5.11% 5.09%(1)
4.58% 5.11% 5.09%(1)
70.94% 54.26% 5.30%
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED HIGH
AST PHOENIX YIELD PORTFOLIO
BALANCED ASSET PORTFOLIO ------------------
-------------------------------
FOR THE YEAR ENDED
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------- ------------------
1995 1994 1993(5) 1995 1994(6)
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period...................... $ 10.49 $ 10.57 $ 10.00 $ 9.69 $ 10.00
------- ------- ------- ------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss)............................ 0.26 0.27 0.08 0.38 0.55
Net Realized & Unrealized Gains (Losses) on Investments
and Foreign Currency Transactions..................... 2.06 (0.26) 0.49 1.46 (0.86)
------- ------- ------- ------- -------
Total Increase (Decrease) From Investment
Operations....................................... 2.32 0.01 0.57 1.84 (0.31)
------- ------- ------- ------- -------
Less Dividends and Distributions
Dividends from Net Investment Income.................... (0.28) (0.07) -- (0.39) --
Distributions from Net Realized Capital Gains........... -- (0.02) -- -- --
------- ------- ------- ------- -------
Total Dividends and Distributions.................. (0.28) (0.09) -- (0.39) --
------- ------- ------- ------- -------
Net Asset Value of Final Redemptions on December 29, 1995...
Net Asset Value at End of Period............................ $ 12.53 $ 10.49 $ 10.57 $ 11.14 $ 9.69
------- ------- ------- ------- -------
Total Return................................................ 22.60% 0.09% 5.70% 19.57% (3.10%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's).................. $255,206 $145,624 $91,591 $83,692 $21,308
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense Reimbursement... 0.94% 0.99% 1.13%(1) 1.11% 1.15%(1)
Before Advisory Fee Waiver and Expense
Reimbursement...................................... 0.94% 0.99% 1.13%(1) 1.11% 1.34%(1)
Ratios of Net Investment Income (Loss) to Average Net
Assets:
After Advisory Fee Waiver and Expense Reimbursement... 3.28% 3.08% 2.53%(1) 8.72% 9.06%(1)
Before Advisory Fee Waiver and Expense
Reimbursement...................................... 3.28% 3.08% 2.53%(1) 8.72% 8.87%(1)
Portfolio Turnover Rate..................................... 160.94% 86.50% 46.35% 29.64% 40.55%
</TABLE>
- --------------------------------------------------------------------------------
(1) Annualized.
(5) Commenced operations on May 4, 1993.
(6) Commenced operations on January 4, 1994.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
T. ROWE PRICE ASSET
AST PHOENIX CAPITAL ALLOCATION PIMCO TOTAL RETURN INVESCO EQUITY
GROWTH PORTFOLIO PORTFOLIO BOND PORTFOLIO INCOME PORTFOLIO
------------------- ------------------- -------------------- --------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------- ------------------- -------------------- --------------------
1995 1994(6) 1995 1994(6) 1995 1994(6) 1995 1994(6)
------- ------- ------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.34 $ 10.00 $ 9.94 $ 10.00 $ 9.75 $ 10.00 $ 9.75 $ 10.00
------- ------- ------- ------- -------- ------- -------- -------
0.06 0.07 0.26 0.21 0.25 0.26 0.25 0.16
2.92 (0.73) 2.02 (0.27) 1.55 (0.51) 2.65 (0.41)
------- ------- ------- ------- -------- ------- -------- -------
2.98 (0.66) 2.28 (0.06) 1.80 (0.25) 2.90 (0.25)
------- ------- ------- ------- -------- ------- -------- -------
(0.07) -- (0.21) -- (0.21) -- (0.15) --
-- -- -- -- -- -- -- --
------- ------- ------- ------- -------- ------- -------- -------
(0.07) -- (0.21) -- (0.21) -- (0.15) --
------- ------- ------- ------- -------- ------- -------- -------
$ 12.25
-- $ 9.34 $ 12.01 $ 9.94 $ 11.34 $ 9.75 $ 12.50 $ 9.75
------- ------- ------- ------- -------- ------- -------- -------
32.10% (6.60%) 23.36% (0.60%) 18.78% (2.50%) 30.07% (2.50%)
$ -- $14,845 $59,399 $23,463 $225,335 $46,493 $176,716 $65,201
1.15% 1.15%(1) 1.25% 1.25%(1) 0.89% 1.02%(1) 0.98% 1.14%(1)
1.37% 1.59%(1) 1.29% 1.47%(1) 0.89% 1.02%(1) 0.98% 1.14%(1)
0.55% 1.47%(1) 3.53% 3.64%(1) 5.95% 5.57%(1) 3.34% 3.41%(1)
0.33% 1.03%(1) 3.49% 3.42%(1) 5.95% 5.57%(1) 3.34% 3.41%(1)
290.38% 216.86% 17.62% 31.62% 124.41% 139.25% 89.48% 62.87%
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOUNDERS CAPITAL T. ROWE PRICE
APPRECIATION INTERNATIONAL
PORTFOLIO EQUITY PORTFOLIO
------------------ --------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------ --------------------
1995 1994(6) 1995 1994(6)
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period................................ $ 10.84 $ 10.00 $ 9.62 $ 10.00
------- ------- -------- --------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss)...................................... (0.04) 0.11 0.07 0.02
Net Realized & Unrealized Gains (Losses) on Investments and
Foreign Currency Transactions................................... 3.54 0.73 0.99 (0.40)
------- ------- -------- --------
Total Increase (Decrease) From Investment Operations......... 3.50 0.84 1.06 (0.38)
------- ------- -------- --------
Less Dividends and Distributions
Dividends from Net Investment Income.............................. (0.09) -- (0.01) --
Distributions from Net Realized Capital Gains..................... -- -- (0.02) --
------- ------- -------- --------
Total Dividends and Distributions............................ (0.09) -- (0.03) --
------- ------- -------- --------
Net Asset Value of Final Redemptions on December 29, 1995.............
Net Asset Value at End of Period...................................... $ 14.25 $ 10.84 $ 10.65 $ 9.62
------- ------- -------- --------
Total Return.......................................................... 32.56% 8.40% 11.09% (3.80%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)............................ $90,460 $28,559 $195,667 $108,751
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........................................ 1.22% 1.30%(1) 1.33% 1.75%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........................................ 1.22% 1.55%(1) 1.33% 1.77%(1)
Ratios of Net Investment Income (Loss) to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........................................ (0.28%) 2.59%(1) 1.03% 0.45%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........................................ (0.28%) 2.34%(1) 1.03% 0.43%(1)
Portfolio Turnover Rate............................................... 68.32% 197.93% 17.11% 15.70%
</TABLE>
- --------------------------------------------------------------------------------
(1) Annualized.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
(9) Commenced operations on May 2, 1995.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELIGMAN T. ROWE PIMCO
HENDERSON PRICE LIMITED
AST SCUDDER INTERNATIONAL NATURAL MATURITY
EAGLE GROWTH INTERNATIONAL BERGER CAPITAL SMALL CAP RESOURCES BOND
EQUITY PORTFOLIO BOND PORTFOLIO GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ------------------- ------------------ ------------ ------------ ------------
FOR THE FOR THE FOR THE
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------ ------------------- ------------------ ------------ ------------ ------------
1995 1994(7) 1995 1994(7) 1995 1994(8) 1995(9) 1995(9) 1995(9)
------- ------ ------- ------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.95 $10.00 $ 9.68 $ 10.00 $ 9.97 $10.00 $ 10.00 $10.00 $ 10.00
------- ------ ------- ------- ------- ------ ------- ------ --------
0.09 0.03 0.31 0.27 0.04 0.01 0.03 0.04 0.05
2.30 (0.08) 0.75 (0.59) 2.40 (0.04) 0.30 1.07 0.42
------- ------ ------- ------- ------- ------ ------- ------ --------
2.39 (0.05) 1.06 (0.32) 2.44 (0.03) 0.33 1.11 0.47
------- ------ ------- ------- ------- ------ ------- ------ --------
(0.02) -- (0.14) -- (0.01) -- -- -- --
-- -- -- -- -- -- -- -- --
------- ------ ------- ------- ------- ------ ------- ------ --------
(0.02) -- (0.14) -- (0.01) -- -- -- --
------- ------ ------- ------- ------- ------ ------- ------ --------
$ 12.32
-- $ 9.95 $ 10.60 $ 9.68 $ 12.40 $ 9.97 $ 10.33 $11.11 $ 10.47
------- ------ ------- ------- ------- ------ ------- ------ --------
24.11% (0.50%) 11.10% (3.20%) 24.42% (0.30%) 3.30% 11.10% 4.70%
$ -- $3,479 $45,602 $15,218 $45,979 $3,030 $ 28,455 $9,262 $161,940
1.25% 1.25%(1) 1.53% 1.68%(1) 1.17% 1.25%(1) 1.46%(1) 1.35%(1) 0.89%(1)
2.44% 2.63%(1) 1.53% 1.68%(1) 1.17% 1.70%(1) 1.46%(1) 1.80%(1) 0.89%(1)
0.69% 0.80%(1) 6.17% 7.03%(1) 0.70% 1.41%(1) 0.94%(1) 1.28%(1) 4.87%(1)
(0.50%) (0.56%)(1) 6.17% 7.03%(1) 0.70% 0.97%(1) 0.94%(1) 0.83%(1) 4.87%(1)
107.63% 11.39% 325.00% 163.27% 84.21% 5.36% 3.52% 2.32% 204.85%
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
American Skandia Trust (the "Trust"), was organized under the laws of the
Commonwealth of Massachusetts on October 31, 1988, as a "Massachusetts Business
Trust". The Trust is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The Trust
operates as a series company, issuing nineteen classes of shares of beneficial
interest during 1995: Seligman Henderson International Equity Portfolio
("Henderson"), Lord Abbett Growth and Income Portfolio ("Lord Abbett"), JanCap
Growth Portfolio ("JanCap"), AST Money Market Portfolio ("Money Market"),
Federated Utility Income Portfolio ("Federated"), AST Phoenix Balanced Asset
Portfolio ("Balanced"), Federated High Yield Portfolio ("High Yield"), AST
Phoenix Capital Growth Portfolio ("Growth"), T. Rowe Price Asset Allocation
Portfolio ("Asset Allocation"), PIMCO Total Return Bond Portfolio ("PIMCO"),
INVESCO Equity Income Portfolio ("INVESCO"), Founders Capital Appreciation
Portfolio ("Founders"), T. Rowe Price International Equity Portfolio ("T.
Rowe"), Eagle Growth Equity Portfolio ("Eagle"), AST Scudder International Bond
Portfolio ("Scudder"), Berger Capital Growth Portfolio ("Berger"), Seligman
Henderson International Small Cap Portfolio ("Small Cap"), T. Rowe Price Natural
Resources Portfolio ("Natural Resources"), and PIMCO Limited Maturity Bond
Portfolio ("Limited Maturity") (collectively "the Portfolios").
The following is a summary of the Trust's significant accounting policies:
Security Valuation
All Portfolios, other than Money Market: Securities are valued at the close
of regular trading on each business day the New York Stock Exchange ("NYSE") is
open. Securities are valued at the last sale price on the securities exchange or
securities market on which such securities primarily are traded. Securities not
listed on an exchange or securities market, or securities on which there were no
transactions, are valued at the average of the most recent bid and asked prices.
Any securities or other assets for which recent market quotations are not
readily available are valued at fair value as determined in good faith by the
Board of Trustees.
Short-term obligations with less than sixty days remaining to maturity are
valued at amortized cost. Short-term obligations with more than sixty days
remaining to maturity are valued at current market value until the sixtieth day
prior to maturity, and thereafter are valued on an amortized cost basis based on
the value on such date.
Money Market: Securities are valued at amortized cost. The amortized cost
method values a security at its cost at the time of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium.
Foreign Currency Translation and Foreign Currency Exchange Contracts
The Trust's investment valuations, other assets, and liabilities initially
expressed in foreign currencies are converted each business day into U.S.
dollars based upon current exchange rates determined prior to the close of the
NYSE. Purchases and sales of foreign investments and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. Gains and losses attributable to changes
in foreign currency exchange rates are recorded for financial statement purposes
as net realized gains and losses on investments and foreign currency
transactions.
A foreign currency exchange contract (FCEC) is a commitment to purchase or
sell a specified amount of foreign currency at the settlement date at a
specified rate. FCECs are used to hedge against foreign exchange rate risk
arising from a Portfolio's investment or anticipated investment in securities
denominated in foreign currencies. Risks may arise upon entering into FCECs from
the potential inability of counterparties to meet the terms of their contracts.
Also, when utilizing FCECs a Portfolio
<PAGE>
- --------------------------------------------------------------------------------
gives up the opportunity to profit from favorable exchange rate movements
during the term of the contract. FCECs are marked-to-market daily at the
applicable exchange rates and any gains or losses are recorded as unrealized
until the contract settlement date.
Futures and Options
Certain Portfolios, as permitted by the Trust's prospectus, may enter into
futures contracts and purchase and write both put and call options. Futures
contracts provide for the future sale by one party and purchase by another of a
specified amount of a financial instrument at an agreed upon price and date. Put
and call options give the holder the right to sell or purchase, respectively, a
specified amount of a security or currency at a specified price on a certain
date. For both futures and options, risks arise from possible illiquidity and
from movements in security values, interest rates or currency values.
Futures and purchased options are valued based on their quoted daily
settlement prices. The premium received for a written option is recorded as an
asset with an equal liability which is marked-to-market based on the option's
quoted daily settlement price. Fluctuations in the value of futures and options
are recorded as unrealized appreciation (depreciation) until terminated, at
which time realized gains (losses) are recognized.
Investment Transactions and Investment Income
Security transactions are accounted for on the trade date. Realized gains
and losses from security transactions are recognized on the FIFO cost basis.
Dividend income is recognized on the ex-dividend date. Interest income is
accrued daily. Gains or losses on premiums from expired options are recognized
on the date of expiration.
Dividends and Distributions to Shareholders
All Portfolios other than Money Market: Dividends and distributions arising
from net investment income and net short-term and long-term capital gains, if
any, are declared and paid annually.
Money Market: Dividends from net investment income are declared daily and
paid monthly, and capital gains, if any, are declared and paid annually.
Organizations Costs
The Trust bears all costs in connection with its organization, including
the initial fees and expenses of registering and qualifying its shares for
distribution under Federal and state securities regulations. All such costs are
being amortized on a straight-line basis over a period of five years from May 1,
1992.
Tax Matters
It is the Trust's policy to comply with the requirements of the Internal
Revenue Code pertaining to regulated investment companies and to distribute all
of its taxable income, as well as any net realized gains to its shareholders.
Therefore, no federal income tax provision has been made. Foreign taxes have
been provided for dividend and interest income earned on foreign investments in
accordance with the applicable country's tax rates and, to the extent
unrecoverable, are recorded as a reduction of investment income.
2. INVESTMENT MANAGEMENT AGREEMENTS,
INVESTMENT SUB-ADVISORY
AGREEMENTS AND TRANSACTIONS
WITH AFFILIATES
The Portfolios have entered into Investment Management Agreements with
American Skandia Investment Services, Inc., formerly American Skandia Life
Investment Management, Inc., ("Investment Manager") which provide that the
Investment Manager will furnish each Portfolio with investment advice and
investment management and administrative services. The Investment Manager has
engaged the following entities as sub-advisors for their respective Portfolios:
Seligman Henderson Co., a joint venture between J&W Seligman & Co. Incorporated
and Henderson International, Inc. for Henderson and Small Cap, Lord Abbett & Co.
for Lord Abbett, Janus Capital Corporation for JanCap,
<PAGE>
- --------------------------------------------------------------------------------
J. P. Morgan Investment Management, Inc. for Money Market, Federated
Investment Counseling for Federated and High Yield, Phoenix Investment Counsel,
Inc. for Balanced and Growth, T. Rowe Price Associates, Inc. for Asset
Allocation and Natural Resources, Pacific Investment Management Co. for PIMCO
and Limited Maturity, INVESCO Trust Co. for INVESCO, Founders Asset Management
Inc. for Founders, Rowe Price-Fleming International, a United Kingdom
corporation, for T. Rowe, Eagle Asset Management for Eagle, Scudder, Stevens,
and Clark for Scudder, and Berger Associates, Inc. for Berger. The Investment
Manager receives a fee computed daily and paid monthly based on an annual rate
of 1.00%, .75%, .90%, .50%, .75%, .75%, .75%, .75%, .85%, .65%, .75%, .90%,
1.00%, .80%, 1.00%, .75%, 1.00%, .90%, and .65% of the average daily net assets
of the Henderson, Lord Abbett, JanCap, Money Market, Federated, Balanced, High
Yield, Growth, Asset Allocation, PIMCO, INVESCO, Founders, T. Rowe, Eagle,
Scudder, Berger, Small Cap, Natural Resources, and Limited Maturity Portfolios,
respectively. The fees for Federated are at the rate of .60% for average daily
net assets in excess of $50,000,000 and for Balanced are at the rate of .65% for
average daily net assets in excess of $75,000,000. The Investment Manager is
currently voluntarily waiving .15% of its fee for Henderson on average daily net
assets in excess of $75,000,000, and .05% of its fee for Money Market.
The Investment Manager pays each sub-advisor a fee computed daily and
payable monthly based on an annual rate of 1.00%, .50%, .60%, .25%, .50%, .50%,
.50%, .50%, .50%, .30%, .50%, .65%, .75%, .50%, .60%, .55%, .60%, .60%, and .30%
of the average daily net assets of the Henderson, Lord Abbett, JanCap, Money
Market, Federated, Balanced, High Yield, Growth, Asset Allocation, PIMCO,
INVESCO, Founders, T. Rowe, Eagle, Scudder, Berger, Small Cap, Natural
Resources, and Limited Maturity Portfolios, respectively. The sub-advisors for
Henderson and Money Market are currently voluntarily waiving portions of the
fees payable to them by the Investment Manager. The annual rates of the fees
payable by the Investment Manager to the sub-advisors of all Portfolios, other
than Eagle and Scudder, are reduced for Portfolio net assets in excess of
specified levels.
The Investment Manager has agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses (after fee
waivers and expense reimbursements) of the Portfolio for any fiscal year exceed
the most restrictive state blue sky expense limitation in effect from time to
time, to the extent required by such limitation. The Investment Management
Agreement with each Portfolio also provides that the Investment Manager will
reimburse the Portfolio to prevent its expenses from exceeding a specific
percentage limit. During the year ended December 31, 1995, the Investment
Manager reimbursed Money Market, Growth, Asset Allocation, Eagle and Natural
Resources for expenses pursuant to those provisions.
The Trust has entered into an agreement for the sale of shares with
American Skandia Life Assurance Corporation ("ASLAC") pursuant to which it pays
ASLAC a shareholder servicing fee at an annual rate of 0.1% of each Portfolio's
average daily net assets.
Certain officers and/or Trustees of the Trust are also officers and/or
directors of the Investment Manager. During the year ended December 31, 1995,
the Trust made no direct payments to its officers or interested Trustees.
3. PURCHASES AND SALES OF SECURITIES
The cost of security purchases and proceeds from the sales of securities,
excluding short-term obligations, during the year ended December 31, 1995 were
($ in thousands): $139,949 and $135,018 for Henderson, $161,248 and $67,797 for
Lord Abbett, $481,042 and $338,056 for JanCap, $79,463 and $60,002 for
Federated, $231,131 and $201,726 for Balanced, $65,672 and $12,996 for High
Yield, $44,632 and $61,254 for Growth, $37,318 and $5,889 for Asset Allocation,
<PAGE>
- --------------------------------------------------------------------------------
$229,857 and $87,401 for PIMCO, $175,237 and $93,917 for INVESCO, $77,534
and $32,394 for Founders, $90,390 and $22,238 for T. Rowe, $4,887 and $9,040 for
Eagle, $106,962 and $80,393 for Scudder, $54,444 and $15,457 for Berger, $24,497
and $359 for Small Cap, $7,314 and $271 for Natural Resources, and $100,645 and
$44,050 for Limited Maturity.
4. FINANCIAL INSTRUMENTS Certain Portfolios, as permitted by the Trust's
prospectus, may trade financial instruments with off-balance sheet risk in the
normal course of investing activities and to assist in managing exposure to
market risks such as changes in interest rates and foreign currency exchange
rates. The financial instruments include written options, forward foreign
currency exchange contracts and futures contracts.
The notional or contractual amounts of these instruments represent the
investment the Trust has in particular classes of financial instruments and do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
5. CAPITAL LOSS CARRYOVERS
At December 31, 1995, for Federal income tax purposes, capital loss
carryovers which may be applied against future net taxable realized gains of
each succeeding year until the earlier of utilization or expiration in 2002 were
($ in thousands): $2,704 for Federated, $26 for High Yield and $9 for Berger.
Capital loss carryovers that expire in 2003 were ($ in thousands): $418 for T.
Rowe, $195 for Berger and $14 for Small Cap.
6. FUND SUBSTITUTION
On December 29, 1995, pursuant to an exemptive order granted by the
Securities and Exchange Commission, ASLAC effected a substitution involving
various Portfolios and other unaffiliated mutual funds offered as investment
options in its annuity contracts. As a result of that substitution, on December
29, 1995, the separate accounts of ASLAC redeemed all of the then-outstanding
shares of Growth and Eagle, and effected purchases of the shares of various
Portfolios of the Trust, as follows ($ in thousands unaudited):
<TABLE>
<CAPTION>
VALUE OF FUND SHARES:
PORTFOLIO PURCHASED REDEEMED
- ----------------------------- ---------- ---------
<S> <C> <C>
Henderson.................... $ 2,154
Lord Abbett.................. 66,471
JanCap....................... 623
Balanced..................... 69,746
PIMCO........................ 44,198
Limited Maturity............. 101,712
Growth....................... $19,220
Eagle........................ 5,255
</TABLE>
7. SUBSEQUENT EVENT
On April 12, 1996 the shareholders of the AST Scudder International Bond
Portfolio approved a proposal to enter into a new Investment Management
Agreement with the Investment Manager, effective May 1, 1996, which provides for
a reduction in the Investment Manager's fee to an annual rate of .80% of the
Portfolio's average daily net assets. Also on April 12, 1996, the Portfolio's
shareholders approved a proposal to enter into a new Sub-Advisory Agreement
under which Rowe Price-Fleming International will become sub-advisor to the
Portfolio, effective May 1, 1996, and the annual fee rate paid by the Investment
Manager to the sub-advisor will be .40% of the Portfolio's average daily net
assets. In conjunction with the adoption of these new agreements, the name of
the Portfolio will change to the "T. Rowe Price International Bond Portfolio,"
effective May 1, 1996.
<PAGE>
AMERICAN SKANDIA TRUST
SCHEDULES OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
SELIGMAN HENDERSON INTERNATIONAL EQUITY PORTFOLIO
LORD ABBETT GROWTH AND INCOME PORTFOLIO
JANCAP GROWTH PORTFOLIO
AST MONEY MARKET PORTFOLIO
FEDERATED UTILITY INCOME PORTFOLIO
AST PHOENIX BALANCED ASSET PORTFOLIO
FEDERATED HIGH YIELD PORTFOLIO
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
PIMCO TOTAL RETURN BOND PORTFOLIO
INVESCO EQUITY INCOME PORTFOLIO
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO
BERGER CAPITAL GROWTH PORTFOLIO
SELIGMAN HENDERSON INTERNATIONAL SMALL CAP PORTFOLIO
T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
PIMCO LIMITED MATURITY BOND PORTFOLIO
ROBERTSON STEPHENS VALUE + GROWTH PORTFOLIO
<PAGE>
SELIGMAN HENDERSON INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- -------------
<S> <C> <C>
FOREIGN STOCKS -- 95.6%
ARGENTINA -- 0.6%
YPF SA [ADR]..................... 80,000 $ 1,800,000
------------
AUSTRALIA -- 3.3%
Broken Hill Proprietary Co.
Ltd. .......................... 181,270 2,503,273
News Corp. Ltd. ................. 500,794 2,837,951
Western Mining Corp. Ltd. ....... 370,000 2,646,388
Westpac Banking Corp. Ltd. ...... 590,000 2,610,784
------------
10,598,396
------------
FRANCE -- 9.9%
Accor SA......................... 29,441 4,122,347
AXA SA........................... 79,994 4,380,761
Carrefour Supermarch SA.......... 5,967 3,346,654
Carrefour Supermarch Rights*..... 5,967 1,650,118
Cie Generale des Eaux............ 45,716 5,112,055
Roussel-Uclaf.................... 19,414 4,662,743
Societe Generale................. 39,696 4,369,409
Societe Nationale Elf
Aquitaine SA................... 62,755 4,620,494
------------
32,264,581
------------
GERMANY -- 6.3%
Adidas AG........................ 35,712 2,976,783
Bayer AG......................... 140,400 4,944,377
Deutsche Bank AG................. 92,485 4,385,222
Lufthansa AG..................... 27,212 3,856,495
Siemens AG....................... 82,700 4,436,845
------------
20,599,722
------------
HONG KONG -- 4.7%
Citic Pacific Ltd. .............. 850,000 3,437,117
Guangdong Investment Ltd. ....... 5,300,000 3,355,080
HSBC Holdings PLC................ 202,000 3,053,291
Sun Hung Kai Properties Ltd. .... 330,000 3,336,025
Swire Pacific Ltd. Cl-A.......... 265,000 2,268,103
------------
15,449,616
------------
INDIA -- 1.6%
Gujarat Ambuja Cement [GDR]*..... 210,001 2,467,512
Hindalco Industries Ltd.
[GDR]*......................... 75,000 2,840,625
------------
5,308,137
------------
INDONESIA -- 0.8%
PT Telekomunikasi Indonesia...... 7,000 10,606
PT Telekomunikasi
Indonesia [ADR]................ 90,000 2,677,500
------------
2,688,106
------------
ITALY -- 2.0%
Istituto Nazionale Delle
Assicurazioni.................. 3,209,396 4,788,736
Olivetti & Co. SPA Cl-C*......... 2,993,742 1,616,707
------------
6,405,443
------------
JAPAN -- 26.0%
Alps Electric Co. Ltd. .......... 181,000 2,201,061
Aoyama Trading Co. Ltd. ......... 46,700 1,225,464
CSK Corp. ....................... 145,000 4,322,026
Denny's Japan Co. Ltd. .......... 38,000 1,351,559
<CAPTION>
SHARES VALUE
---------- -------------
<S> <C> <C>
East Japan Railway Co. .......... 1,092 $ 5,741,062
Hokkai Can Ltd. ................. 152,000 1,202,158
Joshin Denki..................... 107,000 1,545,762
Kao Corp. ....................... 202,000 2,733,474
Mitsubishi Materials Corp. ...... 838,000 4,566,590
Mitsui Marine & Fire Insurance... 554,000 4,411,941
Mitsui O.S.K. Lines Ltd.*........ 1,343,000 4,641,620
Nippon Oil Co. Ltd. ............. 203,000 1,379,071
Nippon Telegraph & Telephone
Corp. ......................... 1,105 8,203,895
Nippon TV Network................ 8,410 2,614,428
Nomura Securities Co. Ltd. ...... 117,000 2,289,293
Pioneer Electronic Corp. ........ 387,000 9,235,348
Sankyo Co. Ltd. ................. 26,000 998,446
Sumitomo Metal Industries........ 1,364,000 4,190,400
Sumitomo Sitix Corp. ............ 36,000 796,562
Sumitomo Trust & Banking......... 323,000 4,429,917
Tokyo Steel Manufacturing........ 67,000 1,317,089
Toshiba Corp. ................... 1,086,000 7,745,085
Toyo Ink Manufacturing........... 243,000 1,395,300
Tsubaki Nakashima Co. Ltd. ...... 102,000 1,268,355
Tsutsumi Jewelry Co. Ltd. ....... 21,000 1,017,647
Yamaha Corp. .................... 235,000 3,889,092
------------
84,712,645
------------
KOREA -- 0.7%
Samsung Electronics Co. [GDR].... 13,347 334,141
Samsung Electronics Co. [GDS].... 72,290 1,787,862
------------
2,122,003
------------
MALAYSIA -- 2.1%
Malayan Banking BHD.............. 226,500 2,178,758
Proton Perusahaan Otomobil BHD... 453,000 2,469,258
United Engineers Ltd. ........... 322,000 2,232,705
------------
6,880,721
------------
MEXICO -- 0.5%
Grupo Carso SA [ADR]*............ 110,000 1,558,590
------------
NETHERLANDS -- 4.2%
DSM NV........................... 38,222 3,800,451
Elsevier NV...................... 316,849 4,813,978
ING Groep NV..................... 174,235 5,202,418
------------
13,816,847
------------
NORWAY -- 1.3%
Norsk Hydro AS................... 88,719 4,347,027
------------
PHILIPPINES -- 0.7%
SM Prime Holdings, Inc. ......... 8,940,000 2,321,191
------------
SINGAPORE -- 2.3%
DBS Land Ltd. ................... 830,000 2,847,059
United Industrial Corp. Ltd. .... 2,170,000 2,214,599
United Overseas Bank Ltd. ....... 240,860 2,304,472
------------
7,366,130
------------
SPAIN -- 2.7%
Banco Santander SA............... 92,591 4,326,750
Iberdrola SA..................... 440,135 4,522,759
------------
8,849,509
------------
</TABLE>
<PAGE>
SELIGMAN HENDERSON INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- -------------
<S> <C> <C>
SWEDEN -- 2.7%
Ericsson, (L.M.) Telephone
Co. Cl-B....................... 218,752 $ 4,723,952
Stora Kopparbergs Cl-B........... 301,899 3,989,212
------------
8,713,164
------------
SWITZERLAND -- 7.1%
ABB AG........................... 3,867 4,788,127
CS Holding AG.................... 20,905 1,989,837
Nestle SA........................ 4,000 4,572,068
Sandoz AG........................ 4,226 4,837,151
SMH Neuenberg AG................. 16,985 2,656,029
Zurich Versicherungs............. 15,943 4,348,555
------------
23,191,767
------------
TAIWAN -- 1.1%
Taiwan Fund, Inc.**.............. 300,000 3,412,500
------------
THAILAND -- 1.2%
Land and House PLC............... 150,000 1,891,626
Siam Commercial Bank Co. Ltd. ... 135,000 1,957,832
------------
3,849,458
------------
UNITED KINGDOM -- 13.8%
B.A.T. Industries PLC............ 470,000 3,657,332
British Airports Authorities
PLC............................ 350,000 2,544,150
British Petroleum Co. PLC........ 333,500 2,924,075
Caradon PLC...................... 680,000 2,281,348
Central European Growth Fund
PLC**.......................... 1,680,000 1,689,576
Central European Growth Fund PLC
Warrants*...................... 258,000 54,098
FKI Babcock PLC.................. 962,500 2,541,432
Granada Group PLC................ 307,000 4,110,309
<CAPTION>
SHARES VALUE
---------- -------------
<S> <C> <C>
Matthew Clark PLC................ 210,000 $ 2,508,271
Rentokil Group PLC............... 515,800 3,276,676
Reuters Holdings PLC............. 220,000 2,661,883
Rolls-Royce PLC.................. 705,000 2,452,821
Royal Bank of Scotland PLC....... 370,000 2,833,201
Siebe PLC........................ 295,000 4,187,907
Tesco PLC........................ 781,500 3,568,659
WPP Group PLC.................... 1,100,000 3,673,330
-------------
44,965,068
-------------
TOTAL INVESTMENTS
(COST $281,031,242) -- 95.6%....... 311,220,621
OTHER ASSETS LESS
LIABILITIES -- 4.4%................ 14,402,823
-------------
NET ASSETS -- 100.0%................. $ 325,623,444
=============
</TABLE>
Foreign currency exchange contracts outstanding at June 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED UNREALIZED
COVERED EXCHANGE EXPIRATION APPRECIATION
TYPE BY CONTRACT RATE MONTH (DEPRECIATION)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sell DEM $ 6,800,000 1.5194 08/96 $ (9,683)
Sell FRF 10,500,000 5.1502 08/96 (35,820)
Buy JPN 485,477 109.3700 07/96 2,274
Buy JPN 10,000,000 107.7000 08/96 (85,260)
Sell JPN 487,260 109.2700 07/96 232
Sell JPN 26,000,000 103.3300 08/96 1,268,822
Sell MEX 22,248 7.6300 07/96 (145)
Sell UK 547,172 0.6485 07/96 (3,950)
----------
$1,136,470
==========
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
** Closed-end funds.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
LORD ABBETT GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK -- 89.2%
AEROSPACE -- 0.7%
Boeing Co. .................... 30,000 $ 2,613,750
------------
AUTOMOBILE MANUFACTURERS -- 1.8%
General Motors Corp. .......... 125,000 6,546,875
------------
CHEMICALS -- 2.4%
Dow Chemical Co. .............. 75,000 5,700,000
Hanna, (M.A.) Co. ............. 150,000 3,131,250
------------
8,831,250
------------
CLOTHING & APPAREL -- 1.0%
V.F. Corp. .................... 60,000 3,577,500
------------
COMPUTER HARDWARE -- 4.2%
EMC Corp.*..................... 225,000 4,190,625
International Business Machines
Corp. ....................... 48,600 4,811,400
Seagate Technology, Inc.*...... 150,000 6,750,000
------------
15,752,025
------------
CONSUMER PRODUCTS &
SERVICES -- 4.3%
American Brands, Inc. ......... 150,000 6,806,250
Tambrands, Inc. ............... 75,400 3,081,975
Whirlpool Corp. ............... 123,400 6,123,725
------------
16,011,950
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 6.7%
AMP, Inc. ..................... 75,000 3,009,375
Emerson Electric Co. .......... 120,000 10,845,000
Hewlett-Packard Co. ........... 50,000 4,981,250
National Service Industries,
Inc. ........................ 120,000 4,695,000
Texas Instruments, Inc. ....... 30,000 1,496,250
------------
25,026,875
------------
ENVIRONMENTAL SERVICES -- 2.5%
Browning-Ferris Industries,
Inc. ........................ 150,000 4,350,000
WMX Technologies, Inc. ........ 150,000 4,912,500
------------
9,262,500
------------
FINANCIAL-BANK & TRUST -- 7.3%
Bank of Boston Corp. .......... 110,000 5,445,000
BankAmerica Corp. ............. 60,000 4,545,000
Chase Manhattan Corp. ......... 120,000 8,475,000
Comerica, Inc. ................ 90,000 4,016,250
Great Western Financial
Corp. ....................... 200,000 4,775,000
------------
27,256,250
------------
FOOD -- 6.8%
Conagra, Inc. ................. 180,000 8,167,500
CPC International, Inc. ....... 7,100 511,200
Hershey Foods Corp. ........... 45,000 3,301,875
Pioneer Hi-Bred International,
Inc. ........................ 90,000 4,758,750
Sara Lee Corp. ................ 90,000 2,913,750
Supervalu, Inc. ............... 180,000 5,670,000
------------
25,323,075
------------
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
INDUSTRIAL PRODUCTS -- 3.0%
Cooper Tire & Rubber Co. ...... 81,900 $ 1,822,275
Corning, Inc. ................. 135,900 5,215,162
Snap-On, Inc. ................. 90,000 4,263,750
------------
11,301,187
------------
INSURANCE -- 7.6%
Aetna Life & Casualty Co. ..... 110,000 7,865,000
CHUBB Corp. ................... 160,000 7,980,000
Cigna Corp. ................... 30,000 3,536,250
Lincoln National Corp. ........ 90,000 4,162,500
Transamerica Corp. ............ 60,000 4,860,000
------------
28,403,750
------------
MACHINERY & EQUIPMENT -- 2.4%
Deere & Co. ................... 150,000 6,000,000
Goulds Pumps, Inc. ............ 120,000 3,075,000
------------
9,075,000
------------
MEDICAL SUPPLIES &
EQUIPMENT -- 1.9%
Malincrodt Group, Inc. ........ 180,000 6,997,500
------------
OFFICE EQUIPMENT -- 2.4%
Harris Corp. .................. 90,000 5,490,000
Moore Corp. Ltd. .............. 180,000 3,397,500
------------
8,887,500
------------
OIL & GAS -- 9.9%
Chevron Corp. ................. 75,000 4,425,000
Coastal Corp. ................. 77,800 3,248,150
Consolidated Natural Gas
Co. ......................... 115,000 6,008,750
Mobil Corp. ................... 60,000 6,727,500
Schlumberger Ltd. ............. 45,000 3,791,250
Sonat, Inc. ................... 150,000 6,750,000
Total SA [ADR]................. 160,000 5,940,000
------------
36,890,650
------------
PAPER & FOREST PRODUCTS -- 4.9%
International Paper Co. ....... 120,000 4,425,000
James River Corp. of
Virginia..................... 240,000 6,330,000
Kimberly-Clark Corp. .......... 50,000 3,862,500
Westvaco Corp. ................ 120,000 3,585,000
------------
18,202,500
------------
PHARMACEUTICALS -- 4.5%
Merck & Co., Inc. ............. 30,000 1,938,750
Smithkline Beecham PLC [ADR]... 120,000 6,525,000
Warner-Lambert Co. ............ 150,000 8,250,000
------------
16,713,750
------------
PRINTING & PUBLISHING -- 1.1%
Deluxe Corp. .................. 120,000 4,260,000
------------
RESTAURANTS -- 1.2%
Brinker International, Inc.*... 300,000 4,500,000
------------
</TABLE>
<PAGE>
LORD ABBETT GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
RETAIL & MERCHANDISING -- 4.1%
May Department Stores Co. ..... 90,000 $ 3,937,500
Payless Shoesource, Inc.*...... 150,000 4,762,500
Sears Roebuck & Co. ........... 60,000 2,917,500
Toys 'R' Us, Inc.*............. 120,000 3,420,000
------------
15,037,500
------------
TELECOMMUNICATIONS -- 4.0%
AT&T Corp. .................... 90,000 5,580,000
Lucent Technologies, Inc. ..... 40,000 1,515,000
MCI Communications Corp. ...... 300,000 7,687,500
------------
14,782,500
------------
UTILITIES -- 4.5%
Central & South West Corp. .... 180,000 5,220,000
Cinergy Corp. ................. 210,000 6,720,000
Ohio Edison Co. ............... 225,000 4,921,875
------------
16,861,875
------------
TOTAL COMMON STOCK
(COST $299,705,451).............. 332,115,762
------------
PREFERRED STOCK -- 2.4%
INDUSTRIAL PRODUCTS -- 1.2%
Sonoco Products Co.
$2.25 [CVT].................. 75,000 4,518,750
------------
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
OIL & GAS -- 1.2%
Atlantic Richfield Co. 9.01%
[CVT]........................ 180,000 $ 4,387,500
------------
TOTAL PREFERRED STOCK
(COST $8,591,249)................ 8,906,250
------------
SHORT TERM INVESTMENTS -- 7.4%
Temporary Investment
Cash Fund.................... 13,766,124 13,766,124
Temporary Investment Fund...... 13,766,124 13,766,124
------------
(COST $27,532,248)........... 27,532,248
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
--------- ------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS
-- 2.2%
U.S. Treasury Bonds
7.875%
(COST $8,267,658)..... 02/15/21 $7,500 8,219,527
TOTAL INVESTMENTS -- 101.2%
(COST $344,096,606).................. 376,773,787
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (1.2%)............... (4,640,901)
NET ASSETS -- 100.0%................... $372,132,886
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
JANCAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK -- 92.6%
AEROSPACE -- 5.5%
Boeing Co. ...................... 275,800 $ 24,029,075
McDonnell Douglas Corp. ......... 107,100 5,194,350
Textron, Inc. ................... 56,850 4,540,894
------------
33,764,319
------------
AIRLINES -- 2.5%
AMR Corp.*....................... 57,825 5,262,075
Trans World Airlines, Inc.*...... 482,700 6,878,475
UAL Corp.*....................... 54,200 2,913,250
------------
15,053,800
------------
BEVERAGES -- 5.4%
Coca-Cola Co. ................... 297,200 14,525,650
Coca-Cola Enterprises, Inc. ..... 151,850 5,257,806
Pepsico, Inc. ................... 370,700 13,113,512
------------
32,896,968
------------
CHEMICALS -- 7.3%
Cytec Industries, Inc.*.......... 212,525 18,170,887
Monsanto Co. .................... 537,125 17,456,563
Praxair, Inc. ................... 206,900 8,741,525
------------
44,368,975
------------
CLOTHING & APPAREL -- 2.2%
Designer Holdings Ltd.*.......... 49,350 1,313,944
Gucci Group NV................... 185,950 11,993,775
St. John Knits, Inc. ............ 7,375 329,109
------------
13,636,828
------------
COMPUTER SERVICES & SOFTWARE -- 11.6%
Cisco Systems, Inc.*............. 283,950 16,078,669
Edify Corp.*..................... 13,875 367,688
First Data Corp. ................ 252,500 20,105,313
Microsoft Corp.*................. 195,225 23,451,403
Oracle Systems Corp. ............ 36,750 1,449,328
Parametric Technology Corp. ..... 71,025 3,080,709
Remedy Corp.*.................... 29,150 2,127,950
Sapient Corp.*................... 80,300 3,392,675
Shiva Corp.*..................... 6,800 544,000
------------
70,597,735
------------
ELECTRONIC COMPONENTS & EQUIPMENT
-- 2.7%
Diebold, Inc. ................... 73,650 3,553,613
General Electric Co. ............ 151,225 13,080,963
------------
16,634,576
------------
ENTERTAINMENT & LEISURE -- 0.8%
Trump Hotels & Casino
Resorts, Inc.*................. 164,000 4,674,000
------------
FINANCIAL-BANK & TRUST -- 12.9%
Bank Plus Corp.*................. 670,609 5,867,829
Chase Manhattan Corp. ........... 281,450 19,877,406
Citicorp......................... 253,445 20,940,893
Wells Fargo & Co. ............... 134,083 32,029,077
------------
78,715,205
------------
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
FINANCIAL SERVICES -- 9.8%
Associates First Capital
Corp.*......................... 176,200 $ 6,629,525
Charles Schwab Corp. ............ 123,375 3,022,688
Federal Home Loan Mtge. Corp. ... 10,175 869,963
Federal National Mtge. Assoc. ... 360,860 12,088,810
First USA Paymentech, Inc.*...... 96,550 3,862,000
Merrill Lynch & Co., Inc. ....... 362,500 23,607,812
Morgan Stanley Group, Inc. ...... 105,500 5,182,688
Reuters Holdings PLC [ADR]....... 22,725 1,647,562
Student Loan Marketing Assoc. ... 40,325 2,984,050
------------
59,895,098
------------
HEALTHCARE SERVICES -- 1.4%
Oxford Health Plans, Inc. ....... 207,075 8,515,959
------------
HOTELS & MOTELS -- 1.5%
HFS, Inc.*....................... 131,250 9,187,500
------------
MEDICAL SUPPLIES & EQUIPMENT -- 0.2%
Medtronic, Inc. ................. 26,525 1,485,400
------------
METALS & MINING -- 1.7%
Potash Corp. of
Saskatchewan, Inc. ............ 154,175 10,214,094
------------
MISCELLANEOUS -- 2.2%
Flightsafety International,
Inc. .......................... 248,325 13,471,631
------------
OFFICE EQUIPMENT -- 1.9%
Alco Standard Corp. ............. 49,750 2,251,188
Danka Business Systems PLC
[ADR].......................... 322,725 9,439,706
------------
11,690,894
------------
PHARMACEUTICALS -- 9.8%
Amgen, Inc.*..................... 225,025 12,151,350
Centocor, Inc.*.................. 277,525 8,291,059
Lilly, (Eli) & Co. .............. 331,050 21,518,250
Pfizer, Inc. .................... 249,975 17,841,966
------------
59,802,625
------------
PRINTING & PUBLISHING -- 1.7%
Gartner Group, Inc. Cl-A*........ 289,800 10,613,925
------------
RESTAURANTS -- 0.5%
Lone Star Steakhouse & Saloon*... 7,775 293,506
Starbucks Corp.*................. 106,700 3,014,275
------------
3,307,781
------------
RETAIL & MERCHANDISING -- 5.4%
Fila Holding SPA [ADR]........... 209,375 18,058,594
Nike, Inc. Cl-B.................. 146,450 15,047,737
------------
33,106,331
------------
TELECOMMUNICATIONS -- 5.1%
Ascend Communications, Inc.*..... 303,525 17,073,281
MFS Communications Co., Inc. .... 27,800 1,045,975
U.S. Robotics Corp.*............. 146,925 12,562,086
U.S. Satellite Broadcasting
Co., Inc.*..................... 16,600 626,650
------------
31,307,992
------------
</TABLE>
<PAGE>
JANCAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
UTILITIES -- 0.5%
PECO Energy Co. ................. 107,800 $ 2,802,800
------------
TOTAL COMMON STOCK
(COST $444,629,038)................ 565,744,436
------------
PREFERRED STOCK -- 0.6%
FINANCIAL SERVICES
American Express 6.25% [CVT]
(COST $2,780,360).............. 56,000 3,675,000
------------
FOREIGN STOCK -- 1.3%
AUTOMOBILE MANUFACTURERS
Porsche AG -- (DEM)*
(COST $8,294,264).............. 13,419 8,048,223
------------
SHORT TERM INVESTMENTS -- 0.0%
Temporary Investment Cash Fund... 35,111 35,111
Temporary Investment Fund........ 35,111 35,111
------------
(COST $70,222)................. 70,222
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- -------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 7.0%
American Express Co.
5.32%............... 07/01/96 $10,000 10,000,000
Federal Home Loan
Mtge Corp.
5.48%............... 07/01/96 5,000 5,000,000
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C>
Ford Motor Credit Co.
5.49%............... 07/01/96 $27,900 $ 27,900,000
TOTAL COMMERCIAL PAPER
(COST $42,900,000)................ 42,900,000
TOTAL INVESTMENTS -- 101.5%
(COST $498,673,884)............... 620,437,881
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (1.5%)............ (9,413,656)
------------
NET ASSETS -- 100.0%................ $611,024,225
============
</TABLE>
Foreign currency exchange contracts outstanding at June 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED UNREALIZED
COVERED EXCHANGE EXPIRATION APPRECIATION
TYPE BY CONTRACT RATE MONTH (DEPRECIATION)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Buy DEM $7,142,391 1.4701 08/96 $ (215,068)
Sell DEM 13,803,361 1.4436 08/96 655,976
----------
$ 440,908
==========
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
AST MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 35.2%
FEDERAL HOME LOAN BANK
-- 6.1%
5.52%............... 07/01/96 $34,795 $ 34,795,000
FEDERAL HOME LOAN MORTGAGE
CORP. -- 16.2%
5.52%............... 07/01/96 12,660 12,660,000
5.25%............... 07/15/96 20,000 19,959,166
5.27%............... 07/22/96 15,000 14,953,887
5.28%............... 07/22/96 15,000 14,953,800
5.29%............... 07/25/96 10,000 9,964,733
5.28%............... 07/31/96 10,000 9,956,000
5.30%............... 08/12/96 10,000 9,938,167
------------
92,385,753
------------
FEDERAL NATIONAL MORTGAGE
ASSOC. -- 12.9%
5.25%............... 07/11/96 5,000 4,998,482
5.26%............... 07/12/96 9,115 9,100,350
5.22%............... 07/18/96 10,000 9,975,350
5.30%............... 08/06/96 7,500 7,460,250
5.30%............... 08/08/96 7,500 7,458,041
5.60%............... 11/01/96 6,000 5,996,684
5.45%............... 11/15/96 5,000 4,998,412
5.30%............... 12/26/96 14,000 13,985,368
5.55%............... 06/11/97 10,000 9,992,677
------------
73,965,614
------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(COST $201,146,367)............... 201,146,367
------------
U.S. TREASURY OBLIGATIONS
-- 0.9%
U.S. TREASURY
BILLS -- 0.0%
4.85%............... 07/25/96 10 9,968
4.95%............... 07/25/96 283 282,066
------------
292,034
------------
U.S. TREASURY
NOTES -- 0.9%
7.50%............... 01/31/97 5,000 5,067,215
------------
TOTAL U.S. TREASURY
OBLIGATIONS
(COST $5,359,249)................. 5,359,249
------------
CERTIFICATES OF DEPOSIT
-- 10.3%
Bank National de Paris
New York
5.38%............... 08/07/96 10,000 10,000,000
Bank of New York
Co., Inc.
5.55%............... 04/01/97 5,000 4,997,385
Canadian Imperial Bank
5.41%............... 08/26/96 10,000 10,000,000
National Bank of
Australia
5.75%............... 10/02/96 5,000 4,998,416
National Westminster
Bank New York
5.40%............... 08/20/96 10,000 10,000,138
Royal Bank of Canada
5.81%............... 05/13/97 4,000 3,999,668
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C>
Societe Generale New
York
5.65%............... 04/01/97 $15,000 $ 15,002,956
------------
TOTAL CERTIFICATES OF
DEPOSIT
(COST $58,998,563)................ 58,998,563
------------
COMMERCIAL PAPER -- 51.6%
BEVERAGES -- 7.8%
Coca-Cola Co.
5.35%............... 08/08/96 10,000 9,943,528
Pepsico, Inc.
5.35%............... 08/12/96 15,000 14,906,375
Seagram, Joseph E. &
Sons, Inc.
5.40%............... 07/30/96 20,000 19,913,000
------------
44,762,903
------------
ELECTRONIC COMPONENTS &
EQUIPMENT -- 4.8%
General Electric Co.
5.31%............... 07/03/96 7,500 7,497,788
Hewlett-Packard Co.
5.25%............... 08/30/96 20,000 19,825,000
------------
27,322,788
------------
ENTERTAINMENT & LEISURE
-- 3.0%
Walt Disney Co.
5.25%............... 07/08/96 12,000 11,987,750
5.28%............... 08/05/96 5,000 4,974,333
------------
16,962,083
------------
FINANCIAL
SERVICES -- 20.1%
AIG Funding
5.33%............... 07/16/96 10,000 9,977,792
American Express Co.
5.32%............... 07/24/96 10,000 9,966,011
Cades Be
5.35%............... 08/21/96 20,000 19,848,417
Commerzbank
5.28%............... 07/15/96 10,000 9,979,467
Ford Motor Credit Co.
5.34%............... 07/16/96 20,000 19,955,500
General Electric
Capital Corp.
5.33%............... 07/09/96 10,000 9,988,156
National Australia
Funding, Inc.
5.36%............... 07/25/96 10,000 9,964,267
UBS Finance, Inc.
5.55%............... 07/01/96 25,000 25,000,000
------------
114,679,610
------------
FINANCIAL-BANK & TRUST
-- 6.5%
Bayerische Landesbank
[VR]
5.29%............... 01/15/97 5,000 4,998,286
Bayerische Vereinsbank
5.31%............... 07/03/96 17,000 16,994,985
</TABLE>
<PAGE>
AST MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
Chase Manhattan Corp.
5.40%............... 09/09/96 $10,000 $ 9,895,000
Comerica Bank of
Detroit, Michigan
5.70%............... 09/03/96 5,000 4,999,410
------------
36,887,681
------------
PHARMACEUTICALS -- 4.5%
Glaxo Wellcome PLC
5.30%............... 08/13/96 20,000 19,873,389
Lilly, (Eli) & Co.
5.35%............... 07/01/96 6,000 6,000,000
------------
25,873,389
------------
RETAIL & MERCHANDISING
-- 1.4%
Toys 'R' Us, Inc.
5.30%............... 07/09/96 8,000 7,990,578
------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
UTILITIES -- 3.5%
Southern Co.
5.40%............... 07/02/96 $20,000 $ 19,997,000
------------
TOTAL COMMERCIAL PAPER
(COST $294,476,032)............... 294,476,032
------------
TIME DEPOSITS -- 2.1%
FINANCIAL-BANK & TRUST
NationsBank Corp.
4.90%
(COST $11,996,525).... 02/05/97 12,000 11,996,525
------------
TOTAL INVESTMENTS -- 100.1%
(COST $571,976,736)............... 571,976,736
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.1%)............ (758,844)
------------
NET ASSETS -- 100.0%................ $571,217,892
============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
FEDERATED UTILITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK -- 81.2%
AUTOMOBILE MANUFACTURERS -- 1.2%
Ford Motor Co. .................... 46,200 $ 1,495,725
------------
COMPUTER SERVICES & SOFTWARE -- 0.7%
Electronic Data Systems Corp. ..... 15,931 856,291
------------
FINANCIAL-BANK & TRUST -- 1.0%
Mellon Bank Corp. ................. 21,100 1,202,700
------------
FOOD -- 1.7%
Philip Morris Companies, Inc. ..... 20,400 2,121,600
------------
OIL & GAS -- 4.0%
Exxon Corp. ....................... 28,200 2,449,875
New Jersey Resources Corp. ........ 8,300 238,625
Panenergy Corp. ................... 28,500 936,938
Williams Companies, Inc. .......... 25,000 1,237,500
------------
4,862,938
------------
REAL ESTATE -- 1.9%
Meditrust Corp. [REIT]............. 68,000 2,269,500
------------
TELECOMMUNICATIONS -- 25.2%
Ameritech Corp. ................... 71,800 4,263,125
AT&T Corp. ........................ 80,600 4,997,200
BellSouth Corp. ................... 133,100 5,640,113
Cia de Telecomunicaciones de Chile
SA [ADR]......................... 13,300 1,305,063
GTE Corp. ......................... 113,700 5,088,075
MCI Communications Corp. .......... 124,600 3,192,875
Pacific Telesis Group.............. 72,000 2,430,000
SBC Communications, Inc. .......... 50,000 2,462,500
Telcomunicacoes Brasileras [ADR]... 18,400 1,281,100
------------
30,660,051
------------
UTILITIES -- 0.4%
American Water Works Co., Inc. .... 10,800 434,700
------------
UTILITIES -- ELECTRIC -- 39.0%
Cinergy Corp. ..................... 43,400 1,388,800
CMS Energy Corp. .................. 113,700 3,510,488
DPL, Inc. ......................... 131,600 3,207,750
DQE, Inc. ......................... 92,750 2,550,625
Duke Power Co. .................... 94,200 4,827,750
FPL Group, Inc. ................... 109,600 5,041,600
General Public Utilities Corp. .... 51,900 1,829,475
Illinova Corp. .................... 102,600 2,949,750
Korea Electric Power Corp. [ADR]... 53,000 1,285,250
National Power PLC [ADR]........... 78,300 1,908,563
NIPSCO Industries, Inc. ........... 67,200 2,704,800
Pacificorp......................... 87,400 1,944,650
PECO Energy Co. ................... 87,500 2,275,000
Pinnacle West Capital Co. ......... 115,800 3,517,425
Southern Co. ...................... 122,100 3,006,713
Teco Energy, Inc. ................. 101,900 2,572,975
Texas Utilities Co. ............... 69,800 2,983,950
------------
47,505,564
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
UTILITIES -- GAS -- 6.1%
Enron Corp. ....................... 61,900 $ 2,530,163
MCN Corp. ......................... 102,200 2,491,121
Pacific Enterprises................ 82,500 2,444,063
------------
7,465,347
------------
TOTAL COMMON STOCK
(COST $88,053,245)................... 98,874,416
------------
PREFERRED STOCK -- 10.3%
ENVIRONMENTAL SERVICES -- 1.2%
Browning-Ferris Industries, Inc.
7.25% [CVT]...................... 44,700 1,419,225
------------
FINANCIAL SERVICES -- 5.2%
Merrill Lynch & Co., Inc. [CVT]
6.00%............................ 30,200 668,175
7.25%............................ 11,200 634,200
$3.12............................ 38,100 2,057,400
Noram Financing 6.25% [CVT]........ 15,000 813,750
SunAmerica, Inc. $3.10 [CVT]....... 29,500 2,205,125
------------
6,378,650
------------
INDUSTRIAL PRODUCTS -- 1.0%
Coeur d'Arlene Mines Corp. [CVT]
7.00%............................ 58,600 1,157,350
------------
OIL & GAS -- 1.6%
Sun Co., Inc. $1.80 [CVT].......... 15,900 469,050
Wiliams Companies,
Inc. $3.50 [CVT]................. 19,500 1,547,813
------------
2,016,863
------------
PAPER & FOREST PRODUCTS -- 0.8%
International Paper Co. 5.25% [CVT]
144A............................. 10,000 445,540
International Paper Co. 5.25%
[CVT]............................ 11,200 492,800
------------
938,340
------------
TELECOMMUNICATIONS -- 0.5%
Salomon, Inc. 7.625% [CVT]......... 21,800 594,050
------------
TOTAL PREFERRED STOCK
(COST $12,009,261)................... 12,504,478
------------
<CAPTION>
PAR
MATURITY (000)
-------- -------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 5.8%
COMPUTER HARDWARE -- 0.5%
3Com Corp. [CVT] 144A
10.25%................. 11/01/01 $ 420 649,950
-----------
</TABLE>
<PAGE>
FEDERATED UTILITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- -------- ------------
<S> <C> <C> <C>
ELECTRONIC COMPONENTS &
EQUIPMENT -- 1.8%
Altera Corp. [CVT] 144A
5.75%.................. 06/15/02 $1,155 $ 1,157,887
Solectron Corp. [CVT]
144A
6.00%.................. 03/01/06 1,200 1,101,000
------------
2,258,887
------------
FINANCIAL SERVICES -- 1.1%
New World Infrastructure
[CVT] 144A
5.00%.................. 07/15/01 1,350 1,296,000
------------
PHARMACEUTICALS -- 1.0%
Alza Corp. [CVT]
5.00%.................. 05/01/06 1,200 1,167,000
------------
RETAIL & MERCHANDISING
-- 1.0%
Federated Department
Stores, Inc. [CVT]
5.00%.................. 10/01/03 1,010 1,166,550
------------
SEMI-CONDUCTORS -- 0.4%
Analog Devices, Inc.
[CVT]
3.50%.................. 12/01/00 480 549,600
------------
TOTAL CORPORATE OBLIGATIONS
(COST $7,283,595)................. 7,087,987
------------
<CAPTION>
PAR
MATURITY (000) VALUE
-------- -------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 4.4%
HSBC Securities, Inc.
5.30% dated 06/28/96,
repurchase price
$5,407,387
(Collateralized by U.S.
Treasury Note, par
value $5,555,000,
market value $5,559,453
due 04/30/01) (COST
$5,405,000)............ 07/01/96 $5,405 $ 5,405,000
------------
TOTAL INVESTMENTS -- 101.7%
(COST $112,751,101)............... 123,871,881
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (1.7%).................... (2,094,239)
------------
NET ASSETS -- 100.0%.................. $121,777,642
============
</TABLE>
- --------------------------------------------------------------------------------
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 3.8% of net assets.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
AST PHOENIX BALANCED ASSET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK -- 58.1%
AEROSPACE -- 2.2%
Boeing Co. ........................ 35,000 $ 3,049,375
United Technologies Corp. ......... 25,000 2,875,000
----------
5,924,375
----------
AIRLINES -- 1.0%
AMR Corp.*......................... 30,000 2,730,000
----------
BEVERAGES -- 1.6%
Pepsico, Inc. ..................... 119,500 4,227,313
----------
BUSINESS SERVICES -- 1.5%
Equifax, Inc. ..................... 53,500 1,404,375
Manpower, Inc. .................... 67,900 2,665,075
----------
4,069,450
----------
CHEMICALS -- 0.9%
Monsanto Co. ...................... 75,000 2,437,500
----------
COMPUTER SERVICES & SOFTWARE -- 6.2%
Cisco Systems, Inc.*............... 47,100 2,667,037
Computer Associates
International, Inc. ............. 34,200 2,436,750
First Data Corp. .................. 40,600 3,232,775
HBO & Co. ......................... 50,400 3,414,600
Microsoft Corp.*................... 21,100 2,534,637
Netscape Communications Corp.*..... 34,900 2,172,525
----------
16,458,324
----------
COMPUTER HARDWARE -- 1.1%
Sun Microsystems, Inc.*............ 48,200 2,837,775
----------
CONGLOMERATES -- 1.1%
Procter & Gamble Co. .............. 32,000 2,900,000
----------
CONSTRUCTION -- 0.8%
Fluor Corp. ....................... 32,200 2,105,075
----------
CONSUMER PRODUCTS & SERVICES -- 1.6%
Corrections Corp. of America*...... 21,200 1,484,000
Gillette Co. ...................... 44,400 2,769,450
----------
4,253,450
----------
ELECTRONIC COMPONENTS & EQUIPMENT
-- 3.5%
General Electric Co. .............. 20,000 1,730,000
Hewlett-Packard Co. ............... 35,100 3,496,837
Raychem Corp. ..................... 20,000 1,437,500
Waters Corp.*...................... 76,600 2,527,800
----------
9,192,137
----------
ENTERTAINMENT & LEISURE -- 0.5%
Walt Disney Co. ................... 21,600 1,358,100
----------
ENVIRONMENTAL SERVICES -- 0.3%
WMX Technologies, Inc. ............ 25,000 818,750
----------
FINANCIAL-BANK & TRUST -- 2.0%
Citicorp........................... 34,000 2,809,250
NationsBank Corp. ................. 31,200 2,577,900
----------
5,387,150
----------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
FINANCIAL SERVICES -- 1.7%
Donaldson, Lufkin & Jenrette,
Inc. ............................ 16,700 $ 517,700
Green Tree Financial Corp. ........ 41,200 1,287,500
SunAmerica, Inc. .................. 44,900 2,536,850
----------
4,342,050
----------
FOOD -- 1.1%
Philip Morris Companies, Inc. ..... 28,500 2,964,000
----------
HOTELS & MOTELS -- 2.1%
HFS, Inc.*......................... 41,800 2,926,000
Interstate Hotels Co.*............. 53,300 1,185,925
Marriott International, Inc. ...... 25,000 1,343,750
----------
5,455,675
----------
INSURANCE -- 2.0%
American International
Group, Inc. ..................... 25,000 2,465,625
Travelers Group, Inc. ............. 61,850 2,821,906
----------
5,287,531
----------
MACHINERY & EQUIPMENT -- 0.9%
Dover Corp. ....................... 52,800 2,435,400
----------
MEDICAL SUPPLIES & EQUIPMENT -- 2.8%
Guidant Corp. ..................... 54,800 2,698,900
Manor Care, Inc. .................. 36,500 1,437,188
Medtronic, Inc. ................... 58,100 3,253,600
----------
7,389,688
----------
OFFICE EQUIPMENT -- 1.1%
Xerox Corp. ....................... 54,300 2,905,050
----------
OIL & GAS -- 6.5%
Anadarko Petroleum Corp. .......... 24,000 1,392,000
Apache Corp. ...................... 41,700 1,370,888
Baker Hughes, Inc. ................ 73,000 2,399,875
Consolidated Natural Gas Co. ...... 20,400 1,065,900
Enron Corp. ....................... 69,800 2,203,075
Ensco International, Inc.*......... 44,400 1,443,000
Halliburton Co. ................... 50,500 2,802,750
Louisiana Land & Exploration
Co. ............................. 15,000 864,375
Schlumberger Ltd. ................. 36,800 3,100,400
Sonat, Inc. ....................... 11,900 535,500
----------
17,177,763
----------
PHARMACEUTICALS -- 5.6%
American Home Products Corp. ...... 50,000 3,006,250
Genzyme Corp.*..................... 20,000 1,005,000
Johnson & Johnson.................. 60,000 2,970,000
Lilly, (Eli) & Co. ................ 38,800 2,522,000
Merck & Co., Inc. ................. 40,000 2,585,000
Pfizer, Inc. ...................... 36,200 2,583,775
----------
14,672,025
----------
RETAIL & MERCHANDISING -- 5.6%
Autozone, Inc.*.................... 95,600 3,322,100
Federated Department Stores,
Inc.*............................ 75,000 2,559,375
</TABLE>
<PAGE>
AST PHOENIX BALANCED ASSET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
Melville Corp. .................... 30,000 $ 1,215,000
Nike, Inc. Cl-B.................... 30,000 3,082,500
Petsmart, Inc.*.................... 34,000 1,623,500
Staples, Inc.*..................... 60,000 1,170,000
TJX Companies, Inc. ............... 50,000 1,687,500
----------
14,659,975
----------
SEMI-CONDUCTORS -- 0.7%
Intel Corp. ....................... 25,900 1,902,032
----------
TELECOMMUNICATIONS -- 3.7%
AT&T Corp. ........................ 50,800 3,149,600
McLeod, Inc. Cl-A*................. 77,000 1,848,000
Newbridge Networks Corp.*.......... 37,700 2,469,350
U.S. Robotics, Inc.*............... 25,400 2,171,700
----------
9,638,650
----------
TOTAL COMMON STOCK
(COST $141,844,129).................. 153,529,238
----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
--------- --------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 0.2%
TELECOMMUNICATIONS -- 0.1%
Rogers Communications,
Inc. Sr. Notes
9.125%.................. 01/15/06 $ 200 186,000
-------------
TRANSPORTATION -- 0.1%
Teekay Shipping Corp.
8.32%................... 02/01/08 330 310,200
-------------
TOTAL CORPORATE OBLIGATIONS
(COST $529,275)....................... 496,200
-------------
MUNICIPAL OBLIGATIONS -- 2.0%
Kergen County, CA Pension
Obligation
7.26%................... 08/15/14 370 356,125
Long Beach, CA Pension
Obligation
6.87%................... 09/01/06 200 194,500
Miami Beach, FL Special
Obligation (Pension
Funding Project)
8.60%................... 09/01/21 780 835,575
Michigan Public Power
Agency Revenue (Belle
River Project)
5.25%................... 01/01/18 400 362,000
Newport News, VA General
Obligation
7.05%................... 01/15/25 1,000 922,500
Orange County, CA Pension
Obligation
7.62%................... 09/01/08 950 958,312
San Bernardino County, CA
Pension Obligation
6.87%................... 08/01/08 100 96,750
6.94%................... 08/01/09 270 261,900
<CAPTION>
PAR
MATURITY (000) VALUE
--------- -------- -------------
<S> <C> <C> <C>
South Carolina State
Public Service Authority
Revenue
5.00%................... 01/01/25 $ 305 $ 263,444
University of Miami, FL
Revenue [VR]
7.65%................... 04/01/20 905 883,506
Ventura County, CA Pension
Obligation
6.54%................... 11/01/05 235 226,188
-------------
TOTAL MUNICIPAL OBLIGATIONS
(COST $5,542,274)..................... 5,360,800
-------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 4.3%
FEDERAL HOME LOAN BANK -- 2.4%
5.27%................... 07/29/96 6,425 6,398,665
-------------
GOVERNMENT NATIONAL MORTGAGE
ASSOC. -- 1.9%
7.50%................... 08/15/23 272 268,052
6.50%................... 10/15/23 737 686,873
6.50%................... 11/15/23 1,833 1,707,737
6.50%................... 12/15/23 2,331 2,171,043
6.50%................... 02/15/24 236 219,803
-------------
5,053,508
-------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $11,682,213).................... 11,452,173
-------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 5.3%
Airplanes Pass Through
Trust
10.875%................. 03/15/19 100 104,250
CS First Boston Mtge.
Securities Corp.
7.182%.................. 11/25/27 451 435,563
Donaldson Lufkin &
Jenrette Mtge.
Acceptance Corp.
7.58%................... 12/27/27 575 576,437
GE Capital Mtge. Services,
Inc.
7.25%................... 05/01/26 999 932,460
Green Tree Financial Corp.
7.60%................... 04/15/27 750 737,983
7.40%................... 06/15/27 860 853,012
Lehman Brothers Commercial
Conduit Mtge. Trust
7.184%.................. 01/25/05 350 340,594
Merrill Lynch Mtge.
Investors, Inc.
7.148%.................. 12/26/25 750 722,930
7.42%................... 04/25/28 1,050 1,032,937
Merrill Lynch Mtge.
Investors, Inc. Cl-B
7.645%.................. 06/15/21 241 240,924
Nationslink Funding Corp.
7.69%................... 12/20/05 800 799,500
</TABLE>
<PAGE>
AST PHOENIX BALANCED ASSET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- -------- -------------
<S> <C> <C> <C>
Residential Funding Mtge.
Securities Inc.
7.10%................... 01/25/26 $ 1,000 $ 932,969
7.25%................... 02/25/26 997 939,302
Resolution Trust Corp.
8.75%................... 05/25/24 350 358,258
6.90%................... 02/25/27 425 405,742
6.80%................... 05/25/27 970 925,536
7.15%................... 05/25/29 404 397,097
Securitized Asset Sales,
Inc.
6.807%.................. 11/28/23 982 881,048
Structured Asset
Securities Corp.
7.375%.................. 09/25/24 1,500 1,451,250
6.525%.................. 02/25/28 860 818,075
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(COST $14,235,546).................... 13,885,867
-------------
U.S. TREASURY OBLIGATIONS
-- 17.1%
U.S. TREASURY BONDS -- 1.1%
6.25%................... 08/15/23 3,250 2,948,042
-------------
U.S. TREASURY NOTES -- 16.0%
4.75%................... 02/15/97 4,000 3,977,800
5.75%................... 09/30/97 10,000 9,982,300
5.125%.................. 04/30/98 2,500 2,461,099
5.125%.................. 12/31/98 3,300 3,218,985
6.375%.................. 05/15/99 4,450 4,460,502
5.50%................... 04/15/00 2,350 2,282,626
6.25%................... 02/15/03 3,200 3,147,072
7.25%................... 05/15/04 5,200 5,391,463
6.50%................... 08/15/05 2,100 2,071,461
6.875%.................. 05/15/06 4,040 4,084,197
6.00%................... 02/15/26 1,375 1,219,556
-------------
42,297,061
-------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $45,868,819).................... 45,245,103
-------------
SOVEREIGN ISSUES -- 2.3%
ARGENTINA -- 0.5%
Republic of Argentina
Disc. [FRB, BRB]
6.5625%................. 03/31/23 500 349,687
Republic of Argentina
[FRB, BRB]
6.3125%................. 03/31/05 644 502,734
Republic of Argentina Par
[STEP, BRB]
5.25%................... 03/31/23 750 411,563
-------------
1,263,984
-------------
BRAZIL -- 0.3%
Republic of Brazil
Capitalization [BRB]
8.00%................... 04/15/14 379 234,414
<CAPTION>
PAR
MATURITY (000) VALUE
--------- -------- -------------
<S> <C> <C> <C>
Republic of Brazil Disc.
[FRB, BRB]
6.50%................... 04/15/24 $ 350 $ 248,719
Republic of Brazil Par
Bond
5.00%................... 04/15/24 500 277,500
-------------
760,633
-------------
COLUMBIA -- 0.4%
Financiera Energy Nacional
144A
9.00%................... 11/08/99 390 399,750
Republic of Columbia
7.25%................... 02/15/03 250 235,937
7.25%................... 02/23/04 425 395,250
-------------
1,030,937
-------------
MEXICO -- 0.3%
United Mexican States Cl-A
[BRB]
6.25%................... 12/31/19 1,450 940,688
-------------
NETHERLANDS -- 0.2%
Asia Pulp & Paper Co.
11.75%.................. 10/01/05 500 516,250
-------------
PANAMA -- 0.3%
Republic of Panama
Interest Reduction Bond
3.50%................... 07/17/14 700 390,250
Republic of Panama Past
Due Interest Bond
6.75%................... 07/17/16 650 397,313
-------------
787,563
-------------
PHILIPPINES -- 0.3%
Philippines [BRB]
6.8125%................. 01/05/05 450 432,984
6.25%................... 12/01/17 500 398,750
-------------
831,734
-------------
TOTAL SOVEREIGN ISSUES
(COST $5,937,158)..................... 6,131,789
-------------
COMMERCIAL PAPER -- 10.4%
Allied-Signal, Inc.
5.40%................... 07/12/96 2,250 2,246,288
Exxon Imperial U.S., Inc.
5.35%................... 07/03/96 1,905 1,904,434
Greenwich Funding Corp.
5.38%................... 07/25/96 2,550 2,540,854
GTE North
5.35%................... 07/02/96 2,480 2,479,631
Heinz, (H.J.) Co.
5.34%................... 07/23/96 1,990 1,983,506
5.38%................... 07/30/96 3,500 3,484,831
Kimberly-Clark Corp.
5.33%................... 07/19/96 2,470 2,463,417
</TABLE>
<PAGE>
AST PHOENIX BALANCED ASSET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- -------- -------------
<S> <C> <C> <C>
McDonald's Corp.
5.30%................... 07/01/96 $ 6,000 $ 6,000,000
Receivables Capital Corp.
5.40%................... 07/19/96 1,500 1,495,950
Wal-Mart Stores, Inc.
5.30%................... 07/08/96 2,785 2,782,130
-------------
TOTAL COMMERCIAL PAPER
(COST $27,381,041).................... 27,381,041
-------------
<CAPTION>
<S> <C>
VALUE
-------------
TOTAL INVESTMENTS -- 99.7%
(COST $253,020,455)................... $ 263,482,211
OTHER ASSETS LESS LIABILITIES -- 0.3%... 776,002
-------------
NET ASSETS -- 100.0%.................... $ 264,258,213
=============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 0.2% of net assets.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS
-- 89.3%
AEROSPACE -- 0.6%
Tracor, Inc. Sr. Sub.
Notes
10.875%.............. 08/15/01 $ 650 $ 690,625
------------
AUTOMOTIVE PARTS -- 3.3%
Aftermarket Technology
Sr. Sub. Notes
12.00%............... 08/01/04 1,250 1,356,250
Exide Corp. Sr. Notes
10.00%............... 04/15/05 975 960,375
Fairfield Manufacturing
Co. Sr. Sub. Notes
11.375%.............. 07/01/01 500 507,500
Great Dane Holdings Sr.
Sub. Debs.
12.75%............... 08/01/01 500 482,500
JPS Automotive Products
Corp. Sr. Notes
11.125%.............. 06/15/01 250 257,500
Lear Seating Corp. Sub.
Notes
8.25%................ 02/01/02 550 526,625
------------
4,090,750
------------
BEVERAGES -- 0.7%
Dr. Pepper Bottling
Holding Co. Sr. Notes
[ZCB]
2.68%................ 02/15/03 1,000 825,000
------------
BROADCASTING -- 7.2%
Allbritton
Communications Sr.
Sub. Debs.
11.50%............... 08/15/04 500 512,500
Argyle Television, Inc.
Sr. Sub. Notes
9.75%................ 11/01/05 500 467,500
Australis Media Ltd.
Yankee Unit [STEP]
8.62%................ 05/15/03 350 208,250
Chancellor Broadcasting
Sr. Sub. Notes
12.50%............... 10/01/04 375 413,435
Granite Broadcasting
Corp. Sr. Sub. Notes
10.375%.............. 05/15/05 1,000 972,500
Heritage Media Corp.
Sr. Sub. Notes
8.75%................ 02/15/06 1,000 932,500
Lenfest Communications
Sr. Sub. Notes 144A
10.50%............... 06/15/06 300 302,250
NWCG Holding Corp. Sr.
Disc. Notes [ZCB]
13.20%............... 06/15/99 300 222,000
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
SCI Television, Inc.
Sr. Notes
11.00%............... 06/30/05 $ 1,150 $ 1,200,310
SFX Broadcasting Sr.
Sub. Notes 144A
10.75%............... 05/15/06 500 500,000
Sinclair Broadcasting
Group Sr. Sub. Notes
10.00%............... 12/15/03 650 622,370
10.00%............... 09/30/05 750 718,125
Sullivan Broadcasting
Sr. Sub. Notes
10.25%............... 12/15/05 600 576,000
13.25%............... 12/15/06 150 129,750
Young Broadcasting
Corp. Sr. Sub. Notes
11.75%............... 11/15/04 250 263,125
10.125%.............. 02/15/05 750 721,875
------------
8,762,490
------------
BUSINESS SERVICES -- 0.6%
Monarch Marking Systems
Sr. Notes
12.50%............... 07/01/03 700 743,750
------------
CHEMICALS -- 5.0%
Arcadian Partners L.P.
Sr. Notes Cl-B
10.75%............... 05/01/05 800 872,000
Crain Industries, Inc.
Sr. Sub. Notes
13.50%............... 08/15/05 700 745,500
Foamex L.P. Sr. Notes
11.25%............... 10/01/02 550 568,563
11.875%.............. 10/01/04 250 257,500
G-I Holdings Sr. Notes
[ZCB]
11.20%............... 10/01/98 671 541,832
Harris Chemical North
America Sr. Notes
[STEP]
10.25%............... 07/15/01 1,000 1,005,000
Polymer Group, Inc. Sr.
Notes
12.25%............... 07/15/02 600 645,000
RBX Corp. Sr. Sub.
Notes
11.25%............... 10/15/05 800 760,000
Texas Petrochemicals
Corp. Sr. Sub. Notes
144A
11.125%.............. 07/01/06 400 400,000
Uniroyal Technology Sr.
Notes
11.75%............... 06/01/03 425 384,625
------------
6,180,020
------------
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
CLOTHING & APPAREL -- 2.8%
Collins & Aikman
Products Sr. Sub.
Notes
11.50%............... 04/15/06 $ 850 $ 865,938
Dan River, Inc.
Sr. Sub. Notes
10.125%.............. 12/15/03 900 874,125
Westpoint Stevens, Inc.
Sr. Sub. Debs.
9.375%............... 12/15/05 1,750 1,706,250
------------
3,446,313
------------
COMPUTER SERVICES & SOFTWARE
-- 0.9%
Alvey Systems, Inc. Sr.
Sub. Notes
11.375%.............. 01/31/03 1,025 1,050,625
------------
CONSUMER PRODUCTS & SERVICES
-- 4.0%
Cabot Safety Corp. Sr.
Sub. Notes
12.50%............... 07/15/05 750 830,625
Herff Jones, Inc.
Sr. Sub. Notes
11.00%............... 08/15/05 550 569,250
Hosiery Corp. of
America, Inc. Sr.
Sub. Notes
13.75%............... 08/01/02 500 540,000
Playtex Family Products
Corp. Sr. Sub. Notes
9.00%................ 12/15/03 1,250 1,176,563
Revlon Consumer Products
Corp. Sr. Notes
9.375%............... 04/01/01 500 491,250
10.50%............... 02/15/03 625 630,469
Simmons Co. Sr. Sub.
Notes 144A
10.75%............... 04/15/06 500 497,500
Twin Laboratories, Inc.
Sr. Sub. Notes 144A
10.25%............... 05/15/06 175 178,938
------------
4,914,595
------------
CONTAINERS & PACKAGING
-- 4.9%
Container Corp. of
America Sr. Notes
9.75%................ 04/01/03 250 245,625
11.25%............... 05/01/04 250 258,125
Owens Illinois, Inc.
Sr. Sub. Notes
9.95%................ 10/15/04 1,750 1,765,313
Packaging Resources,
Inc. Sr. Notes 144A
11.625%.............. 05/01/03 250 254,375
Plastic Container Sr.
Notes
10.75%............... 04/01/01 850 852,125
Portola Packaging, Inc.
Sr. Notes
10.75%............... 10/01/05 425 428,188
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
Riverwood International
Co. Sr. Notes
10.875%.............. 04/01/08 $ 1,200 $ 1,185,000
Stone Container Co. Sr.
Notes
9.875%............... 02/01/01 200 195,500
11.50%............... 10/01/04 500 508,125
Trans Ocean Container
Sr. Sub. Notes
12.25%............... 07/01/04 350 362,250
------------
6,054,626
------------
ENTERTAINMENT & LEISURE
-- 3.5%
Affinity Group Sr.
Sub. Notes
11.50%............... 10/15/03 500 506,250
AMF Group, Inc. Sr.
Disc. Notes [STEP]
144A
6.02%................ 03/15/06 1,250 693,750
AMF Group, Inc. Sr.
Sub. Notes 144A
10.875%.............. 03/15/06 400 396,000
Cobblestone Golf Group
Sr. Notes 144A
11.50%............... 06/01/03 550 555,500
Premier Parks Sr. Notes
12.00%............... 08/15/03 600 639,000
Six Flags Theme Parks
Sr. Sub. Notes Cl-A
[STEP]
2.86%................ 06/15/05 1,800 1,534,500
------------
4,325,000
------------
ENVIRONMENTAL SERVICES
-- 2.1%
Allied Waste Industries
Sr. Sub. Notes
12.00%............... 02/01/04 500 550,000
Envirosource, Inc. Sr.
Notes
9.75%................ 06/15/03 1,000 917,500
ICF Kaiser
International Sr.
Sub. Notes
13.00%............... 12/31/03 600 579,000
Mid-American Waste
Systems, Inc. Sr.
Sub. Notes
12.25%............... 02/15/03 900 585,000
------------
2,631,500
------------
EQUIPMENT SERVICES -- 1.3%
Coinmach Corp. Sr.
Notes
11.75%............... 11/15/05 781 822,003
Primeco, Inc. Sr. Sub.
Notes
12.75%............... 03/01/05 750 806,250
------------
1,628,253
------------
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
FARMING & AGRICULTURE
-- 2.2%
Dimon, Inc. Sr. Notes
8.875%............... 06/01/06 $ 1,000 $ 1,006,250
Spreckels Industries,
Inc. Sr. Notes
11.50%............... 09/01/00 350 362,250
Viridian, Inc. Notes
9.75%................ 04/01/03 775 788,563
10.50%............... 03/31/14 500 520,000
------------
2,677,063
------------
FINANCIAL-BANK & TRUST
-- 1.1%
First Nationwide
Holdings Sr. Notes
12.25%............... 05/15/01 750 811,875
12.50%............... 04/15/03 500 523,750
------------
1,335,625
------------
FINANCIAL SERVICES -- 0.9%
Mesa Operating Co. Sr.
Sub. Disc. Notes
[STEP]
5.68%................ 07/01/06 600 352,500
Mesa Operating Co. Sr.
Sub. Notes
10.625%.............. 07/01/06 700 712,250
------------
1,064,750
------------
FOOD -- 5.5%
Americold Corp. Sr.
Sub. Notes
12.875%.............. 05/01/08 450 461,250
Carr-Gottstein Foods
Co. Sr. Sub. Notes
12.00%............... 11/15/05 900 927,000
Curtice-Burns Foods,
Inc. Sr. Sub. Notes
12.25%............... 02/01/05 800 786,000
Flagstar Corp. Sr.
Notes
10.75%............... 09/15/01 375 329,063
10.875%.............. 12/01/02 775 672,313
11.25%............... 11/01/04 125 83,125
Keebler Corp. Sr. Sub.
Notes 144A
10.75%............... 07/01/06 350 361,375
PMI Acquisition Sr.
Sub. Notes
10.25%............... 09/01/03 750 738,750
Smith's Food & Drug Sr.
Sub. Notes
11.25%............... 05/15/07 800 812,000
Specialty Foods Corp.
Sr. Notes
11.125%.............. 10/01/02 400 381,000
11.25%............... 08/15/03 600 519,000
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
Van de Kamps, Inc. Sr.
Sub. Notes
12.00%............... 09/15/05 $ 650 $ 693,875
6,764,751
HEALTHCARE SERVICES -- 2.1%
Genesis Health Ventures
Sr. Sub. Notes
9.75%................ 06/15/05 500 510,000
Icon Health & Fitness
Sr. Sub. Notes
13.00%............... 07/15/02 530 591,613
Tenet Healthcare Corp.
Sr. Sub. Notes
10.125%.............. 03/01/05 1,350 1,427,625
------------
2,529,238
------------
HOTELS & MOTELS -- 1.0%
Courtyard By Mariott
Sr. Notes
10.75%............... 02/01/08 950 933,375
Motels of America, Inc.
Sr. Sub. Notes Cl-B
12.00%............... 04/15/04 350 337,750
------------
1,271,125
------------
INDUSTRIAL PRODUCTS -- 2.7%
American Safety Razor
Co. Sr. Notes
9.875%............... 08/01/05 750 761,250
American Standard Debs.
11.375%.............. 05/15/04 250 270,938
Bar Technologies, Inc.
Units 144A
13.50%............... 04/01/01 300 306,000
Buckeye Cellulos Sr.
Sub. Notes
9.25%................ 09/15/08 1,000 994,490
Four M Corp. Sr. Notes
144A
12.00%............... 06/01/06 300 308,250
Ryerson Tull, Inc.
Notes
9.125%............... 07/15/06 700 703,500
------------
3,344,428
------------
MEDICAL SUPPLIES & EQUIPMENT
-- 0.4%
Dade International,
Inc. Sr. Sub. Notes
144A
11.125%.............. 05/01/06 500 520,000
------------
METALS & MINING -- 2.5%
Acme Metals, Inc. Sr.
Disc. Notes [STEP]
7.37%................ 08/01/04 700 637,875
Armco, Inc. Sr. Notes
9.375%............... 11/01/00 250 247,188
Bayou Steel Corp. First
Mtge.
10.25%............... 03/01/01 500 471,250
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
Geneva Steel Sr. Notes
9.50%................ 01/15/04 $ 125 $ 99,688
GS Technologies
Operating Corp. Sr.
Notes
12.00%............... 09/01/04 725 743,125
12.25%............... 10/01/05 250 256,875
Republic Engineered
Steel First Mtge.
9.875%............... 12/15/01 600 561,750
------------
3,017,751
------------
OFFICE EQUIPMENT -- 1.3%
Knoll, Inc. Sr. Sub.
Notes 144A
10.875%.............. 03/15/06 750 768,750
United Stationer Supply
Sr. Sub. Notes
12.75%............... 05/01/05 750 808,125
------------
1,576,875
------------
OIL & GAS -- 2.9%
Benton Oil & Gas Sr.
Notes 144A
11.625%.............. 05/01/03 400 414,000
Clark USA, Inc. Sr.
Notes
10.875%.............. 12/01/05 1,000 1,026,250
Falcon Drilling Co.,
Inc. Sr. Notes
9.75%................ 01/15/01 350 355,688
12.50%............... 03/15/05 300 334,875
Giant Industries Sr.
Sub. Notes
9.75%................ 11/15/03 550 541,750
H.S. Resources Sr. Sub.
Notes
9.875%............... 12/01/03 250 242,500
United Meridian Corp.
Sr. Sub. Notes
10.375%.............. 10/15/05 600 616,500
------------
3,531,563
------------
PAPER & FOREST PRODUCTS
-- 1.0%
Repap New Brunswick Sr.
Notes
10.625%.............. 04/15/05 500 475,000
S.D. Warren Co. Sr.
Sub. Notes
12.00%............... 12/15/04 700 738,500
------------
1,213,500
------------
PRINTING & PUBLISHING
-- 2.1%
Adams Outdoor
Advertising Sr. Notes
144A
10.75%............... 03/15/06 450 463,500
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
Affiliated Newspaper
Investments Sr. Disc.
Notes [STEP]
5.55%................ 07/01/06 $ 1,400 $ 973,000
Garden State Newspapers
Sr. Sub. Notes
12.00%............... 07/01/04 200 211,500
Hollinger International
Publishing Co. Sr.
Sub. Notes
9.25%................ 02/01/06 1,000 921,250
------------
2,569,250
------------
REAL ESTATE -- 0.8%
Trizec Finance Ltd. Sr.
Notes
10.875%.............. 10/15/05 1,025 1,037,813
------------
RETAIL & MERCHANDISING
-- 2.0%
Brylane L.P. Sr. Sub.
Notes Cl-B
10.00%............... 09/01/03 1,000 965,000
Pathmark Stores Sr.
Sub. Notes
9.625%............... 05/01/03 250 235,625
Ralph's Grocery Co. Sr.
Notes
10.45%............... 06/15/04 1,000 957,500
11.00%............... 06/15/05 325 299,813
------------
2,457,938
------------
TELECOMMUNICATIONS -- 18.5%
Arch Communications
Group Sr. Disc. Notes
[STEP]
4.47%................ 03/15/08 525 273,000
Bell Cablemedia PLC Sr.
Disc. Notes [STEP]
4.59%................ 07/15/04 850 602,438
Brooks Fiber Properties
Sr. Disc. Notes
[STEP] 144A
5.25%................ 03/01/06 500 267,500
Cablevision Systems
Corp. Sr. Sub. Notes
9.25%................ 11/01/05 1,250 1,168,750
9.875%............... 05/15/06 300 291,375
CAI Wireless Systems,
Inc. Sr. Notes
12.25%............... 09/15/02 500 525,000
Cellular Communications
International, Inc.
[ZCB]
12.17%............... 08/15/00 1,100 693,000
CF Cable TV, Inc. Sr.
Notes
11.625%.............. 02/15/05 500 549,375
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
Comcast U.K. Cable
Debs. [STEP]
4.52%................ 11/15/07 $ 2,150 $ 1,252,375
Continental Cablevision
Sr. Debs.
9.50%................ 08/01/13 500 542,500
CS Wireless Systems,
Inc. Units [STEP]
144A
11.375%.............. 03/01/06 500 260,000
Diamond Cable
Communications PLC
Sr. Disc. Notes
[STEP]
5.84%................ 09/30/04 250 178,125
5.79%................ 12/15/05 500 295,000
Echostar Sr. Disc.
Notes [STEP] 144A
6.39%................ 03/15/04 750 480,000
Fonorola, Inc. Sr.
Notes
12.50%............... 08/15/02 150 161,438
Insight Communications
Co. Sr. Sub. Notes
[STEP]
11.25%............... 03/01/00 800 820,000
Intermedia
Communications of
Florida, Inc. Sr.
Disc. Notes [STEP]
6.16%................ 05/15/06 750 423,750
International Cabletel,
Inc. Sr. Notes [STEP]
5.99%................ 10/15/03 500 363,750
4.57%................ 04/15/05 1,050 675,938
Millicom International
Cellular Sr. Disc.
Notes [STEP] 144A
6.55%................ 06/01/06 1,000 531,250
Mobilemedia
Communications Sr.
Sub. Notes
9.375%............... 11/01/07 300 268,500
Nextel Communications
Sr. Disc. Notes
[STEP]
5.16%................ 09/01/03 300 205,500
8.20%................ 08/15/04 725 433,187
Nextlink Communications
Sr. Notes 144A
12.50%............... 04/15/06 500 500,625
Paging Network, Inc.
Sr. Sub. Notes
10.125%.............. 08/01/07 500 493,750
Panamsat L.P. Sr. Sub.
Notes [STEP]
4.94%................ 08/01/03 1,400 1,225,000
Pegasus Media Notes
12.50%............... 07/01/05 600 645,000
Peoples Choice T.V.
Corp. Units [STEP]
6.79%................ 06/01/04 1,150 684,250
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
Pronet, Inc. Sr. Sub.
Notes
11.875%.............. 06/15/05 $ 500 $ 497,500
10.875%.............. 09/15/06 500 482,500
Rogers Cablesystems Sr.
Notes
10.00%............... 03/15/05 300 299,250
10.00%............... 12/01/07 100 98,125
11.00%............... 12/01/15 750 765,000
Teleport Communications
Sr. Disc. Notes
[STEP]
4.98%................ 07/01/07 1,200 698,580
Teleport Communications
Sr. Notes
9.875%............... 07/01/06 225 226,688
Telewest PLC Yankee
[STEP]
4.56%................ 10/01/07 2,375 1,413,125
UIH Australia Pacific
Sr. Disc. Notes
[STEP] 144A
6.81%................ 05/15/06 850 461,125
USA Mobile
Communications Sr.
Notes
9.50%................ 02/01/04 800 734,000
Vanguard Cellular
System Debs.
9.375%............... 04/15/06 1,150 1,118,375
Videotron Group Ltd.
Sr. Notes
10.625%.............. 02/15/05 500 524,375
Wireless One, Inc. Sr.
Notes
13.00%............... 10/15/03 500 527,500
------------
22,656,519
------------
TRANSPORTATION -- 4.0%
Ameritruck Distribution
Sr. Sub. Notes
12.25%............... 11/15/05 650 640,250
Gearbulk Holding Ltd.
Sr. Notes
11.25%............... 12/01/04 1,000 1,050,000
Omi Corp. Sr. Notes
10.25%............... 11/01/03 800 789,000
Sea Containers Ltd. Sr.
Notes
9.50%................ 07/01/03 625 625,000
12.50%............... 12/01/04 125 138,125
Stena AB Sr. Notes
10.50%............... 12/15/05 1,100 1,097,250
Trism, Inc. Sr. Sub.
Notes
10.75%............... 12/15/00 575 541,938
------------
4,881,563
------------
</TABLE>
<PAGE>
FEDERATED HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
UTILITIES -- 1.4%
California Energy Disc.
Notes [STEP]
2.15%................ 01/15/04 $ 1,450 $ 1,392,000
El Paso Electric Co.
First Mtge. Cl-E
9.40%................ 05/01/11 375 377,726
------------
1,769,726
------------
TOTAL CORPORATE OBLIGATIONS
(COST $109,229,453)................ 109,563,025
------------
U.S. TREASURY OBLIGATIONS
-- 2.0%
U.S. Treasury Notes
6.375%
(COST $2,455,966).... 08/15/02 2,500 2,481,375
------------
REPURCHASE AGREEMENT -- 5.4%
HSBC Securities, Inc.
5.30% dated 06/28/96,
repurchase price
$6,562,897
(Collateralized by
U.S. Treasury Note,
par value $6,740,000,
market value
$6,747,692 due on
04/30/01) (COST
$6,560,000).......... 07/01/96 6,560 6,560,000
------------
<CAPTION>
SHARES
-------
<S> <C> <C>
COMMON STOCK -- 0.1%
BROADCASTING -- 0.0%
Sullivan Broadcast Holdings
Co. ........................... 2,400 24,600
------------
CHEMICALS -- 0.0%
Uniroyal Technology Corp.
Warrants*...................... 2,500 3,750
------------
CONSUMER PRODUCTS & SERVICES -- 0.0%
Hosiery Corp. of America,
Inc. .......................... 400 2,000
------------
ENVIRONMENTAL SERVICES -- 0.0%
ICF Kaiser International, Inc.
Warrants*...................... 1,200 750
------------
HEALTHCARE SERVICES -- 0.0%
Icon Health & Fitness Warrants
144A*.......................... 250 6,250
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
PRINTING & PUBLISHING -- 0.0%
Affiliated Newspaper Investments,
Inc.*.......................... 1,000 $ 25,000
RETAIL & MERCHANDISING -- 0.1%
Grand Union Co.*................. 7,069 45,065
TELECOMMUNICATIONS -- 0.0%
Pegasus Media & Communications,
Inc. 144A...................... 50 30,000
Wireless One, Inc. Warrants*..... 1,500 9,000
------------
39,000
------------
TOTAL COMMON STOCK
(COST $418,079).................... 146,415
------------
PREFERRED STOCK -- 3.1%
BROADCASTING -- 0.6%
Chancellor Broadcasting Co.
12.25% [PIK] 144A.............. 7,500 768,750
------------
PRINTING & PUBLISHING -- 1.1%
K-III Communications Corp.
10.00% Cl-C [CVT] 144A......... 5,000 460,000
K-III Communications Corp.
11.625% Cl-B [CVT, PIK]........ 8,224 826,547
------------
1,286,547
------------
TELECOMMUNICATIONS -- 0.6%
Panamsat Corp.
12.75%......................... 205 233,283
Park Communications, Inc. Sr.
Notes
13.75% [PIK] 144A.............. 4,500 474,750
------------
708,033
------------
UTILITIES -- 0.8%
El Paso Electric Co.
11.40% [PIK]................... 9,500 1,002,250
------------
TOTAL PREFERRED STOCK
(COST $3,640,480).................. 3,765,580
------------
TOTAL INVESTMENTS -- 99.9%
(COST $122,303,978).............. 122,516,395
OTHER ASSETS LESS
LIABILITIES -- 0.1%................ 156,115
------------
NET ASSETS -- 100.0%................. $122,672,510
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 9.1% of net assets.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
COMMON STOCK -- 47.0%
ADVERTISING -- 0.1%
Omnicom Group, Inc. ................. 1,000 $ 46,500
-----------
AEROSPACE -- 0.8%
Boeing Co. .......................... 2,500 217,813
Lockheed Martin Corp. ............... 1,100 92,400
McDonnell Douglas Corp. ............. 1,200 58,200
Northrop Grumman Corp. .............. 800 54,500
Raytheon Co. ........................ 1,400 72,275
Rockwell International Corp. ........ 1,600 91,600
United Technologies Corp. ........... 1,200 138,000
-----------
724,788
-----------
AIRLINES -- 0.2%
Alaska Air Group, Inc.*.............. 2,700 73,913
AMR Corp.*........................... 1,300 118,300
-----------
192,213
-----------
AUTOMOBILE MANUFACTURERS -- 0.6%
Ford Motor Co. ...................... 7,300 236,338
General Motors Corp. ................ 4,500 235,688
Honda Motor Co. Ltd. [ADR]........... 1,600 81,600
-----------
553,626
-----------
AUTOMOTIVE PARTS -- 0.3%
Arvin Industries, Inc. .............. 1,000 22,250
Echlin, Inc. ........................ 1,900 71,963
Genuine Parts Co. ................... 1,900 86,925
TRW, Inc. ........................... 900 80,888
-----------
262,026
-----------
BEVERAGES -- 1.5%
Anheuser-Busch Companies, Inc. ...... 2,200 165,000
Cadbury Schweppes PLC [ADR].......... 3,473 112,004
Coca-Cola Co. ....................... 13,500 659,813
Pepsico, Inc. ....................... 9,400 332,525
-----------
1,269,342
-----------
BROADCASTING -- 0.1%
Comcast Corp. Special Cl-A........... 1,700 31,450
TCA Cable T.V., Inc. ................ 1,600 48,400
-----------
79,850
-----------
BUILDING MATERIALS -- 0.0%
Calmat Co. .......................... 1,700 30,813
-----------
BUSINESS SERVICES -- 0.3%
Equifax, Inc. ....................... 3,900 102,375
Olsten Corp. ........................ 1,400 41,125
Paychex, Inc. ....................... 2,400 115,500
-----------
259,000
-----------
CHEMICALS -- 1.7%
AKZO Nobel NV [ADR].................. 1,000 59,750
Cabot Corp. ......................... 1,800 44,100
Dexter Corp. ........................ 1,300 38,675
Dow Chemical Co. .................... 1,600 121,600
Dupont, (E.I.) de Nemours & Co. ..... 3,200 253,200
FMC Corp.*........................... 900 58,725
Grace & Co., W.R. ................... 1,200 85,050
Great Lakes Chemical Corp. .......... 1,000 62,250
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
Hanna, (M.A.) Co. ................... 2,100 $ 43,838
IMC Global, Inc. .................... 1,300 48,913
Loctite Corp. ....................... 800 37,200
Lubrizol Corp. ...................... 1,200 36,450
Monsanto Co. ........................ 5,000 162,500
Morton International, Inc. .......... 1,900 70,775
Olin Corp. .......................... 500 44,625
PPG Industries, Inc. ................ 2,100 102,375
Rohm & Haas Co. ..................... 900 56,475
Witco Corp. ......................... 3,400 116,875
-----------
1,443,376
-----------
CLOTHING & APPAREL -- 0.1%
Jones Apparel Group, Inc.*........... 1,700 83,513
-----------
COMPUTER SERVICES & SOFTWARE -- 1.8%
America Online, Inc.*................ 1,600 70,000
Autodesk, Inc. ...................... 600 17,925
Automatic Data Processing, Inc. ..... 2,200 84,975
BMC Software, Inc.*.................. 1,700 101,575
Cadence Design Systems, Inc.*........ 1,550 52,313
Ceridian Corp.*...................... 1,500 75,750
Cisco Systems, Inc.*................. 3,000 169,875
Computer Associates International,
Inc. .............................. 1,050 74,813
First Data Corp. .................... 1,500 119,438
Informix Corp.*...................... 4,500 101,250
Microsoft Corp. ..................... 3,200 384,400
Novell, Inc.*........................ 1,200 16,650
Oracle Systems Corp.*................ 3,500 138,031
Parametric Technology Corp.*......... 1,600 69,400
Storage Technology Corp.*............ 600 22,950
Structural Dynamics Research
Corp.*............................. 1,300 28,600
-----------
1,527,945
-----------
COMPUTER HARDWARE -- 1.0%
Bay Networks*........................ 1,900 48,925
Compaq Computer Corp.*............... 1,700 83,725
Dell Computer Corp.*................. 1,300 66,138
Digital Equipment Corp.*............. 800 36,000
International Business Machines
Corp. ............................. 3,100 306,900
Seagate Technology, Inc.*............ 1,800 81,000
Stratus Computer, Inc.*.............. 1,100 31,900
Sun Microsystems, Inc.*.............. 1,200 70,650
3Com Corp.*.......................... 2,148 98,271
-----------
823,509
-----------
CONGLOMERATES -- 0.4%
Procter & Gamble Co. ................ 4,000 362,500
-----------
CONSTRUCTION -- 0.0%
Granite Construction, Inc. .......... 800 18,400
Jacobs Engineering Group, Inc.*...... 1,000 26,375
-----------
44,775
-----------
CONSUMER PRODUCTS & SERVICES -- 0.7%
American Brands, Inc. ............... 1,500 68,063
Colgate-Palmolive Co. ............... 1,700 144,075
Cross, (A.T.) Co. Cl-A............... 800 14,200
CUC International, Inc.*............. 1,200 42,600
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
Eastman Kodak Co. ................... 1,900 $ 147,725
Masco Corp. ......................... 2,400 72,600
Mattel, Inc. ........................ 1,900 54,388
National Presto Industries, Inc. .... 600 22,800
Tambrands, Inc. ..................... 1,500 61,313
-----------
627,764
-----------
CONTAINERS & PACKAGING -- 0.2%
Bemis Co., Inc. ..................... 1,500 52,500
Sealed Air Corp.*.................... 2,700 90,788
-----------
143,288
-----------
ELECTRONIC COMPONENTS & EQUIPMENT -- 2.7%
Altera Corp.*........................ 1,400 53,200
Arrow Electronics, Inc.*............. 700 30,189
Diebold, Inc. ....................... 1,800 86,850
Emerson Electric Co. ................ 1,800 162,675
General Electric Co. ................ 10,100 873,597
Hewlett-Packard Co. ................. 3,100 308,839
Hitachi Ltd. [ADR]................... 1,600 150,000
Honeywell, Inc. ..................... 1,200 65,400
Hubbell, Inc. Cl-B................... 1,000 66,250
Linear Technology Corp. ............. 1,500 45,000
Molex, Inc. ......................... 2,800 88,900
Philips Electronics NV............... 3,600 117,450
Solectron Corp.*..................... 1,000 37,875
Stratacom, Inc. ..................... 700 39,375
Sundstrand Corp. .................... 2,200 80,575
Symbol Technologies, Inc.*........... 700 31,150
Teleflex, Inc. ...................... 600 28,650
Varian Associates, Inc. ............. 700 36,225
-----------
2,302,200
-----------
ENTERTAINMENT & LEISURE -- 0.8%
Brunswick Corp. ..................... 2,000 40,000
Callaway Golf Co. ................... 1,900 63,175
Circus Circus Enterprises*........... 2,400 98,400
Harley Davidson, Inc. ............... 1,000 41,125
Mirage Resorts, Inc.*................ 1,900 102,600
President Riverboat Casinos
Warrants*.......................... 883 662
Time Warner, Inc. ................... 2,900 113,825
Walt Disney Co. ..................... 4,264 268,099
-----------
727,886
-----------
ENVIRONMENTAL SERVICES -- 0.2%
Browning-Ferris Industries, Inc. .... 1,500 43,500
USA Waste Services, Inc.*............ 1,700 50,363
WMX Technologies, Inc. .............. 3,400 111,350
-----------
205,213
-----------
FINANCIAL-BANK & TRUST -- 3.4%
Australia and New Zealand Banking
Group Ltd. [ADR]................... 3,600 85,050
Banc One Corp. ...................... 2,800 95,200
Banco Bilbao Vizcaya [ADR]........... 3,000 120,375
Bancorp Hawaii, Inc. ................ 800 28,800
Chase Manhattan Corp. ............... 2,956 208,769
Citicorp............................. 3,300 272,664
City National Corp. ................. 1,800 28,350
CoreStates Financial Corp. .......... 2,000 77,000
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
Crestar Financial Corp. ............. 1,300 $ 69,388
Fifth Third Bancorp.................. 900 48,600
First Bank System, Inc. ............. 1,700 98,600
First Chicago NBD Corp. ............. 3,000 117,375
First Security Corp. ................ 3,150 75,600
First Tennessee National Corp. ...... 3,200 98,000
First Union Corp. ................... 2,200 133,925
Fleet Financial Group, Inc. ......... 2,500 108,750
J.P. Morgan & Co., Inc. ............. 1,800 152,325
Keycorp.............................. 2,600 100,750
Mellon Bank Corp. ................... 1,500 85,500
Mercantile Bankshares Corp. ......... 1,200 30,600
NationsBank Corp. ................... 2,300 190,039
Northern Trust Corp. ................ 1,900 109,725
Norwest Corp. ....................... 3,500 122,064
PNC Bank Corp. ...................... 2,420 71,995
Southtrust Corp. .................... 3,000 84,375
State Street Boston Corp. ........... 1,500 76,500
U.S. Bancorp......................... 2,352 84,966
Wells Fargo & Co. ................... 600 143,325
-----------
2,918,610
-----------
FINANCIAL SERVICES -- 1.3%
American Express Co. ................ 3,000 133,875
Bear Stearns Companies, Inc. ........ 2,000 47,250
Charles Schwab Corp. ................ 2,900 71,050
Comdicso, Inc. ...................... 1,600 42,600
Dean Witter Discover & Co. .......... 900 51,525
Federal Home Loan Mtge. Corp. ....... 1,500 128,250
Federal National Mtge. Assoc. ....... 6,000 201,000
Franklin Resources, Inc. ............ 1,900 115,900
Green Tree Financial Corp. .......... 900 28,125
Grupo Financiero Bancomer [ADR]
144A*.............................. 1,400 11,900
H & R Block, Inc. ................... 1,500 48,938
Household International, Inc. ....... 800 60,800
Merrill Lynch & Co., Inc. ........... 1,000 65,125
Morgan Stanley Group, Inc. .......... 900 44,213
Paine Webber Group, Inc. ............ 1,200 28,500
Salomon, Inc. ....................... 1,400 61,600
-----------
1,140,651
-----------
FOOD -- 1.9%
Archer-Daniels-Midland Co. .......... 3,150 60,244
Conagra, Inc. ....................... 2,100 95,288
CPC International, Inc. ............. 1,500 108,000
Dole Food Co. ....................... 1,000 43,000
Earthgrains Co. ..................... 148 4,847
General Mills, Inc. ................. 1,600 87,200
Heinz, (H.J.) Co. ................... 3,250 98,719
Hershey Foods Corp. ................. 800 58,700
IBP, Inc. ........................... 1,300 35,913
Kellogg Co. ......................... 1,200 87,900
McCormick & Co., Inc. ............... 1,400 30,975
Philip Morris Companies, Inc. ....... 5,100 530,400
Ralston-Purina Group................. 1,500 96,188
Sara Lee Corp. ...................... 3,800 123,025
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
Smucker, (J.M.) Co. ................. 700 $ 13,738
Unilever PLC [ADR]................... 900 130,613
Universal Foods Corp. ............... 1,300 47,938
-----------
1,652,688
-----------
HEALTHCARE SERVICES -- 0.7%
Apria Healthcare Group, Inc.*........ 2,000 62,750
Columbia-HCA Healthcare Corp. ....... 2,964 158,204
Healthsouth Corp.*................... 2,500 90,000
Pacificare Health Systems, Inc.
Cl-A*.............................. 400 26,400
Pacificare Health Systems, Inc.
Cl-B*.............................. 900 60,975
U.S. Healthcare, Inc. ............... 900 49,500
United Healthcare Corp. ............. 1,400 70,700
Vencor, Inc.*........................ 2,200 67,100
-----------
585,629
-----------
HOTELS & MOTELS -- 0.2%
HFS, Inc.*........................... 2,200 154,000
ITT Corp.*........................... 900 59,625
-----------
213,625
-----------
INDUSTRIAL PRODUCTS -- 0.8%
Allied-Signal, Inc. ................. 2,600 148,525
Chris-Craft Industries, Inc.*........ 1,300 57,200
Cintas Corp. ........................ 1,800 96,300
Corning, Inc. ....................... 2,100 80,588
Danaher Corp. ....................... 1,100 47,850
Goodyear Tire & Rubber Co. .......... 1,200 57,900
Harsco Corp. ........................ 900 60,525
Springs Industries, Inc. Cl-A........ 1,500 75,750
Tomkins PLC [ADR].................... 6,000 91,500
-----------
716,138
-----------
INSURANCE -- 1.5%
Aetna Life & Casualty Co. ........... 800 57,200
AFLAC, Inc. ......................... 450 13,444
American Financial Group, Inc. ...... 1,200 36,150
American General Corp. .............. 3,000 109,125
American International Group,
Inc. .............................. 3,000 295,875
CHUBB Corp. ......................... 1,300 64,838
Cigna Corp. ......................... 500 58,938
General Re Corp. .................... 600 91,350
Hartford Steam Boiler Inspection &
Insurance Co. ..................... 800 39,300
Loews Corp. ......................... 1,400 110,425
Progressive Corp. ................... 800 37,000
Selective Insurance Group............ 1,000 32,500
Torchmark Corp. ..................... 1,400 61,250
Transatlantic Holdings, Inc. ........ 500 35,063
Travelers Group, Inc. ............... 3,150 143,719
UNUM Corp. .......................... 1,100 68,475
-----------
1,254,652
-----------
MACHINERY & EQUIPMENT -- 0.7%
Black & Decker Corp. ................ 1,300 50,213
Caterpillar, Inc. ................... 1,200 81,300
Deere & Co. ......................... 2,700 108,000
Duriron Co., Inc. ................... 2,900 69,600
Illinois Tool Works, Inc. ........... 900 60,863
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
Sequa Corp. Cl-A*.................... 700 $ 30,188
Tecumseh Products Co. Cl-A........... 1,400 75,250
Thermo Electron Corp.*............... 4,050 168,581
-----------
643,995
-----------
MEDICAL SUPPLIES & EQUIPMENT -- 0.4%
Baxter International, Inc............ 1,600 75,600
Becton Dickinson & Co. .............. 500 40,125
Boston Scientific Corp.*............. 1,000 45,000
Medtronic, Inc. ..................... 2,000 112,000
Stryker Corp. ....................... 3,400 77,350
-----------
350,075
-----------
METALS & MINING -- 0.5%
Aluminum Co. of America.............. 2,300 131,963
Barrick Gold Corp. .................. 3,300 89,513
Carpenter Technology Corp. .......... 2,600 83,200
Nucor Corp. ......................... 1,200 60,750
Placer Dome, Inc. ................... 2,500 59,688
-----------
425,114
-----------
MISCELLANEOUS -- 0.5%
Federal Signal Corp. ................ 1,400 32,900
Flightsafety International, Inc. .... 1,600 86,800
Gencorp, Inc. ....................... 2,800 42,350
Hanson PLC [ADR]..................... 2,700 38,475
Minnesota Mining & Manufacturing
Co. ............................... 3,200 220,800
Pall Corp. .......................... 1,200 28,950
U.S. Industries, Inc. [ADR]*......... 135 3,257
-----------
453,532
-----------
OFFICE EQUIPMENT -- 0.5%
Alco Standard Corp. ................. 1,700 76,925
Pitney Bowes, Inc. .................. 1,900 90,725
Viking Office Products, Inc.*........ 1,600 50,200
Wallace Computer Service, Inc. ...... 1,500 89,625
Xerox Corp. ......................... 1,800 96,300
-----------
403,775
-----------
OIL & GAS -- 5.1%
Amerada Hess Corp. .................. 4,700 252,039
Atlantic Richfield Co. .............. 1,200 142,200
Banco Frances del Rio de la Plata SA
[ADR].............................. 3,400 97,750
BJ Services Co.*..................... 3,300 115,914
British Petroleum Co. PLC [ADR]...... 800 85,500
Chevron Corp. ....................... 4,200 247,800
El Paso Natural Gas Co. ............. 700 26,950
Enron Corp. ......................... 2,100 85,839
Ensco International, Inc.*........... 800 26,000
Exxon Corp. ......................... 6,500 564,689
Global Marine, Inc. ................. 2,200 30,525
Halliburton Co. ..................... 800 44,400
Helmerich & Payne, Inc. ............. 900 32,963
MCN Corp. ........................... 2,400 58,500
Mobil Corp. ......................... 2,500 280,313
Murphy Oil Corp. .................... 1,000 45,375
National Fuel Gas Co. ............... 1,600 57,600
Noble Affiliates, Inc. .............. 2,600 98,150
Occidental Petroleum Corp. .......... 3,700 91,575
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
Phillips Petroleum Co. .............. 1,800 $ 75,375
Repsol SA [ADR]...................... 3,000 104,250
Royal Dutch Petroleum Co. ........... 4,600 707,250
Schlumberger Ltd. ................... 1,700 143,225
Shell Transport & Trading Co.
[ADR].............................. 1,000 88,000
Societe National Elf Aquitaine
SA [ADR]........................... 2,000 73,500
Sonat, Inc. ......................... 1,300 58,500
Texaco, Inc. ........................ 2,000 167,750
Tidewater, Inc. ..................... 3,100 136,014
Tosco Corp. ......................... 800 40,200
Total SA [ADR]....................... 3,000 111,375
Unocal Corp. ........................ 2,300 77,625
USX Marathon Group................... 3,500 70,438
Valero Energy Corp. ................. 3,000 75,000
Washington Gas Light Co. ............ 2,200 48,400
-----------
4,360,984
-----------
PAPER & FOREST PRODUCTS -- 0.5%
Georgia Pacific Corp. ............... 900 63,900
International Paper Co. ............. 2,900 106,938
Kimberly-Clark Corp. ................ 2,300 177,675
Wausau Paper Mills Co. .............. 1,900 37,525
Weyerhaeuser Co. .................... 1,700 72,250
-----------
458,288
-----------
PERSONAL SERVICES -- 0.1%
Service Corp. International.......... 1,500 86,250
-----------
PHARMACEUTICALS -- 3.4%
Abbott Laboratories.................. 4,100 178,350
American Home Products Corp. ........ 4,000 240,500
Amgen, Inc.*......................... 1,600 86,400
Bristol-Meyers Squibb Co. ........... 3,300 297,000
Cardinal Health, Inc. ............... 1,300 93,763
Carter Wallace, Inc. ................ 3,900 57,038
Genzyme Corp.*....................... 600 30,150
International Flavors & Fragrances,
Inc. .............................. 1,300 61,913
Ivax Corp. .......................... 2,200 34,925
Johnson & Johnson.................... 7,000 346,500
Lilly, (Eli) & Co. .................. 2,900 188,500
McKesson Corp. ...................... 900 42,863
Merck & Co., Inc. ................... 6,900 445,913
Perrigo Co. ......................... 3,000 33,750
Pfizer, Inc. ........................ 3,800 271,225
Pharmacia & Upjohn, Inc. ............ 3,500 155,313
R.P. Scherer Corp.*.................. 1,000 45,375
Schering Plough Corp. ............... 1,900 119,225
Warner-Lambert Co. .................. 2,100 115,500
Watson Pharmaceuticals, Inc. ........ 1,300 49,238
-----------
2,893,441
-----------
PRINTING & PUBLISHING -- 0.5%
Banta Corp. ......................... 2,900 73,225
Belo, (A.H.) Corp. Cl-A.............. 1,300 48,425
Dun & Bradstreet Corp. .............. 1,500 93,750
Gannett Co., Inc. ................... 1,600 113,200
McGraw-Hill Co., Inc. ............... 2,400 109,800
-----------
438,400
-----------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
RAILROADS -- 0.5%
Burlington Northern Santa Fe......... 800 $ 64,700
Conrail, Inc. ....................... 400 26,550
CSX Corp. ........................... 1,000 48,250
Kansas City Southern Industries,
Inc. .............................. 1,800 77,175
Norfolk Southern Corp. .............. 700 59,325
Union Pacific Corp. ................. 1,600 111,800
-----------
387,800
-----------
RESTAURANTS -- 0.5%
Brinker International, Inc.*......... 7,300 109,500
Cracker Barrel Old Country Store,
Inc. .............................. 1,800 43,650
Darden Restaurants, Inc. ............ 900 9,675
McDonald's Corp. .................... 4,400 205,700
Outback Steakhouse, Inc.*............ 1,600 55,175
-----------
423,700
-----------
RETAIL & MERCHANDISING -- 2.4%
Albertson's, Inc. ................... 3,000 124,125
Bed, Bath & Beyond, Inc.*............ 2,200 58,850
Circuit City Stores, Inc. ........... 900 32,513
Dayton-Hudson Corp. ................. 800 82,500
Fastenal Co. ........................ 800 34,800
Federated Department Stores, Inc.*... 1,400 47,775
Gap, Inc. ........................... 2,200 70,675
Home Depot, Inc. .................... 3,700 199,800
J.C. Penney Co., Inc. ............... 2,300 120,750
Kohls Corp.*......................... 2,800 102,550
Kroger Co.*.......................... 1,600 63,200
Lands' End, Inc.*.................... 1,800 44,550
May Department Stores Co. ........... 2,300 100,625
Meyer, (Fred), Inc.*................. 1,300 38,188
Micro Warehouse, Inc.*............... 800 16,000
Nike, Inc. Cl-B...................... 800 82,200
Payless Shoesource, Inc. ............ 672 21,336
Petrie Stores Corp. ................. 2,700 7,425
Price Costco., Inc.*................. 2,100 45,413
Revco D.S., Inc.*.................... 2,800 66,850
Staples, Inc.*....................... 2,400 46,800
Tandy Corp. ......................... 600 28,425
Tiffany & Co. ....................... 600 43,800
TJX Companies, Inc. ................. 900 30,375
Toys 'R' Us, Inc.*................... 2,420 68,970
Vons Companies, Inc.*................ 1,600 59,800
Wal-Mart Stores, Inc. ............... 14,200 360,325
Walgreen Co. ........................ 1,700 56,950
-----------
2,055,570
-----------
SEMI-CONDUCTORS -- 1.1%
Analog Devices, Inc.*................ 5,250 133,875
Applied Materials, Inc.*............. 1,100 33,550
Atmel Corp.*......................... 1,800 54,225
Intel Corp. ......................... 4,500 330,469
Maxim Integrated Products, Inc.*..... 1,300 35,506
Motorola, Inc. ...................... 4,000 251,500
Xilinx, Inc.*........................ 2,900 92,075
-----------
931,200
-----------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
TELECOMMUNICATIONS -- 4.5%
ADC Telecommunications, Inc.*........ 1,400 $ 63,000
Airtouch Communications, Inc.*....... 4,300 121,475
Ameritech Corp. ..................... 3,100 184,064
AT&T Corp. .......................... 6,100 378,200
Bell Atlantic Corp. ................. 3,000 191,250
BellSouth Corp. ..................... 5,300 224,589
British Telecommunications
PLC [ADR].......................... 2,000 107,500
Century Telephone Enterprises,
Inc. .............................. 2,800 89,250
GTE Corp. ........................... 6,200 277,450
Hong Kong Telecommunications Ltd.
[ADR].............................. 9,000 162,000
MCI Communications Corp. ............ 4,700 120,438
Nextel Communications, Inc. Cl-A*.... 1,800 34,314
Nokia Corp. Cl-A [ADR]............... 1,800 66,600
Northern Telecom Ltd. ............... 1,700 92,438
NYNEX Corp. ......................... 3,200 152,000
Pacific Telesis Group................ 3,300 111,375
SBC Communications, Inc. ............ 4,500 221,625
Southern New England
Telecommunications Corp. .......... 2,400 100,800
Sprint Corp. ........................ 2,400 100,800
Telecomunicacoes Brasileiras SA
Telbras [ADR]...................... 2,000 139,250
Telefonaktiebolaget LM
Ericsson [ADR]..................... 4,800 103,200
Telefonica de Espana [ADR]........... 1,600 88,200
Telefonos de Mexico SA [ADR]......... 1,800 60,300
Telephone & Data Systems, Inc. ...... 2,000 90,000
Tellabs, Inc.*....................... 1,000 66,875
U.S. Robotics Corp.*................. 1,600 136,800
U.S. West Media Group, Inc.*......... 5,300 96,725
U.S. West, Inc. ..................... 1,600 51,000
Viacom, Inc. Cl-B*................... 3,400 132,175
Vodafone Group PLC [ADR]............. 2,000 73,750
Worldcom, Inc. ...................... 1,100 60,913
-----------
3,898,356
-----------
TRANSPORTATION -- 0.0%
Alexander & Baldwin, Inc. ........... 1,800 43,425
-----------
UTILITIES -- 2.5%
Allegheny Power System, Inc. ........ 2,100 64,838
Calenergy, Inc.*..................... 2,400 61,200
CMS Energy Corp. .................... 2,500 77,188
Duke Power Co. ...................... 3,100 158,875
Edison International................. 7,800 137,475
Empresa Nacional de Electridad SA
[ADR].............................. 1,900 118,988
Entergy Corp. ....................... 2,600 73,775
Florida Progress Corp. .............. 1,300 45,175
FPL Group, Inc. ..................... 2,200 101,200
Idaho Power Co. ..................... 2,600 80,925
Illinova Corp. ...................... 2,300 66,125
Ipalco Enterprises, Inc. ............ 2,400 63,000
Midamerican Energy Co. .............. 3,800 65,550
New York State Electric & Gas
Corp. ............................. 3,400 82,875
Niagara Mohawk Power Corp. .......... 4,600 35,650
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
NIPSCO Industries, Inc. ............. 2,300 $ 92,575
Pacific Gas & Electric Co. .......... 4,700 109,275
Portland General Corp. .............. 2,700 83,363
Potomac Electric Power Co. .......... 1,800 47,700
Scana Corp. ......................... 2,700 75,938
Southern Co. ........................ 6,000 147,750
Southwestern Public Service Co. ..... 2,100 68,513
Teco Energy, Inc. ................... 2,800 70,700
Texas Utilities Co. ................. 2,600 111,150
Unicom Corp. ........................ 3,500 97,563
-----------
2,137,366
-----------
TOTAL COMMON STOCK
(COST $36,885,598)..................... 40,583,391
-----------
PREFERRED STOCK -- 0.0%
INDUSTRIAL PRODUCTS
Teledyne, Inc.
$1.20 Cl-E
(COST $513)........................ 72 1,107
-----------
FOREIGN STOCK -- 10.8%
AEROSPACE -- 0.2%
Mitsubishi Heavy Industries
Ltd. -- (JPN)...................... 17,000 148,130
-----------
AIRLINES -- 0.2%
KLM Royal Dutch Airlines
NV -- (NETH)....................... 3,000 96,087
Singapore Airlines Ltd. -- (SNG)*.... 10,000 105,599
-----------
201,686
-----------
AUTOMOBILE MANUFACTURERS -- 0.3%
Man AG -- (DEM)...................... 1,000 250,888
-----------
BEVERAGES -- 0.3%
Lion Nathan Ltd. -- (NZD)............ 50,000 130,748
Louis Vuitton Moet
Hennessy -- (FRF).................. 660 156,718
-----------
287,466
-----------
BUILDING MATERIALS -- 0.1%
Malayan Cement BHD -- (MALA)......... 41,000 98,597
-----------
CHEMICALS -- 0.4%
AKZO Nobel -- (NETH)................. 400 47,985
BASF AG Ord. -- (DEM)................ 400 114,034
Bayer AG -- (DEM).................... 3,200 112,692
L'air Liquide -- (FRF)............... 600 106,066
-----------
380,777
-----------
CLOTHING & APPAREL -- 0.3%
Benetton Group SPA -- (ITL).......... 4,000 51,717
Kuraray Co. Ltd. -- (JPN)............ 16,000 179,940
-----------
231,657
-----------
COMPUTER SERVICES & SOFTWARE -- 0.2%
Getronics Geneue
Electric -- (NETH)................. 7,268 161,161
-----------
CONGLOMERATES -- 0.6%
BTR PLC -- (UK)...................... 27,000 106,309
Hutchison Whampoa Ltd. -- (HK)....... 48,000 301,996
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
Lonrho PLC -- (UK)................... 22,000 $ 63,215
Valmet Corp. -- (FIM)*............... 4,000 67,833
-----------
539,353
-----------
CONSTRUCTION -- 0.1%
Societe Technip -- (FRF)............. 1,000 92,180
-----------
CONSUMER PRODUCTS & SERVICES -- 0.2%
Kao Corp. -- (JPN)................... 11,000 148,853
-----------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.3%
Mitsubishi Electric Corp. -- (JPN)... 17,000 118,753
Sharp Corp. -- (JPN)................. 9,000 157,996
-----------
276,749
-----------
FINANCIAL-BANK & TRUST -- 2.0%
Banca Commerciale Italia -- (ITL)*... 30,000 60,337
Bank of Scotland -- (UK)............. 20,208 73,446
Bankgesellschaft Berlin
AG -- (DEM)........................ 545 116,125
Barclays PLC -- (UK)................. 15,000 180,094
Deutsche Bank AG -- (DEM)............ 1,600 75,865
Developmental Bank of Singapore
Ltd. -- (SNG)...................... 7,000 87,314
Holderbank Financiere Glarus
AG -- (SW)......................... 200 159,974
HSBC Holdings -- (UK)................ 10,000 156,563
ING Groep NV -- (NETH)............... 10,000 298,586
Kredietbank NV -- (BEL).............. 200 59,891
Oversea-Chinese Banking Corp.
Ltd. -- (SNG)...................... 10,000 116,938
Oversea-Chinese Banking Corp. Ltd.
Rights -- (SNG)*................... 1,000 0
Schweizerischer Bankverein -- (SW)... 600 118,541
Toronto Dominion Bank -- (CAN)....... 4,100 71,637
Union Bank of Switzerland -- (SW).... 100 97,984
Westpac Banking Corp.
Ltd. -- (AUD)...................... 10,000 44,251
-----------
1,717,546
-----------
FINANCIAL SERVICES -- 0.2%
Gemina SPA -- (ITL).................. 50,000 21,386
Mediobanca -- (ITL).................. 7,000 44,498
Societe Generale -- (FRF)............ 1,212 133,407
-----------
199,291
-----------
FOOD -- 0.5%
Danisco AS -- (DKK).................. 3,000 149,529
Eridania Beghin-Say -- (FRF)......... 400 62,698
Huhtamaki -- (FIM)................... 1,500 50,227
Nestle SA -- (SW).................... 150 171,453
-----------
433,907
-----------
INDUSTRIAL PRODUCTS -- 0.3%
Bridgestone Corp. -- (JPN)........... 8,000 152,876
Siemans AG -- (DEM)*................. 2,000 107,300
-----------
260,176
-----------
INSURANCE -- 0.2%
AXA SA -- (FRF)...................... 1,500 82,145
Ckag Colonia Konzern AG -- (DEM)*.... 150 119,854
-----------
201,999
-----------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
MACHINERY & EQUIPMENT -- 0.3%
ABB AG -- (SW)....................... 80 $ 99,056
Sig Schweiz
Industries-Bearer -- (SW).......... 70 165,733
-----------
264,789
-----------
METALS & MINING -- 0.1%
Cra Ltd. -- (AUD).................... 3,000 46,121
Societe Generale de
Belgique -- (BEL).................. 1,000 75,903
-----------
122,024
-----------
MISCELLANEOUS -- 0.3%
Sime Darby BHD -- (MALA)............. 50,000 138,277
United Engineers Ltd. -- (MALA)...... 15,000 104,008
-----------
242,285
-----------
OFFICE EQUIPMENT -- 0.2%
Ricoh Corp. Ltd. -- (JPN)............ 13,000 137,881
-----------
OIL & GAS -- 0.2%
Societe Nationale Elf
Aquitaine -- (FRF)................. 1,100 80,990
Veba AG -- (DEM)..................... 2,500 133,007
-----------
213,997
-----------
PAPER & FOREST PRODUCTS -- 0.1%
Bobst SA -- (SW)..................... 60 86,626
Kimberly-Clark de Mexico
SA -- (MEX)........................ 2,000 36,431
-----------
123,057
-----------
PHARMACEUTICALS -- 1.0%
Astra AB Cl-B -- (SEK)............... 5,500 240,037
Ciba Geigy AG Cl-B -- (SW)........... 150 182,131
Gehe AG -- (DEM)..................... 125 84,999
Roussel-Uclaf -- (FRF)............... 500 120,087
Takeda Chemical
Industries -- (JPN)................ 10,000 177,380
-----------
804,634
-----------
PRINTING & PUBLISHING -- 0.5%
Dai Nippon Printing Co.
Ltd. -- (JPN)...................... 8,000 155,070
Elsevier NV -- (NETH)................ 12,000 182,319
Pearson PLC -- (UK).................. 5,600 57,754
-----------
395,143
-----------
REAL ESTATE -- 0.3%
Cheung Kong Holdings Ltd. -- (HK).... 22,000 158,452
DBS Land Ltd. -- (SNG)............... 25,000 85,755
Hopewell Holdings Ltd. -- (HK)....... 59,463 32,265
-----------
276,472
-----------
RETAIL & MERCHANDISING -- 0.5%
Carrefour Supermarch SA -- (FRF)..... 150 84,129
Carrefour Supermarch
Rights -- (FRF)*................... 150 41,481
Marui Co. Ltd. -- (JPN).............. 7,000 155,527
Pinault-Printemps Redoute
SA -- (FRF)........................ 50 17,512
Tesco PLC -- (UK).................... 25,174 114,955
-----------
413,604
-----------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
TELECOMMUNICATIONS -- 0.7%
Telecom Italia Mobile -- (ITL)....... 75,000 $ 167,739
Telecom Italia SPA -- (ITL).......... 75,000 161,372
Telecomm Corp. of New Zealand
Ltd. -- (NZD)...................... 22,000 92,409
Telekom Malaysia BHD -- (MALA)....... 16,000 142,365
-----------
563,885
-----------
UTILITIES -- 0.2%
Electrabel SA -- (BEL)............... 300 64,142
Hong Kong Electric Holdings
Ltd. -- (HK)....................... 30,000 91,467
-----------
155,609
-----------
TOTAL FOREIGN STOCK
(COST $8,437,257)...................... 9,343,796
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- ------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 15.9%
AEROSPACE -- 1.1%
BE Aerospace Sr. Sub. Notes
144A
9.875%.................... 02/01/06 $ 125 123,750
Boeing Co. Notes
6.35%..................... 06/15/03 120 116,850
Coltec Industries Sr. Sub.
Notes
10.25%.................... 04/01/02 125 130,313
K&F Industries, Inc. Sub.
Debs.
13.75%.................... 08/01/01 125 129,687
Raytheon Co. Notes
6.50%..................... 07/15/05 350 336,437
UNC, Inc. Sr. Sub. Notes
11.00%.................... 06/01/06 125 127,187
-----------
964,224
-----------
AIRLINES -- 0.0%
Southwest Airlines Co. Debs.
9.25%..................... 02/15/98 25 26,000
-----------
AUTOMOBILE MANUFACTURERS -- 0.0%
Daimler-Benz Auto Grantor
Trust
3.90%..................... 10/15/98 38 38,037
-----------
BEVERAGES -- 0.4%
Coca-Cola Bottling Group Sr.
Sub. Notes
9.00%..................... 11/15/03 100 98,125
Dr. Pepper Bottling Holding
Co. Sr. Notes [ZCB]
11.625%................... 02/15/03 140 116,725
Texas Bottling Group, Inc.
Sr. Sub. Notes
9.00%..................... 11/15/03 100 98,625
-----------
313,475
-----------
BROADCASTING -- 0.4%
Chancellor Broadcasting Sr.
Sub. Notes
9.375%.................... 10/01/04 125 118,438
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
Sinclair Broadcasting Group
Sr. Sub. Notes
10.00%.................... 09/30/05 $ 100 $ 95,500
Young Broadcasting Corp. Sr.
Sub. Notes
10.125%................... 02/15/05 100 96,750
-----------
310,688
-----------
CHEMICALS -- 0.6%
Agricultural Minerals &
Chemicals, Inc. Sr. Notes
10.75%.................... 09/30/03 100 106,000
Arcadian Partners L.P. Sr.
Notes Cl-B
10.75%.................... 05/01/05 150 162,750
IMC Fertilizer Group
Debentures
9.45%..................... 12/15/11 100 102,250
Scotts Co. Sr. Sub. Notes
9.875%.................... 08/01/04 100 104,250
475,250
CLOTHING & APPAREL -- 0.6%
Collins & Aikman Products
Corp. Sr. Sub. Notes
11.50%.................... 04/15/06 125 125,938
Dan River, Inc. Sr. Sub.
Notes
10.125%................... 12/15/03 100 96,125
Dominion Textile USA, Inc.
Sr. Notes
9.25%..................... 04/01/06 125 121,094
Loehmann's Holdings Sr.
Notes
11.875%................... 05/15/03 125 129,219
-----------
472,376
-----------
COMPUTER HARDWARE -- 0.1%
International Business
Machines Corp. Notes
6.375%.................... 11/01/97 100 100,125
-----------
CONGLOMERATES -- 0.1%
Jordan Industries Sr. Notes
10.375%................... 08/01/03 125 119,531
-----------
CONSUMER PRODUCTS & SERVICES -- 0.4%
Herff Jones, Inc. Sr. Sub.
Notes Cl-B
11.00%.................... 08/15/05 125 131,094
Mafco, Inc. Sr. Sub. Notes
11.875%................... 11/15/02 100 105,875
Revlon Worldwide Corp. [ZCB]
11.29%.................... 03/15/98 125 104,219
-----------
341,188
-----------
CONTAINERS & PACKAGING -- 0.5%
Container Corp. of America
Sr. Notes
11.25%.................... 05/01/04 100 103,250
Owens Illinois, Inc. Debs.
11.00%.................... 12/01/03 125 134,375
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
Portola Packaging, Inc. Sr.
Notes
10.75%.................... 10/01/05 $ 100 $ 101,125
Riverwood International Co.
Sr. Notes
10.25%.................... 04/01/06 75 74,719
-----------
413,469
-----------
ELECTRONIC COMPONENTS &
EQUIPMENT -- 0.5%
Alpine Group, Inc. Sr. Notes
144A
12.25%.................... 07/15/03 100 100,875
Ametek, Inc. Sr. Notes
9.75%..................... 03/15/04 100 104,625
Westinghouse Electric Corp.
Debs.
8.875%.................... 06/01/01 200 205,500
-----------
411,000
-----------
ENTERTAINMENT & LEISURE -- 0.9%
Bally Park Place Funding
First Mtge.
9.25%..................... 03/15/04 100 106,250
GNF Corp. First Mtge.
10.625%................... 04/01/03 125 136,406
Grand Casinos, Inc. First
Mtge.
10.125%................... 12/01/03 125 128,906
President Riverboat Casinos
Sr. Notes
13.00%.................... 09/15/01 100 82,000
Six Flags Theme Parks Sr.
Sub. Notes [STEP]
1.81%..................... 06/15/05 50 42,562
Time Warner Entertainment
Debs.
7.25%..................... 09/01/08 100 93,750
Trump Atlantic City First
Mtge.
11.25%.................... 05/01/06 125 125,937
United Artists Theatre Pass
Through Trust 144A
9.30%..................... 07/01/15 100 95,250
-----------
811,061
-----------
EQUIPMENT SERVICES -- 0.2%
Coinmach Corp. Sr. Notes
11.75%.................... 11/15/05 125 131,250
FINANCIAL-BANK & TRUST -- 1.4%
Airplanes Pass Through Trust
10.875%................... 03/15/19 125 130,312
Aristar, Inc. Debs.
8.875%.................... 08/15/98 200 208,000
7.875%.................... 02/15/99 200 206,000
Banesto Delaware Sub. Notes
8.25%..................... 07/28/02 50 49,250
Bank of Nova Scotia Yankee
Sub. Notes
6.25%..................... 09/15/08 50 45,562
Coleman Holdings [ZCB]
9.25%..................... 05/27/98 125 104,844
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
CoreStates Home Equity Trust
6.65%..................... 05/15/09 $ 77 $ 75,337
Export-Import Korea Yankee
Notes
6.50%..................... 05/15/00 40 39,450
First Federal Financial
Notes
11.75%.................... 10/01/04 125 121,563
NationsBank Texas Sr. Notes
6.75%..................... 08/15/00 150 149,625
U.S. Bancorp Notes
6.72%..................... 06/01/98 100 100,875
1,230,818
FINANCIAL SERVICES -- 1.9%
Advanta Corp. Notes
7.07%..................... 09/15/97 235 237,162
Associates Corp. of North
America Sr. Notes
8.625%.................... 06/15/97 10 10,232
7.70%..................... 03/15/00 50 51,625
Chrysler Financial Corp.
Notes
8.46%..................... 01/19/00 200 210,500
Ciesco L.P. Notes
7.38%..................... 04/19/00 250 254,062
Commercial Credit Debs.
8.125%.................... 03/01/97 5 5,074
Ford Motor Credit Co. Notes
[VR]
9.45%..................... 05/20/97 50 51,456
General Motors Acceptance
Corp. Grantor Trust
6.30%..................... 06/15/99 31 30,960
General Motors Acceptance
Corp. Notes
7.75%..................... 04/15/97 50 50,705
8.375%.................... 05/01/97 10 10,196
H.F. Ahmanson & Co. Debs.
9.875%.................... 11/15/99 100 108,375
Household Finance Corp.
Notes
6.96%..................... 04/27/98 300 303,000
Lehman Brothers Holdings
Notes
7.625%.................... 06/15/97 65 65,867
Smith Barney Holdings Notes
6.625%.................... 06/01/00 200 199,000
-----------
1,588,214
-----------
HEALTHCARE SERVICES -- 0.4%
Regency Health Services Sr.
Sub. Notes
9.875%.................... 10/15/02 125 120,625
Tenet Healthcare Corp. Sr.
Notes
8.625%.................... 12/01/03 90 91,237
Wright Medical Technology,
Inc. Notes
10.75%.................... 07/01/00 125 122,344
-----------
334,206
-----------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
INDUSTRIAL PRODUCTS -- 0.5%
American Safety Razor Co.
Sr. Notes
9.875%.................... 08/01/05 $ 150 $ 152,250
American Standard Debs.
11.375%................... 05/15/04 125 135,625
9.25%..................... 12/01/16 25 24,750
Synthetic Industries Debs.
12.75%.................... 12/01/02 125 132,344
-----------
444,969
-----------
INSURANCE -- 0.1%
New York Life Insurance
Notes
7.50%..................... 12/15/23 100 93,250
-----------
MEDICAL SUPPLIES & EQUIPMENT
-- 0.1%
Dade International, Inc. Sr.
Sub. Notes
11.125%................... 05/01/06 100 104,000
METALS & MINING -- 0.2%
Freeport-McMoran Resources
Sr. Notes
7.00%..................... 02/15/08 150 138,938
-----------
MISCELLANEOUS -- 0.3%
Consolidated Cigar Sr. Sub.
Notes
10.50%.................... 03/01/03 125 130,313
Doane Products Co. Sr. Notes
10.625%................... 03/01/06 125 125,313
-----------
255,626
-----------
OIL & GAS -- 0.7%
Dual Drilling Co. Sr. Sub.
Notes
9.875%.................... 01/15/04 125 130,938
Gulf Canada Resources Ltd.
Sub. Debs.
9.625%.................... 07/01/05 100 99,500
Gulf Canada Resources Ltd.
Yankee Sr. Sub. Debs.
9.25%..................... 01/15/04 25 24,406
Petroleum Heat & Power Sub.
Notes
10.125%................... 04/01/03 100 93,750
Tenneco, Inc. Notes
8.00%..................... 11/15/99 55 56,856
7.875%.................... 10/01/02 150 154,688
-----------
560,138
-----------
PAPER & FOREST PRODUCTS -- 0.1%
Repap Wisconsin, Inc. Sr.
Notes
9.25%..................... 02/01/02 100 94,000
-----------
PHARMACEUTICALS -- 0.1%
Owens & Minor Sr. Sub. Notes
10.875%................... 06/01/06 125 127,188
-----------
REAL ESTATE -- 0.2%
B.F. Saul Sr. Notes
11.625%................... 04/01/02 100 102,875
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
HMC Acquisition Properties
Sr.
Notes 144A
9.00%..................... 12/15/07 $ 100 $ 91,125
194,000
RESTAURANTS -- 0.1%
McDonald's Corp. Notes
6.625%.................... 09/01/05 100 96,375
RETAIL & MERCHANDISING -- 0.6%
Federated Department Stores,
Inc. Sr. Notes
8.125%.................... 10/15/02 125 123,438
Ferrellgas L.P. Financial
Corp. Sr. Notes
10.00%.................... 08/01/01 100 103,500
Hills Stores Co. Sr. Notes
12.50%.................... 07/01/03 100 98,250
Michaels Stores Sr. Notes
10.875%................... 06/15/06 125 128,750
Wal-Mart Stores, Inc. Debs.
7.25%..................... 06/01/13 85 83,406
-----------
537,344
-----------
TELECOMMUNICATIONS -- 1.0%
Fundy Cable Ltd. Yankee Sr.
Notes
11.00%.................... 11/15/05 125 126,719
Paging Network, Inc. Sr.
Sub. Notes
8.875%.................... 02/01/06 125 114,688
Rogers Cablesystems Sr.
Notes 144A
10.00%.................... 03/15/05 125 124,688
TCI Communications, Inc. Sr.
Notes
8.65%..................... 09/15/04 200 204,000
United Telecommunications
Debs.
9.75%..................... 04/01/00 250 274,688
-----------
844,783
-----------
TRANSPORTATION -- 0.2%
Federal Express Notes
6.25%..................... 04/15/98 70 69,650
Sea Containers Ltd. Sr. Sub.
Notes
12.50%.................... 12/01/04 125 138,906
-----------
208,556
-----------
UTILITIES -- 2.2%
Commonwealth Edison Notes
7.00%..................... 02/15/97 50 50,313
9.00%..................... 10/15/99 250 262,188
Consumers Power Co. First
Mtge.
6.00%..................... 07/01/97 65 64,675
6.625%.................... 10/01/98 50 49,875
El Paso Electric Co. First
Mtge.
8.90%..................... 02/01/06 100 99,375
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
Florida Power & Light Notes
5.70%..................... 03/05/98 $ 200 $ 197,750
Gulf States Utilities First
Mtge.
5.375%.................... 02/01/97 128 127,520
Monongahela Power First
Mtge.
8.50%..................... 06/01/22 150 155,438
Pacific Gas & Electric Co.
First Mtge.
6.75%..................... 12/01/00 200 198,750
Potomac Capital Investment
Corp. Notes
6.19%..................... 04/28/97 250 249,410
Public Service Electric &
Gas First Mtge.
7.00%..................... 09/01/24 300 266,250
Southern California Edison
Notes
6.50%..................... 06/01/01 100 97,875
Wisconsin Electric Power Co.
First Mtge.
5.875%.................... 10/01/97 100 99,625
-----------
1,919,044
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $13,704,470)................. 13,699,123
-----------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 6.9%
FEDERAL HOME LOAN MORTGAGE CORP.
-- 0.0%
7.50%..................... 07/15/20 15 15,176
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOC. -- 6.8%
9.50%..................... 10/15/09 24 25,677
10.00%.................... 11/15/09 33 36,387
11.50%.................... 06/15/10 51 57,402
12.00%.................... 09/15/13 1 1,622
12.00%.................... 01/15/14 7 7,584
10.50%.................... 08/15/15 13 14,826
11.50%.................... 09/15/15 99 111,577
11.50%.................... 11/15/15 37 41,996
8.00%..................... 05/15/16 30 30,612
8.50%..................... 06/15/16 35 36,272
9.00%..................... 07/15/16 17 17,692
8.00%..................... 12/15/16 52 52,612
8.00%..................... 02/15/17 101 101,837
8.00%..................... 05/15/17 64 64,101
9.00%..................... 05/15/17 87 90,989
8.00%..................... 06/15/17 28 28,471
9.50%..................... 11/15/18 5 5,075
9.50%..................... 03/15/19 17 18,264
9.50%..................... 01/15/20 9 9,346
9.50%..................... 06/15/20 14 15,109
8.50%..................... 07/15/20 500 514,065
8.00%..................... 06/15/22 159 160,974
8.00%..................... 09/15/22 34 34,697
8.00%..................... 07/15/23 83 84,202
7.00%..................... 09/15/23 380 364,633
6.50%..................... 02/15/24 718 668,617
6.50%..................... 04/15/24 89 82,447
6.50%..................... 05/15/24 888 827,396
7.50%..................... 06/15/24 89 87,432
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------ -----------
<S> <C> <C> <C>
7.00%..................... 12/15/25 $ 293 $ 280,737
7.50%..................... 04/15/26 145 143,011
7.50%..................... 05/15/26 1,092 1,076,632
8.00%..................... 06/15/26 808 815,070
5,907,364
TENNESSEE VALLEY AUTHORITY NOTES
-- 0.1%
7.75%..................... 12/15/22 10 9,675
7.25%..................... 07/15/43 20 18,650
6.875%.................... 12/15/43 40 35,900
-----------
64,225
-----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $6,039,380)...................... 5,986,765
-----------
U.S. TREASURY OBLIGATIONS
-- 9.8%
U.S. TREASURY BONDS -- 1.2%
11.625%................... 11/15/02 100 125,959
7.125%.................... 02/15/23 240 242,700
7.625%.................... 02/15/25 300 323,793
6.875%.................... 08/15/25 300 297,171
6.00%..................... 02/15/26 100 88,695
-----------
1,078,318
-----------
U.S. TREASURY NOTES -- 8.6%
6.50%..................... 09/30/96 80 80,245
7.25%..................... 11/30/96 240 241,714
6.125%.................... 05/15/98 100 100,087
6.00%..................... 05/31/98 450 449,167
5.125%.................... 12/31/98 50 48,773
6.375%.................... 05/15/99 1,950 1,954,602
6.75%..................... 05/31/99 460 465,525
6.875%.................... 03/31/00 250 253,952
6.25%..................... 05/31/00 100 99,446
6.125%.................... 09/30/00 150 148,359
5.625%.................... 11/30/00 275 266,489
5.625%.................... 02/28/01 1,300 1,257,295
5.75%..................... 08/15/03 965 919,423
7.50%..................... 02/15/05 250 263,077
5.875%.................... 11/15/05 425 400,562
5.625%.................... 02/15/06 500 463,955
-----------
7,412,671
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $8,490,278)...................... 8,490,989
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000)
--------
<S> <C> <C> <C>
FOREIGN BONDS -- 3.2%
AUSTRALIA -- 0.0%
Australian Government
9.50%.................. 08/15/03 20 16,320
-----------
BELGIUM -- 0.1%
Belgium Kingdom
Government
7.25%.................. 04/29/04 1,550 51,835
-----------
</TABLE>
<PAGE>
T. ROWE PRICE ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
MATURITY (000) VALUE
-------- -------- -----------
<S> <C> <C> <C>
CANADA -- 0.2%
Canadian Government
8.50%.................. 04/01/02 105 $ 81,740
6.50%.................. 06/01/04 110 75,587
9.75%.................. 06/01/21 10 8,613
-----------
165,940
-----------
DENMARK -- 0.1%
Kingdom of Denmark
7.00%.................. 12/15/04 275 46,448
FRANCE -- 0.4%
France O.A.T.
8.50%.................. 11/25/02 1,146 252,262
8.25%.................. 02/27/04 264 57,230
8.50%.................. 04/25/23 50 11,077
French Treasury Bill
8.50%.................. 03/12/97 75 15,025
-----------
335,594
-----------
GERMANY -- 0.7%
Deutscheland Republic
8.50%.................. 08/21/00 375 274,554
8.375%................. 05/21/01 330 242,194
6.50%.................. 07/15/03 110 73,360
-----------
590,108
-----------
ITALY -- 0.3%
Italian Government
11.50%................. 03/01/03 275,000 201,051
8.50%.................. 08/01/04 45,000 28,450
-----------
229,501
-----------
JAPAN -- 1.0%
European Investment Bank
4.625%................. 02/26/03 43,000 432,968
International Bank
Recovery & Development
6.75%.................. 03/15/00 14,000 149,287
Japan Government
4.50%.................. 06/20/03 33,500 336,777
-----------
919,032
-----------
NETHERLANDS -- 0.1%
Netherlands Government
5.75%.................. 01/15/04 115 65,841
-----------
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
MATURITY (000) VALUE
-------- -------- -----------
<S> <C> <C> <C>
SPAIN -- 0.0%
Spanish Government
8.00%.................. 05/30/04 6,400 $ 47,611
-----------
UNITED KINGDOM -- 0.3%
United Kingdom Gilt
9.00%.................. 03/03/00 85 140,068
United Kingdom Treasury
8.00%.................. 06/10/03 75 118,966
-----------
259,034
-----------
TOTAL FOREIGN BONDS
(COST $2,618,179).................... 2,727,264
-----------
<CAPTION>
PAR
(000)
--------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 1.3%
Corporate Asset Funding
Co.
5.40%.................. 07/16/96 $ 280 279,370
Wal-Mart Stores, Inc.
5.30%.................. 07/01/96 808 808,000
-----------
TOTAL COMMERCIAL PAPER
(COST $1,087,370).................... 1,087,370
-----------
<CAPTION>
SHARES
--------
<S> <C> <C>
SHORT TERM INVESTMENTS -- 4.7%
Temporary Investment Fund
(COST $4,025,169)................ 4,025,169 4,025,169
-----------
TOTAL INVESTMENTS -- 99.6%
(COST $81,288,214)................... 85,944,974
OTHER ASSETS LESS
LIABILITIES -- 0.4%.................. 357,294
-----------
NET ASSETS -- 100.0%................... $86,302,268
===========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED
COVERED EXCHANGE EXPIRATION UNREALIZED
TYPE BY CONTRACT RATE MONTH DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy ITL $62,313 1,530.50 07/96 $(69)
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 0.6% of net assets.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
PIMCO TOTAL RETURN BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ---------- -------------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS
-- 11.2%
AIRLINES -- 4.2%
American Airlines
Notes
10.19%.............. 05/26/15 $ 250 $ 294,200
AMR Corp. Notes
10.45%.............. 11/15/11 100 120,875
United Air Lines, Inc.
Notes
10.67%.............. 05/01/04 500 581,250
10.36%.............. 11/13/12 6,925 8,114,092
10.36%.............. 11/27/12 500 581,193
10.02%.............. 03/22/14 2,000 2,267,460
-------------
11,959,070
-------------
ENTERTAINMENT & LEISURE
-- 1.3%
Time Warner, Inc.
Notes
7.45%............... 02/01/98 2,000 2,025,000
6.46%............... 08/15/00 437 438,639
7.975%.............. 08/15/04 262 262,000
8.11%............... 08/15/06 525 524,344
8.18%............... 08/15/07 525 525,000
-------------
3,774,983
-------------
FINANCIAL SERVICES -- 0.7%
General Motors
Acceptance Corp.
Notes
7.75%............... 07/18/96 2,000 2,001,940
-------------
OIL & GAS -- 0.3%
Arkla, Inc. Notes
9.20%............... 12/18/97 500 516,250
Occidental Petroleum
Corp. Sr. Notes
9.625%.............. 07/01/99 500 500,000
-------------
1,016,250
-------------
REAL ESTATE -- 1.7%
Spieker Properties
Notes
6.95%............... 12/15/02 5,000 4,787,500
-------------
TELECOMMUNICATIONS -- 1.9%
Cablevision Industries
Sr. Notes
10.75%.............. 01/30/02 5,000 5,337,500
-------------
UTILITIES -- 1.1%
Cleveland Electric
Illumination Co.
Notes
9.11%............... 07/22/96 250 250,312
8.75%............... 11/15/05 100 97,750
CMS Energy Corp. Notes
9.50%............... 10/01/97 150 153,750
Commonwealth Edison
Notes
6.50%............... 07/15/97 750 751,875
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ---------- -------------
<S> <C> <C> <C>
Illinois Power Co.
Notes
5.85%............... 10/01/96 $ 2,000 $ 1,997,500
-------------
3,251,187
-------------
TOTAL CORPORATE OBLIGATIONS
(COST $32,206,012)................ 32,128,430
-------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 57.4%
FEDERAL HOME LOAN MORTGAGE
CORP. -- 3.3%
5.30%............... 07/03/96 1,300 1,299,617
8.25%............... 08/01/17 704 716,829
7.00% [IO].......... 04/25/19 506 53,160
7.551%.............. 02/01/24 3,509 3,616,774
6.50% [TBA]......... 08/12/26 4,000 3,742,520
9,428,900
FEDERAL NATIONAL MORTGAGE
ASSOC. -- 11.0%
9.40%............... 07/25/03 366 383,669
6.25% [IO].......... 05/25/08 236 79,136
6.50% [IO].......... 06/25/14 2,643 184,378
6.90%............... 05/25/23 185 150,502
7.594%.............. 01/01/24 536 554,494
7.50%............... 04/01/24 4,238 4,184,848
7.00%............... 04/25/24 582 486,460
7.749%.............. 04/01/25 928 964,335
6.282%.............. 07/24/26 25,000 24,812,500
-------------
31,800,322
-------------
GOVERNMENT NATIONAL
MORTGAGE ASSOC. -- 43.1%
7.00%............... 06/20/22 2,724 2,756,358
7.375%.............. 04/20/23 3,408 3,431,128
7.00%............... 09/20/23 7,731 7,783,800
7.00%............... 10/20/23 753 759,249
7.50%............... 12/20/23 465 456,381
7.25%............... 09/20/24 1,569 1,595,233
7.00%............... 10/20/24 4,137 4,190,972
6.50% [TBA]......... 08/19/26 80,000 74,350,400
7.00% [TBA]......... 08/19/26 30,000 28,725,000
-------------
124,048,521
-------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(COST $163,369,227)............... 165,277,743
-------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 4.6%
Citicorp Mtge.
Securities, Inc.
7.49%............... 10/25/22 750 766,576
Collateralized Mtge.
Securities Corp.
7.985%.............. 05/01/17 515 509,652
Countrywide Adjustable
Rate Mtge.
7.7433%............. 03/25/24 1,084 1,108,437
7.87%............... 11/25/24 1,222 1,240,147
Guardian Adjustable
Rate Mtge.
6.8575%............. 12/25/19 91 56,448
</TABLE>
<PAGE>
PIMCO TOTAL RETURN BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ---------- -------------
<S> <C> <C> <C>
Mortgage Capital Trust
VI
9.50%............... 02/01/18 $ 1,085 $ 1,105,783
Prudential-Bache CMO
Trust
8.40%............... 03/20/21 3,104 3,183,515
Resolution Trust Corp.
8.00%............... 09/25/21 578 579,001
Rothschild L.F. Mtge.
Trust
9.95%............... 08/01/17 3,047 3,244,984
Ryland Mtge.
Securities Corp.
7.8123%............. 09/25/23 1,493 1,515,711
-------------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $13,048,392)................ 13,310,254
-------------
U.S. TREASURY OBLIGATIONS
-- 55.6%
U.S. TREASURY BILLS -- 0.6%
4.95%#.............. 08/29/96 410 406,498
4.97%#.............. 08/29/96 75 74,359
5.145%#............. 10/17/96 375 369,034
5.115%#............. 10/24/96 160 157,315
5.07%#.............. 11/14/96 70 68,589
5.08%#.............. 11/14/96 215 210,667
5.09%#.............. 11/14/96 150 146,977
5.11%#.............. 11/14/96 75 73,488
5.12%#.............. 11/14/96 25 24,496
5.135%#............. 11/14/96 30 29,395
5.16%#.............. 11/14/96 75 73,488
-------------
1,634,306
-------------
U.S. TREASURY NOTES
-- 55.0%
6.125%.............. 05/31/97 50,000 50,166,495
5.625%.............. 06/30/97 30,000 29,963,997
5.875%.............. 07/31/97 78,000 78,039,772
-------------
158,170,264
-------------
TOTAL U.S. TREASURY
OBLIGATIONS
(COST $159,677,278)............... 159,804,570
-------------
SOVEREIGN ISSUES -- 2.4%
ARGENTINA -- 1.6%
Republic of Argentina
[FRB, BRB]
6.3125%............. 03/31/05 5,940 4,640,625
-------------
MEXICO -- 0.8%
United Mexican States
Cl-B [BRB]
6.25%............... 12/31/19 1,500 973,125
United Mexican States
Cl-C [BRB]
6.6093%............. 12/31/19 1,000 786,250
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ---------- -------------
<S> <C> <C> <C>
United Mexican States
Cl-D [BRB]
6.4531%............. 12/31/19 $ 500 $ 393,125
-------------
2,152,500
-------------
TOTAL SOVEREIGN ISSUES
(COST $6,543,410)................. 6,793,125
-------------
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
(000)
----------
<S> <C> <C> <C>
FOREIGN BONDS -- 1.0%
CANADA
Canadian Government
8.75%
(COST $2,737,528)... 12/01/05 3,500 2,758,849
-------------
<CAPTION>
PAR
(000)
----------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 5.4%
Caisse D'Amortissement
5.35%............... 08/19/96 $ 5,300 5,260,762
Commonwealth Bank of
Australia
5.27%............... 07/23/96 500 497,531
Dupont, (E.I.)
DeNemours & Co.
5.34%............... 07/24/96 1,400 1,395,224
Emerson Electric Co.
5.30%............... 07/02/96 2,100 2,099,691
General Electric
Capital Corp.
5.29%............... 09/16/96 700 691,693
Hewlett-Packard Co.
5.24%............... 08/29/96 500 495,402
Southwestern Public
Utilities
5.42%............... 07/22/96 3,600 3,588,618
Unilever Capital Corp.
5.25%............... 07/25/96 1,600 1,594,352
-------------
TOTAL COMMERCIAL PAPER
(COST $15,625,514)................ 15,623,273
-------------
OPTIONS -- (0.1%)
Written CME Put Option
on Eurodollar
Futures,
Strike Price $93.00,
Expire 03/17/97............... 62,000 (15,500)
Written CME Put Option
on Eurodollar Futures,
Strike Price $93.50,
Expire 06/16/97............... 200,000 (185,000)
</TABLE>
<PAGE>
PIMCO TOTAL RETURN BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
---------- -------------
<S> <C> <C>
CME Put Option on
Eurodollar Futures,
Strike Price $91.75,
Expire 12/16/96............... $ 100,000 $ 2,500
-------------
TOTAL OPTIONS
(COST ($238,031))................. (198,000)
-------------
<CAPTION>
SHARES
----------
<S> <C> <C>
SHORT TERM INVESTMENTS -- 1.4%
Temporary Investment
Cash Fund..................... 1,966,010 1,966,010
Temporary Investment Fund....... 1,966,009 1,966,009
-------------
(COST $3,932,019)............. 3,932,019
-------------
TOTAL INVESTMENTS -- 138.9%
(COST $396,901,349)............... 399,430,263
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (38.9%)................. (111,784,932)
-------------
NET ASSETS -- 100.0%................ $ 287,645,331
=============
</TABLE>
Foreign currency exchange contracts outstanding at June 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED UNREALIZED
COVERED EXCHANGE EXPIRATION APPRECIATION
TYPE BY CONTRACT RATE MONTH (DEPRECIATION)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sell CAN $2,196,193 1.3660 05/97 $ (16,115)
Buy DEM 492,514 1.5021 12/96 (978)
Buy DEM 2,521,014 1.5014 12/96 (5,011)
Buy DEM 4,742,424 1.4984 01/97 (9,255)
Sell DEM 2,656,735 1.4247 12/96 140,732
Sell DEM 525,706 1.4073 12/96 34,171
Sell DEM 4,966,105 1.4309 01/97 232,937
---------
$ 376,481
=========
</TABLE>
# Securities with an aggregate market value of $1,634,306 have been segregated
with the custodian to cover margin requirements for the following open future
contracts at June 30, 1996:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
TYPE CONTRACTS (DEPRECIATION)
- ----------------------------------------------------------------
<S> <C> <C>
U.S. Treasury 5 Year Note (09/96) 50 $ 15,625
U.S. Treasury 10 Year Note (09/96) 456 401,625
U.S. Treasury 30 Year Bond (09/96) 129 68,531
Eurodollar (03/97) 200 (5,000)
--------------
$480,781
=============
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
INVESCO EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK -- 69.1%
AEROSPACE -- 3.1%
Boeing Co. ....................... 20,000 $ 1,742,500
General Motors Corp. Cl-H......... 20,000 1,202,500
Lockheed Martin Corp. ............ 20,000 1,680,000
Northrop Grumman Corp. ........... 39,000 2,656,875
------------
7,281,875
------------
AIRLINES -- 0.4%
KLM Royal Dutch Airlines.......... 30,000 952,500
------------
AUTOMOBILE MANUFACTURERS -- 1.0%
Chrysler Corp. ................... 20,000 1,240,000
Ford Motor Co. ................... 30,000 971,250
------------
2,211,250
------------
AUTOMOTIVE PARTS -- 1.3%
Borg Warner Automotive, Inc. ..... 50,000 1,975,000
Eaton Corp. ...................... 20,000 1,172,500
------------
3,147,500
------------
BEVERAGES -- 1.2%
Anheuser-Busch Companies, Inc. ... 25,000 1,875,000
Coors (Adolph) Co. Cl-B........... 50,000 893,750
------------
2,768,750
------------
CHEMICALS -- 4.8%
Agrium, Inc. ..................... 210,000 2,752,969
Air Products & Chemicals, Inc. ... 25,000 1,443,750
Arco Chemical Co. ................ 20,000 1,040,000
General Chemical Group, Inc. ..... 60,000 1,215,000
Lawter International, Inc. ....... 100,000 1,250,000
Olin Corp. ....................... 40,000 3,570,000
------------
11,271,719
------------
COMPUTER SERVICES & SOFTWARE -- 0.8%
Reynolds & Reynolds Co. Cl-A...... 35,000 1,863,750
------------
COMPUTER HARDWARE -- 0.8%
International Business
Machines Corp. ................. 20,000 1,980,000
------------
CONSTRUCTION -- 1.2%
Fluor Corp. ...................... 24,000 1,569,000
Foster Wheeler Corp. ............. 30,000 1,346,250
------------
2,915,250
------------
CONSUMER PRODUCTS & SERVICES -- 0.8%
Jostens, Inc. .................... 30,000 592,500
Whitman Corp. .................... 50,000 1,206,250
------------
1,798,750
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 3.6%
Emerson Electric Co. ............. 25,000 2,259,375
General Electric Co. ............. 37,000 3,200,500
Honeywell, Inc. .................. 30,000 1,635,000
Polaroid Corp. ................... 30,000 1,368,750
------------
8,463,625
------------
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
ENTERTAINMENT & LEISURE -- 0.9%
Time Warner, Inc. ................ 25,000 $ 981,250
Walt Disney Co. .................. 20,000 1,257,500
------------
2,238,750
------------
FINANCIAL-BANK & TRUST -- 3.7%
Bank of New York Co., Inc. ....... 20,000 1,025,000
BankAmerica Corp. ................ 20,000 1,515,000
Chase Manhattan Corp. ............ 31,200 2,203,500
First Chicago NBD Corp. .......... 56,200 2,198,825
Mellon Bank Corp. ................ 30,000 1,710,000
------------
8,652,325
------------
FINANCIAL SERVICES -- 3.6%
American Express Co. ............. 20,000 892,500
Associates First Capital Corp.*... 100,000 3,762,500
Beneficial Corp. ................. 35,000 1,964,375
H & R Block, Inc. ................ 60,000 1,957,500
------------
8,576,875
------------
FOOD -- 2.2%
General Mills, Inc. .............. 25,000 1,362,500
Heinz, (H.J.) Co. ................ 33,000 1,002,375
Philip Morris Companies, Inc. .... 20,000 2,080,000
Quaker Oats Co. .................. 20,000 682,500
------------
5,127,375
------------
HOTELS & MOTELS -- 1.3%
Hilton Hotels Corp. .............. 28,000 3,150,000
------------
INDUSTRIAL PRODUCTS -- 1.7%
Albany International Corp. Cl-A... 80,000 1,810,000
Allied-Signal, Inc. .............. 40,000 2,285,000
------------
4,095,000
------------
INSURANCE -- 5.6%
Allmerica Financial Corp. ........ 60,000 1,785,000
Allmerica Property & Casualty
Companies, Inc. ................ 80,000 2,160,000
American States Financial
Corp.*.......................... 125,800 2,704,700
Ohio Casualty Corp. .............. 50,000 1,737,500
Travelers-Aetna Property Casualty
Corp. Cl-A*..................... 167,500 4,752,812
------------
13,140,012
------------
MEDICAL SUPPLIES & EQUIPMENT -- 1.3%
Becton Dickinson & Co............. 30,000 2,407,500
Novo Industries AS [ADR].......... 20,000 715,000
------------
3,122,500
------------
METALS & MINING -- 0.4%
Newmont Mining Corp. ............. 20,994 1,036,579
------------
OFFICE EQUIPMENT -- 1.0%
Xerox Corp. ...................... 45,000 2,407,500
------------
OIL & GAS -- 10.1%
Amoco Corp. ...................... 15,000 1,085,625
Atlantic Richfield Co. ........... 8,000 948,000
</TABLE>
<PAGE>
INVESCO EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Baker Hughes, Inc. ............... 52,500 $ 1,725,938
Burlington Resources, Inc. ....... 60,000 2,572,500
Chevron Corp. .................... 20,000 1,180,000
Dresser Industries, Inc. ......... 70,000 2,065,000
Exxon Corp. ...................... 12,000 1,042,500
Halliburton Co. .................. 35,000 1,942,500
Mobil Corp. ...................... 12,000 1,345,500
Parker & Parsley Petroleum Co. ... 20,000 555,000
Schlumberger Ltd. ................ 11,000 926,750
Sonat, Inc. ...................... 27,000 1,215,000
Tenneco, Inc. .................... 32,500 1,661,562
Union Pacific Resources Group,
Inc. ........................... 100,000 2,675,000
Unocal Corp. ..................... 40,000 1,350,000
USX Marathon Group................ 80,000 1,610,000
------------
23,900,875
------------
PAPER & FOREST PRODUCTS -- 0.4%
Champion International Corp. ..... 20,000 835,000
------------
PERSONAL SERVICES -- 0.8%
Service Corp. .................... 32,000 1,840,000
------------
PHARMACEUTICALS -- 3.1%
American Home Products Corp. ..... 30,000 1,803,750
Glaxo Wellcome PLC [ADR].......... 100,000 2,675,000
Pfizer, Inc. ..................... 15,000 1,070,625
Pharmacia & Upjohn, Inc. ......... 40,000 1,775,000
------------
7,324,375
------------
PRINTING & PUBLISHING -- 1.0%
Belo, (A.H.) Corp. Cl-A........... 25,000 931,250
R.R. Donnelley & Sons Co. ........ 40,000 1,395,000
------------
2,326,250
------------
RAILROADS -- 2.2%
Conrail, Inc. .................... 25,000 1,659,375
Kansas City Southern
Industries, Inc. ............... 40,000 1,715,000
Union Pacific Corp. .............. 25,000 1,746,875
------------
5,121,250
------------
REAL ESTATE -- 1.0%
Patriot American Hospitality,
Inc. ........................... 80,000 2,370,000
------------
RETAIL & MERCHANDISING -- 2.9%
Dayton-Hudson Corp. .............. 20,000 2,062,500
J.C. Penney Co., Inc. ............ 40,000 2,100,000
May Department Stores Co. ........ 35,000 1,531,250
Nordstrom, Inc. .................. 20,000 890,000
Payless Shoesource, Inc.*......... 5,600 177,800
------------
6,761,550
------------
SEMI-CONDUCTORS -- 0.6%
Intel Corp. ...................... 20,000 1,468,750
------------
TELECOMMUNICATIONS -- 5.8%
AT&T Corp. ....................... 40,000 2,480,000
Bell Atlantic Corp. .............. 15,000 956,250
GTE Corp. ........................ 30,000 1,342,500
Lucent Technologies, Inc. ........ 100,000 3,787,500
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
NYNEX Corp. ...................... 25,000 $ 1,187,500
SBC Communications, Inc. ......... 30,000 1,477,500
U.S. West, Inc. .................. 80,000 2,550,000
------------
13,781,250
------------
TRANSPORTATION -- 0.1%
Overseas Shipholding Group,
Inc. ........................... 17,000 308,125
------------
UTILITIES -- 0.4%
IES Industries, Inc. ............. 30,000 896,250
------------
TOTAL COMMON STOCK
(COST $138,233,124)................. 163,135,560
------------
PREFERRED STOCK -- 0.4%
METALS & MINING
Amax Gold, Inc. Cl-B*
(COST $996,575)................... 20,000 1,025,000
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- -------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 13.5%
AIRLINES -- 0.2%
Delta Air Lines, Inc.
9.30%.................. 01/02/11 $ 500 557,337
------------
BROADCASTING -- 2.6%
Allbritton Communications
Co. Sr. Sub. Debs.
11.50%................. 08/15/04 1,000 1,018,750
Benedek Broadcast Corp.
Sr. Notes
11.875%................ 03/01/05 1,000 1,058,750
Granite Broadcasting
Corp. Sr. Sub. Notes
10.375%................ 05/15/05 1,000 976,250
Lenfest Communications
Sr. Sub. Notes 144A
10.50%................. 06/15/06 1,000 1,006,250
SCI Television, Inc. Sr.
Notes
11.00%................. 06/30/05 1,000 1,045,000
SFX Broadcasting Sr. Sub.
Notes 144A
10.75%................. 05/15/06 1,000 997,500
------------
6,102,500
------------
BUILDING MATERIALS -- 0.6%
USG Corp. Debs.
8.75%.................. 03/01/17 1,517 1,460,113
------------
CHEMICALS -- 0.2%
Rexene Corp. Sr. Notes
11.75%................. 12/01/04 500 520,625
------------
ENTERTAINMENT & LEISURE
-- 0.9%
Trump Atlantic City First
Mtge.
11.25%................. 05/01/06 1,000 1,007,500
</TABLE>
<PAGE>
INVESCO EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
United Artists Sr. Notes
11.50%................. 05/01/02 $ 1,000 $ 1,055,000
------------
2,062,500
------------
FINANCIAL SERVICES -- 0.8%
Donaldson Lufkin &
Jenrette, Inc.
5.625%................. 02/15/16 1,000 951,250
General Motors Acceptance
Corp. Notes
7.125%................. 06/01/99 500 506,250
Tembec Finance Corp. Sr.
Notes
9.875%................. 09/30/05 500 465,000
------------
1,922,500
------------
HEALTHCARE SERVICES -- 0.4%
Tenet Healthcare Corp.
Sr. Sub. Notes
10.125%................ 03/01/05 900 951,750
------------
INDUSTRIAL PRODUCTS -- 0.4%
Noble Drilling Corp.
9.125%................. 07/01/06 1,000 1,002,500
------------
METALS & MINING -- 0.4%
Freeport-McMoran Resource
Sr. Sub. Notes
8.75%.................. 02/15/04 1,000 1,008,750
------------
OIL & GAS -- 0.2%
Transtexas Gas Corp. Sr.
Notes
11.50%................. 06/15/02 500 501,250
------------
PAPER & FOREST PRODUCTS
-- 0.7%
Repap New Brunswick Sr.
Notes
10.625%................ 04/15/05 500 468,750
S.D. Warren Co. Sr. Sub.
Notes
12.00%................. 12/15/04 1,000 1,060,000
------------
1,528,750
------------
RETAIL & MERCHANDISING -- 0.4%
Revco D.S., Inc. Sr.
Notes
9.125%................. 01/15/00 910 944,125
------------
TELECOMMUNICATIONS -- 5.1%
Arch Communications Group
Sr. Disc. Notes [STEP]
10.875%................ 03/15/08 1,000 528,750
Cablevision Industries
Debs. Cl-B
9.25%.................. 04/01/08 1,500 1,518,750
Centennial Cellular Sr.
Notes
8.875%................. 11/01/01 1,000 931,250
Comcast U.K. Cable [STEP]
4.59%.................. 11/15/07 1,000 582,500
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
Continental Cablevision
Sr. Sub. Debs.
11.00%................. 06/01/07 $ 1,500 $ 1,696,875
International Cabletel,
Inc. Sr. Notes [STEP]
5.63%.................. 02/01/06 2,000 1,122,500
Jones Intercable Sr. Sub.
Debs.
10.50%................. 03/01/08 250 260,937
Marcus Cable Co. Sr.
Disc. Notes [STEP]
5.24%.................. 12/15/05 900 558,000
MFS Communications Co.,
Inc. Sr. Disc. Notes
[STEP]
4.28%.................. 01/15/06 1,500 915,000
Rogers Cantel, Inc. Debs.
9.375%................. 06/01/08 1,000 981,250
UIH Australia Pacific Sr.
Disc. Notes [STEP] 144A
6.88%.................. 05/15/06 1,000 535,000
Vanguard Cellular Systems
Debs.
9.375%................. 04/15/06 1,000 977,500
Viacom, Inc. Sub. Debs.
8.00%.................. 07/07/06 1,500 1,383,750
------------
11,992,062
------------
TRANSPORTATION -- 0.2%
Teekay Shipping Corp.
First Mtge.
8.32%.................. 02/01/08 500 470,000
------------
UTILITIES -- 0.4%
Long Island
Lighting Debs.
9.00%.................. 11/01/22 1,000 917,500
------------
TOTAL CORPORATE OBLIGATIONS
(COST $32,780,576)................... 31,942,262
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 5.2%
FEDERAL HOME LOAN MORTGAGE
CORP. -- 4.5%
7.50%.................. 07/01/09 718 722,205
6.50%.................. 06/01/10 892 863,463
6.50%.................. 10/01/10 1,879 1,818,623
6.50%.................. 11/01/10 1,901 1,840,154
6.50%.................. 04/01/11 2,980 2,884,737
7.00%.................. 04/01/24 946 911,081
7.00%.................. 07/01/24 841 810,256
8.00%.................. 12/01/24 825 832,552
------------
10,683,071
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOC. -- 0.7%
7.50%.................. 10/15/23 1,689 1,665,332
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $12,331,509)................... 12,348,403
------------
</TABLE>
<PAGE>
INVESCO EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- ------------
<S> <C> <C> <C>
U.S. TREASURY NOTES -- 5.4%
5.375%................. 11/30/97 $ 3,000 $ 2,977,140
5.50%.................. 12/31/00 2,000 1,929,060
6.50%.................. 05/15/05 8,000 7,898,639
------------
TOTAL U.S. TREASURY NOTES
(COST $13,245,741)................... 12,804,839
------------
COMMERCIAL PAPER -- 5.6%
American Express Credit
Corp.
5.4541%................ 07/02/96 2,600 2,600,000
Chevron Oil Finance Co.
5.2576%................ 07/01/96 2,487 2,487,000
Ford Motor Credit Co.
5.327%................. 07/05/96 3,831 3,831,000
Hertz Corp.
5.3571%................ 07/03/96 4,330 4,330,000
------------
TOTAL COMMERCIAL PAPER
(COST $13,248,000)................... 13,248,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
SHORT TERM INVESTMENTS -- 1.0%
Temporary Investment Cash Fund.... 1,068,560 $ 1,068,560
Temporary Investment Fund......... 1,068,560 1,068,560
------------
(COST $2,137,120)............... 2,137,120
------------
TOTAL INVESTMENTS -- 100.2%
(COST $212,972,645)................. 236,641,184
LIABILITES IN EXCESS OF
OTHER ASSETS -- (0.2%).............. (501,652)
------------
NET ASSETS -- 100.0%.................. $236,139,532
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 1.1% of net assets.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK -- 86.7%
AEROSPACE -- 0.7%
Remec, Inc.*................... 60,800 $ 1,079,200
------------
BROADCASTING -- 0.5%
SFX Broadcasting, Inc. Cl-A*... 18,700 729,300
------------
BUSINESS SERVICES -- 1.4%
Caribiner International,
Inc.*........................ 31,900 1,024,787
Whittman-Hart, Inc.*........... 29,285 1,054,260
------------
2,079,047
------------
COMPUTER SERVICES &
SOFTWARE -- 17.3%
Avant Corp.*................... 70,300 1,634,475
Broadvision, Inc.*............. 51,300 359,100
Check Point Software
Technologies Ltd............. 8,550 205,200
Computervision Corp.*.......... 87,000 870,000
CSG Systems International,
Inc.*........................ 27,750 721,500
Cybercash, Inc.*............... 9,150 500,962
Dendrite International,
Inc.*........................ 60,300 2,080,350
Farallon Communications*....... 31,050 457,987
Geoworks*...................... 39,150 1,389,825
GT Interactive Software
Corp.*....................... 15,350 257,112
HCIA, Inc.*.................... 34,500 2,173,500
HPR, Inc.*..................... 76,525 1,626,156
Integrated Systems, Inc.*...... 26,055 1,043,828
Network General Corp.*......... 121,000 2,601,500
Parametric Technology Corp.*... 28,000 1,214,500
PRI Automation, Inc.*.......... 55,800 1,701,900
Project Software & Development,
Inc.*........................ 33,175 1,555,078
Ross Systems, Inc.*............ 175,825 1,010,994
Scopus Technology, Inc.*....... 68,200 1,057,100
Siebel Systems, Inc. .......... 2,675 82,256
Sterling Commerce, Inc.*....... 29,075 1,079,409
Synopsys, Inc.*................ 25,000 993,750
Verity, Inc.*.................. 26,425 759,719
7th Level, Inc.*............... 18,000 231,750
------------
25,607,951
------------
COMPUTER HARDWARE -- 4.1%
Filenet Corp.*................. 32,500 1,186,250
Gandalf Technologies, Inc.*.... 174,900 1,399,200
Mylex Corp.*................... 53,725 953,619
PC Docs Group International,
Inc.*........................ 45,000 894,375
Radisys Corp.*................. 46,900 1,594,600
------------
6,028,044
------------
CONSUMER PRODUCTS &
SERVICES -- 5.2%
Authentic Fitness Corp. ....... 40,000 745,000
Empire of Carolina, Inc. ...... 47,375 568,500
Nautica Enterprises, Inc.*..... 60,000 1,725,000
Protection One, Inc. .......... 120,750 1,977,281
Quicksilver, Inc.*............. 31,000 930,000
Warnaco Group, Inc. Cl-A....... 70,000 1,802,500
------------
7,748,281
------------
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
ELECTRONIC COMPONENTS & EQUIPMENT
-- 4.7%
Berg Electronics Corp.*........ 48,250 $ 1,145,937
Fore Systems, Inc.*............ 56,000 2,023,000
Mentor Graphics Corp.*......... 49,500 804,375
Plantronics, Inc.*............. 7,000 257,250
Sanmina Corp.*................. 33,850 913,950
Sawtek, Inc.*.................. 51,925 1,791,413
------------
6,935,925
------------
ENTERTAINMENT & LEISURE -- 3.2%
Anchor Gaming.................. 40,900 2,464,225
Golf Enterprises, Inc.*........ 30,000 352,500
Trump Hotels & Casino Resorts,
Inc. ........................ 65,725 1,873,163
------------
4,689,888
------------
ENVIRONMENTAL SERVICES -- 1.7%
United Waste Systems, Inc.*.... 80,000 2,580,000
------------
FINANCIAL-BANK & TRUST -- 0.9%
Banco Latinoamericano de
Exportaciones SA Cl-E........ 24,000 1,350,000
------------
FINANCIAL SERVICES -- 3.0%
Credit Acceptance Corp.*....... 20,075 421,575
First USA Paymentech, Inc. .... 22,900 916,000
Jayhawk Acceptance Corp.*...... 68,025 926,841
Olympic Financial Ltd.*........ 95,000 2,185,000
------------
4,449,416
------------
HEALTHCARE SERVICES -- 4.2%
Multicare Companies, Inc.*..... 74,000 1,406,000
Omnicare, Inc. ................ 93,800 2,485,700
Orthodontic Centers of America,
Inc.*........................ 52,000 1,378,000
Sunrise Assisted Living,
Inc.*........................ 39,900 957,600
------------
6,227,300
------------
HOTELS & MOTELS -- 1.1%
Doubletree Corp. .............. 45,000 1,597,500
------------
INDUSTRIAL PRODUCTS -- 2.2%
Harsco Corp. .................. 35,000 2,353,750
Strategic Distribution,
Inc.*........................ 115,825 912,122
------------
3,265,872
------------
INSURANCE -- 1.2%
Executive Risk, Inc. .......... 22,800 872,100
Reliastar Financial Corp. ..... 20,000 862,500
------------
1,734,600
------------
MACHINERY & EQUIPMENT -- 0.7%
Asyst Technologies, Inc.*...... 53,200 997,500
------------
MEDICAL SUPPLIES &
EQUIPMENT -- 5.1%
Express Scripts, Inc. Cl-A*.... 13,275 610,650
Gulf South Medical Supply,
Inc.*........................ 45,000 1,755,000
Heartport, Inc.*............... 21,225 642,056
Henry Schein, Inc.*............ 60,725 2,322,731
Sano Corp.*.................... 13,450 208,475
Sola International, Inc.*...... 33,000 948,750
</TABLE>
<PAGE>
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Ventritex, Inc.*............... 45,350 $ 776,619
Visible Genetics, Inc.*........ 25,925 252,769
------------
7,517,050
------------
OFFICE EQUIPMENT -- 1.0%
US Office Products Co. ........ 33,500 1,407,000
------------
OIL & GAS -- 1.3%
Falcon Drilling Co., Inc.*..... 50,000 1,356,250
Seitel, Inc.*.................. 18,700 511,913
------------
1,868,163
------------
PERSONAL SERVICES -- 0.6%
Sylvan Learning Systems,
Inc.*........................ 24,625 929,594
------------
PHARMACEUTICALS -- 7.1%
Cardinal Health, Inc. ......... 5,925 427,341
Genelabs Technologies, Inc.*... 271,000 1,761,500
NeXstar Pharmaceuticals,
Inc. ........................ 25,250 561,813
Paraxel International Corp.*... 36,400 1,756,300
Pharmaceutical Product
Development, Inc.*........... 16,200 542,700
Pharmaceutical Resources,
Inc.*........................ 35,900 179,500
Sequus Pharmaceuticals,
Inc.*........................ 102,450 2,037,795
Watson Pharmaceuticals,
Inc.*........................ 85,000 3,219,375
------------
10,486,324
------------
PRINTING & PUBLISHING -- 0.7%
World Color Press, Inc.*....... 41,900 1,063,213
------------
RETAIL & MERCHANDISING -- 6.1%
Consolidated Stores Corp.*..... 26,175 961,931
Corporate Express, Inc.*....... 31,000 1,240,000
Insight Enterprises, Inc. ..... 43,000 999,750
Kenneth Cole Productions,
Inc. Cl-A*................... 65,100 1,285,725
Officemax, Inc.*............... 21,840 521,430
Proffitt's, Inc. .............. 37,975 1,348,113
The Sports Authority, Inc.*.... 19,200 628,800
Williams-Sonoma, Inc.*......... 40,000 945,000
Wolverine World Wide, Inc. .... 35,325 1,148,063
------------
9,078,812
------------
SEMI-CONDUCTORS -- 1.5%
Speedfam International,
Inc. ........................ 65,250 1,060,313
Vitesse Semiconductor, Inc.*... 46,900 1,125,600
------------
2,185,913
------------
TELECOMMUNICATIONS -- 10.3%
Arch Communications Group,
Inc.*........................ 45,000 838,125
Ascend Communications, Inc.*... 14,700 826,875
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Cellular Communications
International, Inc.*......... 25,000 $ 843,750
Digital Microwave Corp.*....... 124,700 2,073,137
Inter-Tel, Inc.*............... 55,125 1,443,586
Intermedia Communications of
Florida, Inc.*............... 39,950 1,288,387
Intervoice, Inc.*.............. 53,225 1,057,847
LCI International, Inc. ....... 30,875 968,703
Omnipoint Corp.*............... 14,000 364,874
P-Com, Inc.*................... 78,600 2,475,900
Periphonics Corp.*............. 30,000 1,020,000
Trescom International, Inc.*... 20,550 205,500
Winstar Communications,
Inc.*........................ 70,925 1,768,692
------------
15,175,376
------------
TRANSPORTATION -- 0.9%
Celadon Group, Inc.*........... 14,150 109,663
Mark VII, Inc.*................ 36,425 733,053
Rural Metro Corp.*............. 14,800 506,900
------------
1,349,616
------------
TOTAL COMMON STOCK
(COST $102,998,858).............. 128,160,885
------------
FOREIGN STOCK -- 6.0%
BROADCASTING -- 1.0%
Flextech PLC -- (UK)*.......... 187,000 1,466,769
------------
BUILDING MATERIALS -- 1.1%
Hunter Douglas NV -- (NETH).... 23,356 1,596,160
------------
CONTAINERS & PACKAGING -- 0.6%
Hoya Corp. -- (JPN)............ 25,000 809,180
------------
RESTAURANTS -- 0.9%
J.D. Wetherspoon PLC -- (UK)... 89,533 1,397,584
------------
RETAIL & MERCHANDISING -- 1.1%
Next PLC -- (UK)............... 190,000 1,661,464
------------
TRANSPORTATION -- 1.3%
IHC Caland NV -- (NETH)........ 40,000 1,971,021
------------
TOTAL FOREIGN STOCK
(COST $6,917,480)................ 8,902,178
------------
</TABLE>
<PAGE>
FOUNDERS CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ ------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 11.6%
Amoco Corp.
5.30%................. 07/01/96 $5,756 $ 5,756,000
Bell South
Telecommunications
5.35%................. 07/03/96 1,363 1,362,595
Ford Motor Credit Co.
5.31%................. 07/01/96 5,000 5,000,000
Lubrizol Corp.
5.40%................. 07/02/96 5,105 5,104,234
------------
TOTAL COMMERCIAL PAPER
(COST $17,222,829)................... 17,222,829
------------
<CAPTION>
VALUE
------------
<S> <C>
TOTAL INVESTMENTS -- 104.3%
(COST $127,139,167).................. $154,285,892
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (4.3%)............... (6,369,619)
------------
NET ASSETS -- 100.0%................... $147,916,273
============
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
FOREIGN STOCK -- 96.8%
ARGENTINA -- 0.6%
Banco de Galicia Buenos Aires
SA [ADR]...................... 4,980 $ 128,858
Banco Frances del Rio de la
Plata SA [ADR]................ 4,243 121,986
Buenos Aires Embotelladora
SA [ADR]...................... 1,535 20,339
Compania Naviera Perez Companc
S.A.C.F.I.M.F.A............... 49,186 325,857
Enron Global Power & Pipelines
LLC........................... 1,356 32,883
Sociedad Comercial del Plata
[ADR]*........................ 1,640 52,283
Sociedad Comercial del Plata
SA*........................... 14,380 45,153
Telecom Argentina Stet SA Cl-B
[ADR]......................... 941 44,109
Telecom Argentina Stet-Fran Tel
SA Cl-B....................... 10,450 49,220
Telefonica de Argentina SA*..... 2,610 76,995
Telefonica de Argentina SA Cl-B
[ADR]......................... 20,200 598,425
Transportadora de Gas del Sur SA
Cl-B [ADR].................... 2,632 32,242
YPF SA*......................... 3,550 81,650
YPF SA [ADR].................... 16,340 367,650
------------
1,977,650
------------
AUSTRALIA -- 1.7%
Amcor Ltd....................... 45,000 305,942
Australian Gas Light Co. Ltd.... 124,945 519,499
Broken Hill Proprietary Co.
Ltd........................... 50,747 700,798
Burns Philip & Co. Ltd.......... 71,000 133,931
Coca-Cola Amatil Ltd............ 30,251 335,964
Fletcher Challange Forest
Ltd........................... 1,702 2,073
Howard Smith Ltd................ 50,929 316,230
Lend Lease Corp. Ltd............ 14,486 222,021
National Australia Bank Ltd..... 34,000 313,998
News Corp. Ltd.................. 60,228 341,306
Publishing & Broadcasting
Ltd........................... 64,300 283,015
Sydney Harbour Casino Holdings
Ltd.*......................... 182,000 251,765
Tabcorp Holdings Ltd............ 86,000 388,666
TNT Ltd......................... 99,000 111,271
Westpac Banking Corp. Ltd....... 71,000 314,179
WMC Ltd......................... 42,377 303,097
Woodside Petroleum Ltd.......... 63,000 378,307
------------
5,222,062
------------
AUSTRIA -- 0.1%
Creditanstalt-Bankverein........ 1,600 81,144
Energie Versorgung
Niederoesterreich AG.......... 624 86,334
Flughafen Wien AG............... 1,581 108,706
------------
276,184
------------
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
BELGIUM -- 0.9%
Generale de Banque SA........... 2,140 $ 743,768
Kredietbank NV.................. 5,200 1,557,175
U.C.B. SA....................... 306 573,078
------------
2,874,021
------------
BRAZIL -- 2.7%
Brazil Fund, Inc.**............. 29,290 699,299
Centrais Electrobras SA [ADR]... 44,628 617,830
Cesp-Cia Energetica de
Sao Paolo [ADS]*.............. 5,020 50,009
Companhia Energetica de Minas
Geras [ADR]................... 44,868 1,273,578
Lojas Americanas SA [ADR]*...... 23,000 454,710
Pao de Acucar [ADR]*............ 5,160 84,283
Telecomunicacoes Brasileiras
SA [ADR]...................... 55,389 3,856,459
Telecomunicacoes Brasileiras
SA [ADR] 144A................. 217 15,518
Uniao Siderurgicas de Minas
Gerais SA [ADS]............... 52,190 458,015
Usinas Siderurgicas de Minas
Gerais SA [ADR]*.............. 44,000 586,224
Usinas Siderurgicas de Minas
Gerais SA [ADR] 144A.......... 11,100 120,502
------------
8,216,427
------------
CANADA -- 0.3%
Alcan Aluminum Ltd. ............ 21,890 663,916
Royal Bank of Canada............ 7,140 170,785
------------
834,701
------------
CHILE -- 0.7%
A.F.P. Provida SA [ADR]......... 1,152 28,656
Chilectra Metropolitana SA
[ADR]......................... 4,136 227,575
Chilgener SA [ADR].............. 6,371 152,904
Cia de Telecomunicaciones de
Chile SA [ADR]................ 2,390 234,519
Compania Cervecerias Unidas SA
[ADR]......................... 3,628 85,258
Empresa Nacional Electridad SA
[ADR]......................... 14,096 303,064
Enersis SA [ADR]................ 8,471 262,601
Five Arrows Chile Fund Ltd.**... 89,390 261,019
Five Arrows Chile Investment
Trust**....................... 29,340 85,673
Genesis Chile Fund**............ 9,350 388,025
The Chile Fund**................ 9,294 227,703
------------
2,256,997
------------
CHINA -- 0.3%
Huaneng Power International,
Inc. [ADR]*................... 51,000 911,625
------------
CZECH REPUBLIC -- 0.1%
SPT Telecom AS*................. 1,360 166,107
------------
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
DENMARK -- 0.2%
Den Danske Bank................. 4,350 $ 291,812
Teledanmark AS Cl-B............. 2,030 101,743
Unidanmark AS Cl-A.............. 4,250 197,324
------------
590,879
------------
FINLAND -- 0.1%
Nokia AB Cl-A................... 10,224 377,685
------------
FRANCE -- 8.4%
Accor SA........................ 4,320 604,889
Alcatel Alsthom................. 2,720 237,506
Assurances Generales de
France........................ 7,533 204,216
AXA SA.......................... 1,900 104,051
Canal Plus*..................... 2,600 636,588
Carrefour Supermarch Rights*.... 2,565 709,327
Carrefour Supermarch SA......... 3,265 1,831,209
Castorama Duois Investisse...... 2,446 482,341
Charguers....................... 2,331 652,776
Cie de Gaz Petrole Warrants*.... 217 4,600
Compagnie de Saint Gobain....... 9,730 1,303,742
Compagnie Generale des Eaux..... 30,080 3,363,606
Credit Local de France Ord. .... 3,660 298,232
Credit Local de France
Reg'd. ....................... 1,928 157,289
Ecco SA......................... 4,864 1,224,963
Elf Aquitaine SA................ 13,570 999,125
GTM Entrepose SA................ 4,510 292,943
Guilbert SA..................... 3,243 473,007
Havas SA*....................... 2,940 240,707
Hermes International............ 362 95,743
L'Oreal......................... 1,070 355,619
Lapeyre SA...................... 8,105 475,226
Legrand SA...................... 1,275 228,117
Louis Vuitton Moet Hennessy..... 8,250 1,958,976
Pinault Printemps Redoute SA.... 6,423 2,249,630
Primagaz Cie.................... 3,462 384,435
Promodes........................ 790 227,992
Rexel SA........................ 2,025 559,995
Sanofi SA....................... 4,057 304,387
Schneider SA*................... 12,240 642,695
Societe Generale................ 2,050 225,647
Societe Television Francaise.... 15,610 1,785,006
Sodexho SA...................... 2,430 1,079,349
Total SA Cl-B................... 17,630 1,309,024
------------
25,702,958
------------
GERMANY -- 4.2%
Allianz AG Holding.............. 534 929,215
Altana AG....................... 216 168,044
Bayer AG........................ 52,880 1,862,241
Bilfinger & Berger Bau AG....... 880 370,959
Buderus AG...................... 527 222,154
Deutsche Bank AG................ 14,120 669,507
Fielmann AG Pfd. ............... 5,723 274,746
Gehe AG......................... 3,980 2,706,379
Hoechst AG...................... 9,020 304,898
Hornbach Baumarkt AG............ 1,300 58,562
Hornbach Holdings AG Pfd.*...... 3,920 337,709
Krones AG Hermann Kronseder
Maschinenfabrik Pfd. ......... 456 173,931
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
Mannesmann AG................... 1,410 $ 485,887
Praktiker Bau Und
Heimwerkemaerkte.............. 3,779 98,166
Rhoen-Klinicum AG............... 5,760 746,232
SAP AG.......................... 2,110 311,102
Schering AG..................... 6,391 463,795
Siemens AG...................... 8,830 473,728
Veba AG......................... 29,195 1,553,252
Veba AG Warrants*............... 1,220 346,600
Volkswagen AG................... 619 230,609
Volkswagen AG Warrants*......... 370 41,609
------------
12,829,325
------------
HONG KONG -- 5.1%
Cathay Pacific Air*............. 322,000 590,711
Dao Heng Bank Group Ltd. ....... 200,000 772,560
First Pacific Co. Ltd. ......... 1,138,954 1,750,992
Guangdong Investment Ltd. ...... 863,000 546,308
Guangzhou Investment Co.
Ltd. ......................... 2,962,000 746,192
Guoco Group Ltd. ............... 248,000 1,182,249
Hong Kong Land Holdings Ltd. ... 936,582 2,107,310
Hopewell Holdings Ltd. ......... 2,512,000 1,363,013
Hutchison Whampoa Ltd. ......... 269,000 1,692,436
New World Developing Co.
Ltd. ......................... 315,141 1,461,606
Shanghai Petrochemical Co.
Ltd. Cl-H..................... 1,660,000 471,804
Swire Pacific Ltd. Cl-A......... 154,000 1,318,067
Wharf Holdings Ltd. ............ 392,000 1,402,803
Yizheng Chemical Fibre Co.
Ltd. Cl-H..................... 986,000 217,823
------------
15,623,874
------------
ITALY -- 2.0%
Assicurazioni Generali.......... 39,224 905,425
Banca Fideuram SPA.............. 312,340 677,138
Danieli & Co. Warrants*......... 875 686
Ente Nazionale Idrocarburi
SPA........................... 63,000 314,506
Finanziaria Autogrill SPA*...... 36,752 42,166
Industrie Natuzzi SPA [ADR]..... 5,660 290,075
Istituto Mobiliare Italiano
SPA........................... 29,000 242,393
Istituto Nazionale Delle
Assicurazioni................. 106,480 158,879
Italgas Ord. ................... 78,936 295,095
La Rinascente SPA............... 22,800 163,400
La Rinascente SPA Warrants*..... 1,140 929
Mediolanum SPA*................. 28,440 283,211
Rinascente Rights*.............. 22,800 0
Riunione Adriatica di Sicurta
SPA........................... 2,651 27,429
Sasib SPA....................... 39,177 78,027
Stet di Risp.................... 94,220 247,640
Stet Societa' Finanziaria
Telefonica SPA................ 233,480 789,752
Stet Warrants*.................. 1,000 20,243
Telecom Italia Mobile SPA....... 498,848 1,017,136
Telecom Italia SPA.............. 202,673 436,076
Unicem SPA*..................... 8,642 63,204
------------
6,053,410
------------
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
JAPAN -- 24.7%
Advantest Corp. ................ 6,400 $ 254,549
Alps Electric Co. Ltd. ......... 50,000 608,028
Amada Co. Ltd. ................. 109,000 1,176,008
Canon, Inc. .................... 127,000 2,647,527
Citizen Watch Co. Ltd. ......... 68,000 567,651
Daifuku Co. Ltd. ............... 18,000 276,493
Daiichi Pharma Co. Ltd. ........ 98,000 1,514,309
Dai Nippon Screen Mfg. Co.
Ltd. ......................... 88,000 785,298
Daiwa House Industry Co.
Ltd. ......................... 124,000 1,927,402
DDI Corp. ...................... 144 1,258,700
East Japan Railway Co. ......... 310 1,629,789
Fanuc Co. ...................... 26,000 1,036,482
Hitachi Ltd. ................... 165,000 1,538,813
Hitachi Zosen Corp. ............ 141,000 800,594
Honda Motor Co. ................ 11,000 285,636
Inax............................ 46,000 458,444
Ishihara Sangyo Kaisha Ltd.*.... 56,000 223,242
Ito-Yokado Co. Ltd. ............ 35,000 2,115,294
Kao Corp.*...................... 22,000 297,705
Kawada Industries............... 14,000 125,318
Kokuyo.......................... 50,000 1,385,206
Komatsu Ltd. ................... 135,000 1,333,090
Komori Corp. ................... 40,000 1,024,047
Kumagai Gumi Co. Ltd. .......... 88,000 354,028
Kuraray Co. Ltd. ............... 103,000 1,158,362
Kyocera Corp. .................. 41,000 2,905,276
Makita Corp. ................... 67,000 1,090,427
Matsushita Electric Industrial
Co. .......................... 111,000 2,070,403
Mauri Co. Ltd. ................. 76,000 1,688,580
Mitsubishi Electric Corp. ...... 65,000 855,811
Mitsubishi Heavy Industries
Ltd. ......................... 329,000 2,866,755
Mitsubishi Paper Mills Ltd. .... 64,000 400,841
Mitsui Fudosan.................. 171,000 2,313,980
Mitsui Petrochemical
Industries.................... 43,000 345,982
Murata Manufacturing Co.
Ltd. ......................... 42,000 1,593,673
National House Industrial....... 26,000 406,510
NEC Corp. ...................... 213,000 2,317,546
Nippon Hodo..................... 22,000 374,143
Nippon Steel Co. ............... 530,000 1,822,072
Nippon Telegraph & Telephone
Corp. ........................ 142 1,054,256
Nippondenso Co. Ltd. ........... 110,000 2,393,709
Nomura Securities Co. Ltd. ..... 109,000 2,132,760
Pioneer Electronic Corp. ....... 54,000 1,288,653
Sangetsu Co. Ltd. .............. 11,000 294,688
Sankyo Co. Ltd. ................ 80,000 2,077,352
Sega Enterprises................ 15,700 734,973
Sekisui Chemical Co. Ltd. ...... 115,000 1,408,979
Sekisui House Ltd. ............. 84,000 960,044
Seven Eleven Japan.............. 12,000 766,938
Sharp Corp. .................... 106,000 1,860,839
Shin-Etsu Chemical Co. ......... 65,450 1,256,697
Sony Corp. ..................... 29,400 1,938,137
Sumitomo Corp. ................. 164,000 1,460,510
Sumitomo Electric Industries.... 159,000 2,282,436
Sumitomo Forestry Co. .......... 58,000 864,405
TDK Corp. ...................... 30,000 1,793,911
Teijin Ltd. .................... 209,000 1,137,012
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
Tokio Marine & Fire Insurance
Co. .......................... 47,000 $ 627,412
Tokyo Electron Ltd. ............ 17,000 495,840
Tokyo Steel Manufacturing....... 48,000 943,586
Toppan Printing Co. Ltd. ....... 79,000 1,155,710
UNY Co. Ltd.*................... 15,000 297,614
Yurtec Corp. ................... 21,000 370,577
------------
75,431,052
------------
KOREA -- 1.0%
Choung Bank Co. Ltd. ........... 21,300 266,686
Hanil Bank...................... 11,000 125,898
Hanil Securities Co.*........... 14,060 176,230
Kookmin Bank.................... 14,003 307,586
Korea Electric Power Corp. ..... 17,700 713,448
Pohang Iron & Steel Co. Ltd. ... 6,030 502,784
Samsung Electronics Co.*........ 4,252 354,950
Samsung Electronics Co. [GDR]... 9,049 225,216
Samsung Fire and Marine
Insurance*.................... 95 67,738
Seoul Bank*..................... 16,000 119,732
Shinhan Bank*................... 4,370 101,533
Yukong Ltd. .................... 7,755 229,051
------------
3,190,852
------------
MALAYSIA -- 3.4%
Affin Holdings BHD.............. 765,000 1,793,687
Affin Holdings Warrants*........ 86,600 83,650
Berjaya Sports Toto BHD......... 225,000 743,988
Commerce Asset Holdings BHD*.... 91,000 554,389
MBF Capital BHD................. 450,000 620,441
Multi-Purpose Holdings BHD...... 673,000 1,084,353
Renong BHD*..................... 79,000 29,764
Renong BHD Iculs*............... 582,000 928,401
Renong BHD Warrants*............ 49,375 22,560
Tanjong PLC*.................... 204,000 768,577
Technology Resources Industry
BHD*.......................... 600,000 2,092,184
United Engineers Ltd. .......... 234,000 1,622,525
------------
10,344,519
------------
MEXICO -- 1.8%
Cementos de Mexico SA
de CV [ADS]................... 65,090 453,026
Cemex SA [ADS].................. 50,068 348,473
Cemex SA Cl-B................... 67,925 268,078
Cifra SA de CV Cl-B [ADR]*...... 566,468 817,413
Fomento Economico Mexicano SA
Cl-B.......................... 46,409 132,930
Gruma SA Cl-B................... 86,348 400,055
Grupo Embotelladoras
de Mexico SA.................. 63,023 111,804
Grupo Embotelladoras de Mexico
SA Cl-B....................... 10,080 5,322
Grupo Financiero Banamex
SA Cl-B*...................... 114,200 238,168
Grupo Financiero Banamex
SA Cl-L....................... 4,184 7,953
Grupo Financiero Bancomer
Cl-B [GDR]*................... 2,330 20,539
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
Grupo Financiero Bancomer
SA Cl-L*...................... 1,725 $ 572
Grupo Industrial Maseca SA
de CV Cl-B.................... 218,095 226,846
Grupo Modelo SA Cl-C............ 48,506 228,572
Grupo Televisia SA [GDR]*....... 13,570 417,278
Kimberly-Clark de Mexico
SA Cl-A....................... 15,464 281,683
Panamerica Beverages, Inc.
[ADR]......................... 10,270 459,583
Telefonos de Mexico SA
Cl-L [ADS].................... 30,454 1,020,209
------------
5,438,504
------------
NETHERLANDS -- 9.5%
ABN AMRO Holdings NV............ 26,893 1,445,063
AKZO Nobel...................... 1,902 228,169
CSM NV.......................... 35,474 1,702,219
Elsevier NV..................... 358,462 5,446,217
Fortis Amev NV.................. 34,793 998,051
Hagemeyer NV.................... 5,152 367,503
ING Groep NV.................... 77,962 2,327,838
Koninklijke Ahold NV............ 16,640 902,915
Koninklijke Nederland........... 11,749 445,231
Nutricia Verenigde Bedrijven
NV............................ 5,090 538,948
Otra NV*........................ 6,490 149,620
Polygram NV..................... 34,567 2,043,969
Royal Dutch Petroleum Co. ...... 33,876 5,238,290
Unilever NV..................... 10,900 1,579,339
Wolters Kluwer NV............... 49,737 5,657,303
------------
29,070,675
------------
NEW ZEALAND -- 0.6%
Air New Zealand Ltd. ........... 57,000 181,915
Carter Holt Harvey Ltd. ........ 101,000 230,837
Fernz Corp. Ltd. ............... 51,100 152,563
Fletcher Challenge Building*.... 18,250 35,698
Fletcher Challenge Energy*...... 18,250 40,333
Fletcher Challenge Forest....... 160,952 199,947
Fletcher Challenge Paper*....... 36,500 70,645
Telecom Corp. of
New Zealand Ltd. ............. 197,000 827,481
------------
1,739,419
------------
NORWAY -- 1.3%
Bergesen D.Y. AS Cl-A........... 5,170 107,541
Norsk Hydro AS.................. 46,840 2,295,052
Orkla AS Cl-A................... 30,000 1,580,869
Saga Petroleum AS Cl-B.......... 8,260 111,998
------------
4,095,460
------------
PERU -- 0.0%
Telefonica de Peru SA Cl-B*..... 26,690 53,675
------------
PORTUGAL -- 0.5%
Estabelecimentos Jeronimo
Martins & Filho............... 16,550 1,491,658
------------
SINGAPORE -- 2.2%
DBS Land Ltd. .................. 150,000 514,529
Developmental Bank of Singapore
Ltd. Cl-F..................... 41,000 511,410
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
Far East-Levingston
Shipbuilding Ltd. ............ 52,000 $ 287,456
Fraser & Neave Ltd. ............ 23,000 237,987
Jurong Shipyard Ltd. ........... 39,000 197,626
Keppel Corp. Ltd. .............. 25,000 209,072
Neptune Orient Lines Ltd. ...... 69,000 72,374
Overseas Union Bank Ltd. Cl-F... 161,000 1,106,804
Sembawang Corp Ltd. ............ 44,000 218,285
Singapore Airlines Ltd. ........ 10,000 105,599
Singapore Land Ltd. ............ 161,000 1,089,688
Singapore Press Holdings
Ltd. ......................... 28,000 549,681
Total Access Communication
Ltd. ......................... 12,000 102,000
United Industrial Corp. Ltd. ... 219,000 223,501
United Overseas Bank Ltd. ...... 118,400 1,132,814
United Overseas Bank Ltd.
Warrants*..................... 27,092 107,523
------------
6,666,349
------------
SPAIN -- 2.6%
Argentaria SA................... 10,124 442,238
Banco Popular Espanol SA........ 5,190 926,308
Banco Santander SA.............. 16,946 791,882
Centros Comerciales
Continente SA................. 6,360 151,085
Centros Comerciales Pryca SA.... 14,319 358,059
Compania Sevillana de
Electricidad.................. 15,430 142,279
Empresa Nacional de
Electridad SA................. 31,068 1,939,777
Fomentos de Construcciones y
Contratas SA.................. 1,297 107,433
Gas Natural SDG................. 5,018 1,054,811
General de Aguas de Barcelona
SA............................ 4,037 150,161
Iberdrola SA.................... 71,783 737,631
Repsol SA....................... 36,188 1,259,807
Repsol SA [ADR]................. 110 3,823
------------
8,065,294
------------
SWEDEN -- 2.5%
ABB AB Cl-A..................... 5,550 589,204
Astra AB Cl-B................... 73,120 3,191,181
Atlas Copco AB Cl-B............. 34,500 643,433
Electrolux AB Cl-B.............. 22,740 1,145,259
Esselte......................... 5,800 118,682
Hennes & Mauritz AB Cl-B........ 8,710 808,929
Sandvik AB Cl-A................. 6,140 140,938
Sandvik AB Cl-B................. 36,000 831,785
Scribona AB Cl-B................ 5,500 57,725
Stora Kopparbergs Bergslags
Aktiebolag Cl-B............... 20,740 274,053
------------
7,801,189
------------
SWITZERLAND -- 3.9%
ABB AG.......................... 1,579 1,955,121
Ciba Geigy AG................... 1,139 1,389,358
CS Holding AG................... 5,630 535,890
Nestle SA....................... 2,278 2,603,793
Roche Holding AG................ 365 2,786,694
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
Sandoz AG....................... 1,517 $ 1,736,384
Swiss Bank Corp. ............... 5,020 991,793
------------
11,999,033
------------
THAILAND -- 0.8%
Advanced Information
Services PLC.................. 18,200 269,683
Bangkok Bank PLC................ 69,800 946,254
Bank of Ayudhya PLC............. 37,900 209,103
Bank of Ayudhya PLC Rights*..... 9,475 28,005
Land and House PLC.............. 7,000 88,276
Siam Cement Co. PLC............. 3,000 147,310
Siam Commercial Bank PLC........ 34,300 497,434
Thai Farmer Bank PLC............ 30,200 330,861
------------
2,516,926
------------
UNITED KINGDOM -- 14.6%
Abbey National PLC.............. 245,000 2,058,696
Argos PLC....................... 137,749 1,596,085
Argyll Group PLC................ 215,660 1,162,326
Asda Group PLC.................. 632,450 1,144,408
BAA PLC......................... 27,440 199,461
British Gas PLC................. 126,210 352,854
British Petroleum Co. PLC....... 95,840 840,310
Cable & Wireless PLC............ 232,000 1,535,064
Cadbury Schweppes PLC........... 176,456 1,395,028
Caradon PLC..................... 315,700 1,059,149
Coats Viyella PLC............... 91,270 243,829
Compass Group PLC............... 97,000 887,393
East Midlands Electricity PLC... 48,385 391,541
Electrocomponents PLC........... 45,000 266,996
GKN PLC......................... 17,000 260,876
Glaxo Wellcome PLC.............. 152,000 2,045,695
Grand Metropolitan PLC.......... 275,300 1,825,841
Guinness PLC.................... 234,640 1,705,598
Heywood Williams Group PLC...... 32,010 118,329
Hillsdown Holdings PLC.......... 95,160 257,177
Kingfisher PLC.................. 208,950 2,099,788
Ladbroke Group PLC.............. 150,000 419,365
Laing, (John) PLC NV Cl-A....... 70,000 314,213
London Electricity PLC.......... 85,517 831,487
National Grid Group PLC......... 73,011 193,349
National Westminster Bank PLC... 379,670 3,632,585
Rank Organisation PLC........... 172,120 1,331,342
Reed International PLC.......... 199,370 3,335,065
Rolls-Royce PLC................. 78,140 271,863
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
RTZ Corp. PLC................... 103,600 $ 1,533,492
Sears PLC....................... 75,490 116,079
Shell Transport & Trading Co.
PLC........................... 176,000 2,577,823
Smith David Holdings PLC........ 145,900 616,386
Smithkline Beecham PLC.......... 329,220 3,520,618
Spring Ram Corp. PLC*........... 12,000 2,842
T & N Corp. PLC................. 181,680 395,061
Tesco PLC....................... 132,000 602,768
Tomkins PLC..................... 436,220 1,643,032
United News and Media PLC....... 166,470 1,802,176
------------
44,585,990
------------
TOTAL FOREIGN STOCK
(COST $267,815,129)............... 296,404,500
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
MATURITY (000)
-------- --------
<S> <C> <C> <C>
FOREIGN BONDS -- 0.0%
BELGIUM -- 0.0%
Kredietbank NV
5.75%.............. 11/30/03 900 36,012
------------
ITALY -- 0.0%
Danieli & Co.
7.25%.............. 01/01/00 5,250 3,240
------------
TOTAL FOREIGN BONDS
(COST $29,683)................... 39,252
------------
TOTAL INVESTMENTS -- 96.8%
(COST $267,844,812).............. 296,443,752
OTHER ASSETS LESS
LIABILITIES -- 3.2%.............. 9,705,793
------------
NET ASSETS -- 100.0%............... $306,149,545
============
</TABLE>
Foreign currency exchange contracts outstanding at June 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED UNREALIZED
COVERED EXCHANGE EXPIRATION APPRECIATION
TYPE BY CONTRACT RATE MONTH (DEPRECIATION)
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy FRF $ 101,048 5.1520 07/96 $205
Buy THB 24,261 25.3850 07/96 (1)
-----
$204
=====
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
** Closed-end funds.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 0.0% of net assets.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
FOREIGN BONDS -- 82.3%
AUSTRALIA -- 2.4%
New South Wales Treasury
Corp.
6.50%................... 05/01/06 2,500 $ 1,634,589
-----------
CANADA -- 2.2%
Canadian Government
7.50%................... 03/01/01 1,000 747,253
7.00%................... 12/01/06 1,100 765,457
-----------
1,512,710
-----------
DENMARK -- 7.6%
Kingdom of Denmark
9.00%................... 11/15/00 14,000 2,646,627
8.00%................... 03/15/06 14,750 2,618,462
-----------
5,265,089
-----------
FRANCE -- 1.8%
French O.A.T.
7.25%................... 04/25/06 6,000 1,230,081
-----------
GERMANY -- 13.9%
Deutsche Pfandbriefe
Hypobank
5.00%................... 02/22/01 3,400 2,178,719
Deutscheland Republic
6.50%................... 07/15/03 1,200 800,289
6.75%................... 07/15/04 1,200 806,129
6.00%................... 02/16/06 1,530 971,785
Federal National Mtge.
Assoc. Global Bond
5.00%................... 02/16/01 1,500 962,285
Frankfurter Hypo Bank
Central
5.75%................... 03/05/03 950 607,678
General Electric Capital
Corp.
7.25%................... 02/03/00 1,580 1,097,251
Inter-America Development
Bank
7.00%................... 06/08/05 1,100 739,313
Republic of Austria
8.00%................... 06/17/02 2,000 1,436,275
-----------
9,599,724
-----------
IRELAND -- 2.9%
Irish Government Treasury
8.00%................... 10/18/00 1,180 1,967,860
-----------
ITALY -- 14.3%
Eurofima
11.125%................. 02/02/00 800,000 562,884
European Bank
Reconstruction &
Development
9.75%................... 07/28/00 800,000 547,212
European Investment Bank
10.15%.................. 07/06/98 1,700,000 1,149,642
European Investment Bank
Sr. Notes
7.45%................... 02/04/99 1,000,000 644,835
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
Italian Government
8.50%................... 08/01/99 1,020,000 $ 667,456
9.50%................... 12/01/99 6,500,000 4,373,939
9.50%................... 02/01/01 1,000,000 673,436
10.50%.................. 09/01/05 1,720,000 1,208,290
-----------
9,827,694
-----------
JAPAN -- 14.3%
Asian Development Bank
3.125%.................. 06/29/05 288,000 2,613,514
Belgium Kingdom
6.875%.................. 07/09/01 60,000 662,430
Export-Import Bank of
Japan 4.375%............ 10/01/03 150,000 1,488,068
2.875%.................. 07/28/05 50,000 444,592
International Bank
Reconstruction &
Development Global Bond
5.25%................... 03/20/02 210,000 2,187,700
4.75%................... 12/20/04 50,000 513,452
Japan Development Bank
6.50%................... 09/20/01 180,000 1,967,747
-----------
9,877,503
-----------
NETHERLANDS -- 4.3%
Netherlands Government
7.75%................... 01/15/00 1,550 988,810
9.00%................... 01/15/01 2,500 1,675,515
8.25%................... 02/15/07 450 297,765
-----------
2,962,090
-----------
SPAIN -- 5.7%
Spanish Government
8.40%................... 04/30/01 150,000 1,181,908
10.30%.................. 06/15/02 322,500 2,734,861
-----------
3,916,769
-----------
SWEDEN -- 4.5%
Swedish Government
10.25%.................. 05/05/00 15,100 2,515,846
10.25%.................. 05/05/03 3,700 626,165
-----------
3,142,011
-----------
UNITED KINGDOM -- 8.4%
Abbey National Treasury
6.00%................... 08/10/99 995 1,494,246
Barclays PLC
6.50%................... 02/16/04 910 1,277,375
Deutsche Siedlungs Bank
Finance BV
7.50%................... 12/27/00 400 622,447
International Bank
Reconstruction &
Development Global Bond
9.25%................... 07/20/07 100 165,491
</TABLE>
<PAGE>
T. ROWE PRICE INTERNATIONAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
IN LOCAL
CURRENCY
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
United Kingdom Treasury
7.00%................... 11/06/01 400 $ 610,992
9.75%................... 08/27/02 400 687,876
7.50%................... 12/07/06 600 905,713
-----------
5,764,140
-----------
TOTAL FOREIGN BONDS
(COST $56,792,618).................... 56,700,260
-----------
<CAPTION>
PAR
(000)
---------
<S> <C> <C> <C>
SOVEREIGN ISSUES -- 4.4%
ARGENTINA -- 1.4%
Republic of Argentina
Bocon [FRN, PIK]
5.42%................... 01/04/01 $ 530 604,200
Republic of Argentina
[FRB, BRB]
6.3125%................. 03/31/05 119 93,406
Republic of Argentina Par
[STEP, BRB]
5.25%................... 03/31/23 500 275,313
-----------
972,919
-----------
BRAZIL -- 0.8%
Republic of Brazil
Capitalization [BRB]
4.50%................... 04/15/14 541 337,584
Republic of Brazil-IDU
[FRB, BRB]
6.375%.................. 01/01/01 233 217,969
-----------
555,553
-----------
MEXICO -- 0.3%
United Mexican States
Cl-A [BRB]
6.25%................... 12/31/19 270 176,006
-----------
PANAMA -- 0.4%
Republic of Panama [FRN]
6.6289%................. 05/10/02 277 259,616
-----------
PHILIPPINES -- 0.4%
Ce Casecnan Water & Energy
11.95%.................. 11/15/10 90 91,125
Central Bank Philippines
Cl-B [FRB]
5.00%................... 06/01/08 225 202,500
-----------
293,625
-----------
POLAND -- 0.4%
Republic of Poland Disc.
[FRN, BRB]
6.4375%................. 10/27/24 300 280,125
-----------
<CAPTION>
PAR
MATURITY (000) VALUE
--------- --------- -----------
<S> <C> <C> <C>
RUSSIA -- 0.2%
Russia Loan Participation
[STEP]*
2.56%................... 06/20/26 $ 300 $ 145,500
-----------
VENEZUELA -- 0.5%
Republic of Venezuela
[FRN, BRB]
6.625%.................. 12/18/07 500 355,313
-----------
TOTAL SOVEREIGN ISSUES
(COST $2,963,676)..................... 3,038,657
-----------
TOTAL INVESTMENTS -- 86.7%
(COST $59,756,294).................... 59,738,917
OTHER ASSETS LESS
LIABILITIES -- 13.3%.................. 9,185,831
-----------
NET ASSETS -- 100.0%.................... $68,924,748
===========
</TABLE>
Foreign currency exchange contracts outstanding at June 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED UNREALIZED
COVERED EXCHANGE EXPIRATION APPRECIATION
TYPE BY CONTRACT RATE MONTH (DEPRECIATION)
- -------------------------------------------------------------------------
(Dollar Based)
<S> <C> <C> <C> <C> <C>
Buy AUD $ 789,100 1.2702 07/96 $ (2,505)
Buy DEM 500,000 1.5170 07/96 (787)
Sell ESP 713,664 128.4000 07/96 (1,660)
Sell ESP 648,749 129.8600 07/96 (8,903)
Buy ITL 400,000 1,535.2500 07/96 880
Buy JPN 275,000 106.0000 07/96 (7,456)
Buy JPN 500,000 109.0500 07/96 441
Buy JPN 2,353,052 106.2450 07/96 (58,506)
Buy JPN 250,000 107.0450 07/96 (4,380)
Sell NETH 614,378 1.7144 07/96 (4,124)
Sell SEK 822,988 6.7289 07/96 (12,863)
------------
$ (99,863)
============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL UNREALIZED
IN LOCAL IN LOCAL EXPIRATION APPRECIATION
BUY CURRENCY SELL CURRENCY MONTH (DEPRECIATION)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEM 537,647 UK 230,059 07/96 $ (3,512)
DEM 705,780 UK 301,861 07/96 (4,390)
DEM 935,261 UK 397,400 08/96 (398)
DEM 1,014,377 IEP 419,034 07/96 (917)
DEM 896,832 SEK 3,974,579 07/96 (9,240)
JPN 220,514,410 DKK 12,196,594 07/96 (58,903)
JPN 99,719,850 ITL 1,444,940,627 07/96 (25,758)
JPN 25,000,000 ITL 359,625,000 07/96 (4,743)
JPN 126,067,333 ITL 1,804,565,627 07/96 (18,100)
JPN 46,020,021 SEK 2,792,901 07/96 1,057
NETH 1,053,290 SEK 4,159,338 07/96 (9,106)
---------
$ (134,010)
=========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
BERGER CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
COMMON STOCK -- 87.2%
AEROSPACE -- 2.1%
Boeing Co. .......................... 11,000 $ 958,375
General Motors Corp. Cl-H............ 13,000 781,625
------------
1,740,000
------------
AIRLINES -- 0.8%
America West Airlines Cl-B*.......... 30,000 660,000
------------
AUTOMOBILE MANUFACTURERS -- 0.9%
Chrysler Corp. ...................... 12,000 744,000
------------
AUTOMOTIVE PARTS -- 0.8%
Lear Corp.*.......................... 20,000 705,000
------------
BUSINESS SERVICES -- 2.9%
Accustaff, Inc.*..................... 32,000 872,000
Apac Teleservices, Inc.*............. 20,000 720,000
Robert Half International, Inc.*..... 30,000 836,250
------------
2,428,250
------------
CHEMICALS -- 1.2%
Praxair, Inc. ....................... 25,000 1,056,250
------------
CLOTHING & APPAREL -- 2.9%
Gucci Group NV....................... 15,000 967,500
Jones Apparel Group, Inc.*........... 16,000 786,000
Tommy Hilfiger Corp.*................ 13,000 697,125
------------
2,450,625
------------
COMPUTER SERVICES & SOFTWARE -- 9.5%
Cisco Systems, Inc.*................. 18,000 1,019,250
Compuserve Corp.*.................... 25,000 528,125
Electronic Data Systems Corp. ....... 20,000 1,075,000
First Data Corp. .................... 8,999 716,545
HBO & Co. ........................... 16,000 1,084,000
HPR, Inc.*........................... 45,000 956,250
Microsoft Corp.*..................... 10,000 1,201,250
Sterling Commerce, Inc.*............. 25,000 928,125
Transition Systems, Inc.*............ 20,000 570,000
------------
8,078,545
------------
CONSUMER PRODUCTS & SERVICES -- 2.0%
CUC International, Inc.*............. 30,000 1,065,000
Eastman Kodak Co. ................... 8,500 660,875
------------
1,725,875
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 3.9%
Input-Output, Inc.*.................. 26,000 841,750
Sanmina Corp.*....................... 27,000 729,000
Solectron Corp.*..................... 15,000 568,125
Waters Corp. *....................... 35,000 1,155,000
------------
3,293,875
------------
ENTERTAINMENT & LEISURE -- 2.8%
Mirage Resorts, Inc.*................ 17,000 918,000
Time Warner, Inc. ................... 15,000 588,750
Trump Hotels & Casino
Resorts, Inc.*..................... 30,000 855,000
------------
2,361,750
------------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
FINANCIAL SERVICES -- 0.5%
First USA Paymentech, Inc.*.......... 10,000 $ 400,000
------------
HEALTHCARE SERVICES -- 3.7%
Columbia-HCA Healthcare Corp. ....... 12,000 640,500
Healthsouth Corp.*................... 15,000 540,000
Omnicare, Inc. ...................... 44,000 1,166,000
Quintiles Transnational Corp.*....... 12,500 821,875
------------
3,168,375
------------
HOTELS & MOTELS -- 2.1%
HFS, Inc.*........................... 25,000 1,750,000
------------
INSURANCE -- 0.9%
Conseco, Inc. ....................... 20,000 800,000
------------
MACHINERY & EQUIPMENT -- 2.0%
Roper Industries, Inc. .............. 17,000 828,750
Thermo Electron Corp.*............... 21,000 874,125
------------
1,702,875
------------
MEDICAL SUPPLIES & EQUIPMENT -- 12.0%
Amerisource Health Corp. Cl-A*....... 25,000 831,250
Baxter International, Inc. .......... 25,000 1,181,250
Boston Scientific Corp.*............. 20,000 900,000
Conmed Corp.*........................ 30,000 798,750
Guidant Corp. ....................... 20,000 985,000
Health Management Associates, Inc.
Cl-A*.............................. 30,000 607,500
IDEXX Laboratories, Inc.*............ 20,000 785,000
Luxottica Group SPA [ADR]............ 10,000 733,750
Nellcor Puritan Bennett, Inc.*....... 15,000 727,500
Phycor, Inc.*........................ 35,000 1,330,000
Total Renal Care Holdings, Inc.*..... 30,000 1,267,500
------------
10,147,500
------------
OFFICE EQUIPMENT -- 1.2%
Danka Business Systems PLC [ADR]..... 18,000 526,500
Viking Office Products, Inc.*........ 16,000 502,000
------------
1,028,500
------------
OIL & GAS -- 11.8%
Baker Hughes, Inc. .................. 25,000 821,875
BJ Services Co.*..................... 25,000 878,125
Dresser Industries, Inc. ............ 20,000 590,000
Falcon Drilling Co., Inc.*........... 40,000 1,085,000
Halliburton Co. ..................... 15,000 832,500
Petroleum Geo Services [ADR]*........ 25,000 709,375
Reading & Bates Corp.*............... 40,000 885,000
Schlumberger Ltd. ................... 12,000 1,011,000
Sonat Offshore Drilling Co. ......... 22,000 1,111,000
Tidewater, Inc. ..................... 30,000 1,316,250
Western Atlas, Inc.*................. 12,500 728,125
------------
9,968,250
------------
PHARMACEUTICALS -- 6.0%
Astra AB [ADR]....................... 14,000 612,500
Biochem Pharmaceuticals, Inc.*....... 15,000 562,500
Cardinal Health, Inc. ............... 15,000 1,081,875
Dura Pharmaceuticals, Inc.*.......... 20,000 1,120,000
</TABLE>
<PAGE>
BERGER CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
Elan Corp. PLC [ADR]*................ 7,500 $ 428,438
Lilly, (Eli) & Co. .................. 20,000 1,300,000
------------
5,105,313
------------
RETAIL & MERCHANDISING -- 7.6%
Autozone, Inc.*...................... 20,000 695,000
Federated Department Stores, Inc.*... 20,000 682,500
Fila Holding SPA [ADR]............... 7,000 603,750
Gap, Inc. ........................... 28,000 899,500
Home Depot, Inc. .................... 16,000 864,000
Nine West Group, Inc.*............... 17,000 869,125
Saks Holdings, Inc.*................. 35,000 1,194,375
Sunglass Hut International, Inc.*.... 25,000 609,375
------------
6,417,625
------------
SEMI-CONDUCTORS -- 4.0%
Adaptec, Inc.*....................... 12,000 568,500
Intel Corp. ......................... 20,000 1,468,750
MEMC Electronic Materials, Inc*...... 15,000 581,250
Microchip Technology, Inc.*.......... 30,000 742,500
------------
3,361,000
------------
TELECOMMUNICATIONS -- 3.9%
ECI Telecommunications Ltd. ......... 32,000 744,000
Intelcom Group, Inc.*................ 20,000 500,000
Panamsat Corp.*...................... 25,000 725,000
Worldcom, Inc.*...................... 25,000 1,384,375
------------
3,353,375
------------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
TRANSPORTATION -- 1.7%
Atlas Air, Inc.*..................... 25,000 $ 1,437,500
------------
TOTAL COMMON STOCK
(COST $63,230,880)..................... 73,884,483
------------
SHORT TERM INVESTMENTS -- 0.1%
Temporary Investment
Cash Fund.......................... 38,024 38,024
Temporary Investment Fund............ 38,024 38,024
------------
(COST $76,048)......................... 76,048
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------ -----------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS
-- 12.4%
U.S. Treasury Bills
4.88%.................. 07/11/96 $2,500 2,496,611
4.93%.................. 07/11/96 8,000 7,989,045
-----------
(COST $10,485,656)................... 10,485,656
-----------
TOTAL INVESTMENTS -- 99.7%
(COST $73,792,584)................... 84,446,187
OTHER ASSETS LESS
LIABILITIES -- 0.3%.................. 236,502
-----------
NET ASSETS -- 100.0%................... $84,682,689
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
SELIGMAN HENDERSON INTERNATIONAL SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
FOREIGN STOCK -- 98.0%
AUSTRALIA -- 1.5%
Futuris Corp. Ltd.*.............. 343,068 $ 393,680
QNI Ltd.*........................ 202,000 450,900
Skilled Engineering Pty Ltd.*.... 144,000 401,792
-----------
1,246,372
-----------
AUSTRIA -- 1.2%
Bau Holding AG................... 2,200 134,711
Bau Holding AG -- Vorzug......... 16,350 833,014
-----------
967,725
-----------
BELGIUM -- 1.1%
D'ieteren Trading NV*............ 6,650 911,745
-----------
DENMARK -- 1.2%
Danske Traelast Kompagni*........ 7,390 543,679
Danske Traelast Kompagni Rfd. ... 6,000 450,635
-----------
994,314
-----------
FINLAND -- 6.6%
KCI Konecranes International..... 50,000 1,220,566
Lassila & Tikanoja Oy*........... 23,800 1,439,620
Nokian Renkaat Oy*............... 56,250 826,312
Rauma Oy*........................ 33,400 665,980
Tamro AB......................... 210,800 1,265,984
-----------
5,418,462
-----------
FRANCE -- 7.2%
Assystem*........................ 11,600 1,353,533
Europeene D'extincteurs.......... 22,000 1,112,386
Montupet*........................ 4,463 585,855
Societe Virbac SA................ 9,000 1,265,436
Sylea............................ 14,208 1,580,478
-----------
5,897,688
-----------
GERMANY -- 7.7%
Gerry Weber International AG
Vorzug*........................ 7,300 381,658
Hornbach Baumarkt AG............. 26,000 1,171,248
Jean Pascale AG*................. 28,900 571,120
Kampa-Haus AG*................... 34,000 1,482,441
Moebel Walther AG Vorzug......... 25,000 1,134,421
Plettac AG*...................... 6,503 1,526,747
-----------
6,267,635
-----------
HONG KONG -- 2.6%
Jardine International
Motor Holdings*................ 468,000 574,381
Manhattan Card Co. Ltd.*......... 931,500 445,262
New Asia Realty & Trust
Co. Cl-A*...................... 182,000 587,817
South China Morning Post*........ 734,000 502,577
-----------
2,110,037
-----------
INDONESIA -- 1.2%
Darya Varia...................... 118,640 243,501
Mulia Industrindo*............... 373,200 553,424
Mulia Industrindo Rights*........ 93,480 70,316
Sorini Corp.*.................... 16,000 87,342
-----------
954,583
-----------
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
ITALY -- 1.2%
Industria Machine Automatiche*... 140,000 $ 987,332
-----------
JAPAN -- 25.7%
Aiya Co. Ltd..................... 29,000 458,718
Asahi Diamond Industry Co.
Ltd. .......................... 51,930 678,979
Asatsu, Inc. .................... 16,100 699,232
Danto Corp. ..................... 54,000 730,731
Enplas Corp. .................... 5,000 105,605
Fujitsu Business Systems......... 23,000 637,195
Glory Ltd. ...................... 22,000 730,182
Higashi Nihon House.............. 39,000 684,648
Hitachi Information Systems...... 1,000 14,721
Hitachi Medical Corp. ........... 34,000 606,199
Hokushin......................... 56,000 716,833
Horiba Instruments............... 46,000 643,504
Ichiyoshi Securities*............ 93,000 602,880
Iino Kaiun....................... 120,000 650,635
Kentucky Fried Chicken........... 35,000 684,831
Komatsu Seiren................... 27,000 320,929
Lintec........................... 17,000 293,773
Mitsubishi Cable Industries...... 49,000 331,535
Mitsui Home Co. Ltd. ............ 45,000 732,376
Nakayama Steel Works Ord.*....... 100,000 659,230
Namura Shipbuilding*............. 43,000 243,760
Nichicon......................... 50,000 726,890
Nippon Seiki..................... 45,000 744,720
Nissha Printing.................. 25,000 363,445
Nisshin Fire and Marine
Insurance*..................... 2,000 9,875
Nittetsu Mining.................. 66,000 675,871
Rengo Co. Ltd. .................. 92,000 647,710
Ryoyo Electro Corp. ............. 30,000 647,344
Sagami Chain Co. Ltd. ........... 25,000 486,879
Sanyo Special Steel Co. ......... 151,000 640,614
Sodick........................... 53,000 634,818
Sumitomo Sitix Corp. ............ 9,000 199,141
Toei............................. 37,000 307,854
Towa Pharmaceutical Co. Ltd. .... 10,000 316,357
Toyo Ink Manufacturing........... 113,000 648,843
Tsubakimoto Precision Products... 51,000 634,178
Tsudakoma........................ 95,000 673,174
Tsutsumi Jewelry Co. Ltd. ....... 16,000 775,350
Xebio Co. Ltd. .................. 18,000 676,419
-----------
21,035,978
-----------
MALAYSIA -- 1.6%
Asas Dunia BHD................... 59,000 234,108
Chemical Co. of Malaysia BHD*.... 72,000 230,862
Chemical Co. of Malaysia BHD
Warrants*...................... 10,000 4,605
Kentucky Fried Chicken BHD*...... 56,000 303,006
Malayan Cement BHD*.............. 127,000 305,411
Metacorp BHD*.................... 88,000 253,948
-----------
1,331,940
-----------
</TABLE>
<PAGE>
SELIGMAN HENDERSON INTERNATIONAL SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
NETHERLANDS -- 2.6%
Otra NV*......................... 39,880 $ 919,390
Samas Groep NV................... 33,300 1,230,656
-----------
2,150,046
-----------
NORWAY -- 2.9%
Ekornes AS*...................... 89,400 1,315,496
Fokus Bank AS.................... 200,000 1,090,892
-----------
2,406,388
-----------
SINGAPORE -- 1.7%
Bukit Sembawang Estates Ltd...... 17,500 455,174
Comfort Group Ltd................ 348,000 345,287
Courts Ltd....................... 198,000 315,734
Want Want........................ 88,000 236,720
-----------
1,352,915
-----------
SWEDEN -- 10.7%
BT Industries AB*................ 77,900 1,199,928
Cardo AB*........................ 47,900 1,009,083
Finnveden AB Cl-B*............... 45,350 588,970
Forsheda Cl-B*................... 33,585 727,804
Hoganas AB Cl-B*................. 22,000 770,776
Iro AB*.......................... 106,600 1,094,671
Kalmar Industries*............... 39,775 840,922
Munksjo AB*...................... 120,000 942,328
PLM AB*.......................... 76,800 1,252,571
Rottneros AB*.................... 246,200 286,283
-----------
8,713,336
-----------
SWITZERLAND -- 2.6%
Bobst SA*........................ 550 794,073
Foto Laboratory SA............... 1,210 502,312
Lem Holding...................... 203 59,429
Sig Schweiz Industries*.......... 666 772,436
-----------
2,128,250
-----------
THAILAND -- 0.8%
Siam Makro Public Co. Ltd.*...... 55,000 281,773
Tipco Asphalt Co. Ltd.*.......... 54,000 319,212
-----------
600,985
-----------
UNITED KINGDOM -- 17.9%
Abacus Polar PLC*................ 125,000 392,184
Allied Leisure PLC............... 600,000 410,046
Ashtead Group PLC*............... 247,000 652,191
British Polythene Industries
PLC*........................... 55,000 631,300
BTG PLC.......................... 5,000 123,868
Capital Radio PLC*............... 84,500 858,348
CMG PLC*......................... 86,800 887,104
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Cobham PLC*...................... 51,000 $ 503,402
David Brown Group PLC*........... 205,000 681,391
Dawson Group PLC*................ 100,000 296,662
Domnick Hunter Group PLC*........ 114,400 705,416
Druck Holdings PLC*.............. 3,300 177,499
F.I. Group PLC................... 46,100 275,670
Fairey Group PLC*................ 45,000 459,904
Frost Group PLC*................. 70,333 104,872
GWR Group PLC.................... 152,329 511,052
Hamleys PLC*..................... 36,000 212,478
IBC Group PLC*................... 140,000 682,789
ISA International PLC*........... 215,000 591,072
Parity PLC*...................... 170,000 691,797
Pet City Holdings PLC............ 60,000 384,884
Pizza Express PLC*............... 136,100 777,920
Polypipe PLC*.................... 201,300 634,700
Stoves PLC*...................... 87,900 349,508
Tilbury Douglas PLC*............. 66,000 520,759
Trifast PLC...................... 65,400 399,208
Trinity International
Holdings PLC*.................. 85,000 571,657
Visual Action Holdings PLC....... 110,000 392,960
Wace Group PLC*.................. 187,600 501,176
Wellington Holdings PLC*......... 55,000 231,505
-----------
14,613,322
-----------
TOTAL INVESTMENTS -- 98.0%
(COST $73,694,354)................. 80,089,053
OTHER ASSETS LESS
LIABILITIES -- 2.0%................ 1,668,455
-----------
NET ASSETS -- 100.0%................. $81,757,508
===========
</TABLE>
Foreign currency exchange contracts outstanding at June 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED UNREALIZED
COVERED EXCHANGE EXPIRATION APPRECIATION
TYPE BY CONTRACT RATE MONTH (DEPRECIATION)
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sell DEM $1,000,000 1.5191 08/96 $ (1,424)
Sell FRF 600,000 5.1502 08/96 (2,047)
Buy FIM 333,561 4.6500 07/96 1,534
Buy UK 120,222 0.6485 07/96 868
Buy JPN 144,921 109.8200 07/96 681
Buy JPN 400,000 107.7025 08/96 (3,410)
Sell JPN 3,500,000 103.3275 08/96 170,803
Buy MALA 96,559 2.4950 07/96 (13)
--------
$ 166,992
========
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK -- 84.2%
CHEMICALS -- 4.3%
Applied Extrusion Technologies,
Inc.*.............................. 30,600 $ 390,150
Dupont, (E.I.) de Nemours & Co. ..... 3,200 253,200
FMC Corp.*........................... 6,000 391,500
Polymer Group, Inc.*................. 20,000 350,000
------------
1,384,850
------------
DIVERSIFIED METALS -- 4.4%
Century Aluminum Co.*................ 12,900 203,175
Freeport-McMoran Copper & Gold, Inc.
Cl-A............................... 11,100 331,612
Nucor Corp. ......................... 10,000 506,250
Reynolds Metals Co. ................. 7,100 370,088
------------
1,411,125
------------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.5%
General Electric Co. ................ 2,000 173,000
------------
ENERGY SERVICES -- 7.8%
BJ Services Co.*..................... 7,000 245,875
Petrolite Corp. ..................... 8,200 257,787
Camco International, Inc. ........... 4,800 162,600
Coflexip SA [ADR]*................... 14,600 253,675
Cooper Cameron Corp.*................ 9,400 411,250
Halliburton Co. ..................... 5,800 321,900
Schlumberger Ltd. ................... 3,000 252,750
TPC Corp.*........................... 54,400 394,400
Western Atlas, Inc.*................. 3,850 224,263
------------
2,524,500
------------
INTEGRATED PETROLEUM -- 25.4%
Atlantic Richfield Co. .............. 4,500 533,250
British Petroleum Co. PLC [ADR]...... 9,000 961,875
Mobil Corp. ......................... 20,600 2,309,775
Repsol SA [ADR]...................... 29,600 1,028,600
Royal Dutch Petroleum Co. ........... 5,500 845,625
Sun Co., Inc. ....................... 16,700 507,263
Total SA [ADR]....................... 25,000 928,125
Ultramar Corp. ...................... 9,200 266,800
USX-Marathon Group................... 40,500 815,063
------------
8,196,376
------------
PAPER & FOREST PRODUCTS -- 11.4%
Georgia Pacific Corp. ............... 8,500 603,500
International Paper Co. ............. 17,200 634,250
James River Corp. of Virginia........ 16,300 429,912
Jefferson Smurfit Corp.*............. 72,600 789,525
Kimberly-Clark Corp. ................ 11,600 896,100
Willamette Industries, Inc. ......... 5,500 327,250
------------
3,680,537
------------
PETROLEUM EXPLORATION &
PRODUCTION -- 12.2%
Barrett Resources Corp.*............. 10,100 300,475
Cross Timbers Oil Co. ............... 6,500 160,875
Flores & Rucks, Inc.*................ 12,500 431,250
HS Resources, Inc.*.................. 28,300 328,987
Louisiana Land & Exploration Co. .... 6,000 345,750
Noble Affiliates, Inc. .............. 7,900 298,225
Rutherford-Moran Oil Corp.*.......... 13,700 333,938
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Union Texas Petroleum Holdings,
Inc. .............................. 52,700 $ 1,027,650
United Meridian Corp.*............... 19,800 712,800
------------
3,939,950
------------
PRECIOUS METALS -- 10.5%
Cambior, Inc. ....................... 35,400 473,475
Durban Roodepoort Deep Ltd. [ADR]*... 45,640 411,034
Golden Star Resources Ltd.*.......... 26,000 377,000
Newmont Mining Corp. ................ 6,100 301,187
Pegasus Gold, Inc.*.................. 30,900 378,525
Placer Dome, Inc. ................... 17,300 413,038
Santa Fe Pacific Gold Corp. ......... 33,800 477,425
TVX Gold, Inc.*...................... 80,900 586,525
------------
3,418,209
------------
RAILROADS -- 3.6%
Burlington Northern Santa Fe......... 8,000 647,000
Canadian National Railway Co. ....... 10,500 192,937
Conrail, Inc. ....................... 4,900 325,237
------------
1,165,174
------------
REAL ESTATE -- 2.8%
Apartment Investment & Management Co.
Cl-A [REIT]........................ 22,500 421,875
Reckson Associates Realty Corp.
[REIT]............................. 5,000 165,000
The Rouse Co. ....................... 12,200 315,675
------------
902,550
------------
SEMI-CONDUCTORS -- 0.4%
Intel Corp. ......................... 1,700 124,844
------------
TELECOMMUNICATIONS -- 0.9%
Vodafone Group PLC [ADR]............. 7,800 287,625
------------
TOTAL COMMON STOCK
(COST $25,489,247)..................... 27,208,740
------------
FOREIGN STOCK -- 9.6%
DIVERSIFIED METALS -- 1.6%
Bougainville Copper Ltd. -- (AUD)*... 382,470 180,368
Lonrho PLC -- (UK)................... 112,600 323,548
------------
503,916
------------
PRECIOUS METALS -- 8.0%
Anglo American Platinum Corp.
Ltd. -- (ZAR)*..................... 39,400 246,250
Banro Resources Corp. Special
Warrants 144A -- (CAN)*............ 83,300 488,205
Barnato Exploration Ltd. -- (ZAR)*... 113,300 312,100
Golden Shamrock Mines
Ltd. -- (AUD)*..................... 137,200 122,933
Golden Shamrock Mines
Ltd. -- (CAN)*..................... 15,700 14,492
Hartebeestfontein Gold Mining Co.
Ltd. -- (ZAR)...................... 61,000 206,157
Highlands Gold Ltd. -- (AUD)......... 800,000 396,133
HJ Joel Gold Mining Co.
Ltd. -- (ZAR)...................... 271,268 244,895
Potgietersrust Platinums
Ltd. -- (ZAR)...................... 66,869 336,667
</TABLE>
<PAGE>
T. ROWE PRICE NATURAL RESOURCES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
War Eagle Mining Co.,
Inc. -- (CAN)*..................... 118,000 $ 231,678
War Eagle Mining Co., Inc.
Warrants -- (CAN)*................. 59,000 0
------------
2,599,510
------------
TOTAL FOREIGN STOCK
(COST $3,135,862)...................... 3,103,426
------------
SHORT TERM INVESTMENTS -- 2.7%
Temporary Investment Cash Fund
(COST $895,774).................... 895,774 895,774
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
--------- ----
<S> <C> <C> <C>
COMMERCIAL PAPER -- 4.7%
Bell Atlantic Financial
Services, Inc.
5.32%....................... 07/02/96 $500 499,926
Corporate Asset Funding Co.
5.60%....................... 07/01/96 611 611,000
Ford Motor Credit Co.
5.43%....................... 07/18/96 400 398,974
------------
TOTAL COMMERCIAL PAPER
(COST $1,509,900)......................... 1,509,900
------------
<CAPTION>
VALUE
-----------
<S> <C>
TOTAL INVESTMENTS -- 101.2%
(COST $31,030,783)........................ $32,717,840
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (1.2%).................... (395,933)
------------
NET ASSETS -- 100.0%........................ $32,321,907
============
</TABLE>
Foreign currency exchange contracts outstanding at June 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED
COVERED EXCHANGE EXPIRATION UNREALIZED
TYPE BY CONTRACT RATE MONTH DEPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sell ZAR $23,109 4.3500 07/96 $(160)
</TABLE>
- --------------------------------------------------------------------------------
Unless otherwise noted, all foreign stocks are common stock.
* Non-income producing securities.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 1.5% of net assets.
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
PIMCO LIMITED MATURITY BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 5.0%
CONSUMER PRODUCTS & SERVICES
-- 3.7%
First Brands Corp. Sr.
Sub. Notes
9.125%.................. 04/01/99 $ 7,000 $ 7,166,250
------------
UTILITIES -- 1.3%
CMS Energy Corp.
First Mtge.
9.50%................... 10/01/97 1,000 1,025,000
Texas Utilities Co.
First Mtge.
5.8593%................. 05/01/99 1,500 1,506,487
------------
2,531,487
------------
TOTAL CORPORATE OBLIGATIONS
(COST $9,652,795)..................... 9,697,737
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 71.2%
FEDERAL HOME LOAN MORTGAGE
CORP. -- 2.6%
8.00% [TBA]............. 07/15/26 5,000 5,042,200
FEDERAL NATIONAL MORTGAGE
ASSOC. -- 63.3%
5.21%................... 07/24/96 3,750 3,737,407
5.17%................... 07/30/96 5,400 5,377,268
6.12%................... 09/01/16 48 47,208
6.12%................... 10/01/16 806 799,543
6.12%................... 11/01/16 353 350,218
6.3729%................. 03/01/17 2,561 2,541,969
6.12%................... 03/01/18 140 138,737
6.133%.................. 03/01/18 468 463,892
6.12%................... 05/01/18 424 420,249
6.178%.................. 08/01/18 459 455,394
6.091%.................. 10/01/18 418 414,418
6.263%.................. 02/01/19 537 533,155
6.203%.................. 03/01/19 317 314,554
6.252%.................. 05/01/19 362 358,981
6.263%.................. 05/01/19 95 94,135
6.225%.................. 06/01/19 543 538,296
6.228%.................. 07/01/20 633 627,833
6.248%.................. 07/01/20 345 342,099
6.25%................... 09/01/20 248 246,415
6.194%.................. 04/01/21 255 253,056
6.245%.................. 05/01/21 200 198,480
7.50%................... 01/25/22 4,000 4,043,061
7.50%................... 10/01/22 26,967 26,629,438
6.154%.................. 04/01/24 1,000 992,236
7.50%................... 05/01/24 47,091 46,545,717
6.145%.................. 06/01/24 318 314,935
6.142%.................. 08/01/24 147 145,914
6.172%.................. 10/01/24 76 75,046
6.244%.................. 11/01/24 119 117,739
7.053%.................. 01/01/25 758 772,529
6.302%.................. 05/01/25 1,690 1,690,717
6.119%.................. 03/01/26 214 213,557
6.185%.................. 03/01/26 727 724,665
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
6.151%.................. 04/01/26 $ 905 $ 901,362
6.282% [TBA]............ 07/24/26 12,500 12,406,250
6.12%................... 11/01/26 27 26,759
6.124%.................. 07/01/27 505 500,897
6.124%.................. 10/01/27 883 875,750
6.124%.................. 12/01/27 3,681 3,648,873
6.124%.................. 03/01/28 625 619,739
6.149%.................. 08/01/28 541 536,228
6.113%.................. 02/01/31 3,380 3,349,992
6.092%.................. 06/01/31 358 355,556
------------
123,740,267
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOC. -- 5.3%
7.25%................... 07/20/17 360 366,408
7.25%................... 08/20/17 455 462,450
7.25%................... 09/20/17 396 403,066
7.00%................... 01/15/24 51 48,855
7.00%................... 02/15/24 60 57,110
7.00%................... 04/15/24 394 377,673
7.375%.................. 05/20/24 3,890 3,940,735
7.00%................... 06/15/24 61 58,630
7.25%................... 07/20/24 475 482,796
7.00%................... 07/15/25 456 437,830
7.00%................... 08/15/25 1,920 1,842,171
7.00% [TBA]............. 08/19/26 2,000 1,915,000
------------
10,392,724
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $142,027,990)................... 139,175,191
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 5.9%
Merrill Lynch Mtge.
Investors, Inc. Cl-B
7.6457%................. 06/15/21 1,447 1,448,706
Resolution Trust Corp.
7.4168%................. 07/25/28 10,000 10,112,932
------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(COST $11,628,212).................... 11,561,638
U.S. TREASURY OBLIGATIONS
-- 0.0%
U.S. Treasury Bills
4.985%#................. 08/29/96 25 24,786
5.10%#.................. 11/14/96 15 14,698
5.15%#.................. 11/14/96 10 9,798
5.155%#................. 11/14/96 20 19,597
------------
TOTAL U.S. TREASURY
OBLIGATIONS
(COST $68,923)........................ 68,879
------------
SOVEREIGN ISSUES -- 2.0%
ARGENTINA
Republic of Argentina
[FRB, BRB]
6.3125%
(COST $3,774,667)....... 03/31/05 4,950 3,867,188
------------
</TABLE>
<PAGE>
PIMCO LIMITED MATURITY BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
(000) VALUE
------- ------------
<S> <C> <C>
OPTIONS -- 0.0%
Written CME Put Option on
Eurodollar Futures,
Strike Price $93.00,
Expire 03/17/97
(COST ($16,942)).................. $43,000 $ (10,750)
------------
<CAPTION>
MATURITY
---------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 14.5%
AT&T Corp.
5.28%................... 07/01/96 5,800 5,800,000
5.25%................... 07/29/96 1,800 1,792,527
Canadian Treasury Bills
5.24%................... 07/23/96 3,400 3,388,931
5.25%................... 10/17/96 2,000 1,965,158
Commonwealth Bank of
Australia
5.28%................... 08/12/96 7,300 7,229,550
Dupont, (E.I.) de Nemours
& Co.
5.34%................... 07/24/96 3,000 2,989,765
Emerson Electric Co.
5.32%................... 07/08/96 2,200 2,197,724
Ford Motor Credit Co.
5.32%................... 07/05/96 700 699,586
General Electric Capital
Corp.
5.30%................... 08/06/96 1,200 1,193,489
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ------- ------------
<S> <C> <C> <C>
Southwestern Public
Utilities
5.42%................... 07/22/96 $ 1,000 $ 996,836
------------
TOTAL COMMERCIAL PAPER
(COST $28,282,848).................... 28,253,566
------------
<CAPTION>
SHARES
---------
<S> <C> <C>
SHORT TERM INVESTMENTS -- 0.2%
Temporary Investment Cash Fund.... 196,072 196,072
Temporary Investment Fund......... 196,072 196,072
------------
(COST $392,144)................... 392,144
------------
TOTAL INVESTMENTS -- 98.8%
(COST $195,810,637)................. 193,005,593
OTHER ASSETS LESS
LIABILITIES -- 1.2%................. 2,366,044
------------
NET ASSETS -- 100.0%.................. $195,371,637
============
</TABLE>
# Securities with an aggregate market value of $68,879 have been segregated with
the custodian to cover margin requirements for the following open futures
contracts at June 30, 1996:
<TABLE>
<CAPTION>
UNREALIZED
TYPE CONTRACTS APPRECIATION
<S> <C> <C>
- ----------------------------------------------------------------
U.S. Treasury 10 Year Note (9/96) 20 $39,375
</TABLE>
- --------------------------------------------------------------------------------
Definitions of abbreviations are included following the Schedules of
Investments.
See Notes to Financial Statements.
<PAGE>
ROBERTSON STEPHENS VALUE + GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCK -- 78.3%
AIRLINES -- 3.2%
Alaska Air Group, Inc. .............. 1,400 $ 38,325
AMR Corp.* .......................... 300 27,300
Continental Airlines Cl-B* .......... 400 24,700
Delta Air Lines, Inc. ............... 700 58,100
UAL Corp. ........................... 600 32,250
----------
180,675
----------
COMPUTER SERVICES & SOFTWARE -- 21.5%
Cadence Design Systems, Inc.* ....... 6,500 219,375
Cisco Systems, Inc.* ................ 5,400 305,775
Compuware Corp.* .................... 1,100 43,450
Microsoft Corp.* .................... 2,100 252,263
Oracle Systems Corp.* ............... 5,500 216,905
Parametric Technology Corp.* ........ 4,300 186,513
----------
1,224,281
----------
COMPUTER HARDWARE -- 15.4%
Cabletron Systems, Inc.* ............ 2,700 185,288
Compaq Computer Corp.* .............. 4,000 197,000
Dell Computer Corp.* ................ 3,800 193,324
Gateway 2000, Inc.* ................. 1,700 57,800
3Com Corp.* ......................... 5,400 247,050
----------
880,462
----------
ELECTRONIC COMPONENTS & EQUIPMENT -- 0.3%
Hewlett-Packard Co. ................. 200 19,925
----------
ENTERTAINMENT & LEISURE -- 2.9%
Mirage Resorts, Inc.* ............... 3,100 167,400
----------
FINANCIAL-BANK & TRUST -- 4.1%
BankAmerica Corp. ................... 600 45,450
Citicorp ............................ 500 41,312
Mellon Bank Corp. ................... 1,400 79,800
NationsBank Corp. ................... 500 41,313
Wells Fargo & Co. ................... 100 23,887
----------
231,762
----------
FINANCIAL SERVICES -- 7.0%
Household International, Inc. ....... 3,000 228,000
Merrill Lynch & Co., Inc. ........... 2,600 169,325
----------
397,325
----------
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
HEALTHCARE SERVICES -- 0.8%
Oxford Health Plans, Inc. ........... 600 $ 24,675
United Healthcare Corp. ............. 400 20,200
----------
44,875
----------
RETAIL & MERCHANDISING -- 9.6%
Comp USA, Inc. ...................... 6,500 221,813
Dayton-Hudson Corp. ................. 400 41,250
Gap, Inc. ........................... 2,400 77,100
Nike, Inc. Cl-B ..................... 1,800 184,950
Pep Boys-Manny Moe & Jack ........... 700 23,800
----------
548,913
----------
SEMI-CONDUCTORS -- 13.3%
Adaptec, Inc.* ...................... 3,800 180,025
Analog Devices, Inc.* ............... 500 12,750
Applied Materials, Inc.* ............ 500 15,250
Atmel Corp.* ........................ 500 15,063
Intel Corp. ......................... 3,200 235,000
LSI Logic Corp.* .................... 4,800 124,800
Xilinx, Inc.* ....................... 5,500 174,625
----------
757,513
----------
TELECOMMUNICATIONS -- 0.2%
Octel Communications Corp. .......... 500 9,875
----------
TOTAL COMMON STOCK
(COST $4,561,077) ..................... 4,463,006
----------
SHORT TERM INVESTMENTS -- 11.7%
Temporary Investment
Cash Fund.......................... 333,014 333,014
Temporary Investment Fund............ 333,014 333,014
----------
(COST $666,028).................... 666,028
----------
TOTAL INVESTMENTS -- 90.0%
(COST $5,227,105)...................... 5,129,034
OTHER ASSETS LESS LIABILITIES -- 10.0%... 570,305
----------
NET ASSETS -- 100.0%..................... $5,699,339
==========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
See Notes to Financial Statements.
<PAGE>
DEFINITION OF ABBREVIATIONS
- --------------------------------------------------------------------------------
THE FOLLOWING ABBREVIATIONS ARE USED THROUGHOUT THE SCHEDULES OF INVESTMENTS:
SECURITY DESCRIPTIONS:
- -----------------------
ADR-American Depository Receipt
ADS-American Depository Security
BRB-Brady Bond
CVT-Convertible Security
FRB-Floating Rate Bond (1)
FRN-Floating Rate Note (1)
GDR-Global Depository Receipt
GDS-Global Depository Security
IO-Interest Only Security
PIK-Payment in Kind Security
REIT-Real Estate Investment Trust
STEP-Stepped Coupon Security
TBA-To be Announced Security
VR- Variable Rate Security (1)
ZCB- Zero Coupon Bond-Rate shown is the effective yield at purchase date.
(1)-Rates shown for variable and floating rate securities are the coupon rates
as of June 30, 1996.
COUNTRIES/CURRENCIES:
- -----------------------
AUD-Australia/Australian Dollar
BEL-Belgium/Belgium Franc
CAN-Canada/Canadian Dollar
DEM-Germany/German Deutschemark
DKK-Denmark/Danish Krone
ESP-Spain/Spanish Peseta
FIM-Finland/Finnish Markka
FRF-France/French Franc
HK-Hong Kong/Hong Kong Dollar
IEP-Ireland/Irish Punt
ITL-Italy/Italian Lira
JPN-Japan/Japanese Yen
MALA-Malaysia/Malaysian Ringgit
MEX-Mexico/Mexican Peso
NETH-Netherlands/Netherland Guilder
NZD-New Zealand/New Zealand Dollar
SEK-Sweden/Swedish Kroner
SNG-Singapore/Singapore Dollar
SW-Switzerland/Swiss Franc
THB-Thailand/Thai Baht
UK-United Kingdom/British Pound
ZAR-South Africa/South African Rand
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
SELIGMAN AST T. ROWE
HENDERSON LORD ABBETT AST FEDERATED PHOENIX PRICE
INTERNATIONAL GROWTH AND JANCAP MONEY UTILITY BALANCED FEDERATED ASSET
EQUITY INCOME GROWTH MARKET INCOME ASSET HIGH YIELD ALLOCATION
------------- ----------- -------- -------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in
securities at
value (A)....... $ 311,221 $ 376,774 $620,438 $571,977 $123,872 $263,482 $122,516 $ 85,945
Cash in bank,
including
foreign currency
holdings........ 10,916 -- -- 1 1 5 6 31
Receivable for
securities
sold............ 4,603 286 496 -- 417 1,103 851 767
Receivable for
dividends and
interest........ 1,713 931 231 1,392 328 1,224 2,352 659
Receivable for
fund shares
sold............ -- -- -- -- -- 460 2,278 1,390
Deferred
organization
costs........... 13 -- -- -- -- -- -- --
Other assets...... 1 2 5 6 1 3 1 1
Unrealized
appreciation on
foreign currency
exchange
contracts and
futures......... 1,135 -- 441 -- -- -- -- --
-------- -------- -------- -------- -------- ------- ------- --------
TOTAL
ASSETS...... 329,602 377,993 621,611 573,376 124,619 266,277 128,004 88,793
-------- -------- -------- -------- -------- ------- ------- --------
LIABILITIES
Payable for
securities
purchased....... 3,304 5,110 8,442 -- 2,512 1,794 5,227 2,374
Payable for fund
shares
redeemed........ 382 438 1,545 -- 233 -- -- --
Unrealized
depreciation on
foreign currency
exchange
contracts and
futures......... -- -- -- -- -- -- -- 2
Advisory fee
payable......... 233 226 464 174 64 145 71 57
Shareholder
servicing fee
payable......... 26 30 52 39 10 21 9 7
Accrued
expenses........ 34 56 84 72 22 59 24 51
Dividends
payable......... -- -- -- 1,873 -- -- -- --
-------- -------- -------- -------- -------- ------- ------- --------
TOTAL
LIABILITIES... 3,979 5,860 10,587 2,158 2,841 2,019 5,331 2,491
-------- -------- -------- -------- -------- ------- ------- --------
NET ASSETS........... $ 325,623 $ 372,133 $611,024 $571,218 $121,778 $264,258 $122,673 $ 86,302
======== ======== ======== ======== ======== ======= ======= ========
COMPONENTS OF NET
ASSETS
Common stock
(unlimited number of
shares authorized,
$.001 par value per
share).............. $ 17 $ 24 $ 36 $ 571 $ 10 $ 22 $ 11 $ 7
Additional paid-in
capital............. 290,007 327,968 466,093 570,647 108,855 239,235 117,580 78,232
Undistributed net
investment income
(loss).............. 122 3,389 1,307 -- 1,640 3,494 4,129 1,082
Accumulated net
realized gain (loss)
on investments and
foreign currency
transactions........ 4,149 8,075 21,383 -- 152 11,045 741 2,326
Accumulated net
unrealized
appreciation
(depreciation) on
investments, foreign
currency
transactions, and
forward currency
contracts........... 31,328 32,677 122,205 -- 11,121 10,462 212 4,655
-------- -------- -------- -------- -------- ------- ------- --------
NET ASSETS........... $ 325,623 $ 372,133 $611,024 $571,218 $121,778 $264,258 $122,673 $ 86,302
======== ======== ======== ======== ======== ======= ======= ========
Shares of common
stock outstanding... 17,448 24,100 36,061 571,218 10,152 21,544 11,122 7,059
Net asset value,
offering and
redemption price per
share............... $ 18.66 $ 15.44 $ 16.94 $ 1.00 $ 12.00 $ 12.27 $ 11.03 $ 12.23
======== ======== ======== ======== ======== ======= ======= ========
(A) Investments at
cost................ $ 281,031 $ 344,097 $498,674 $571,977 $112,751 $253,020 $122,304 $ 81,288
======== ======== ======== ======== ======== ======= ======= ========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
PIMCO SELIGMAN T. ROWE
TOTAL INVESCO FOUNDERS T. ROWE PRICE T. ROWE PRICE BERGER HENDERSON PRICE
RETURN EQUITY CAPITAL INTERNATIONAL INTERNATIONAL CAPITAL INTERNATIONAL NATURAL
BOND INCOME APPRECIATION EQUITY BOND GROWTH SMALL CAP RESOURCES
-------- -------- ------------ ------------- ------------- ------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$399,430 $236,641 $154,286 $ 296,444 $59,739 $84,446 $80,089 $32,718
-- -- 251 9,475 4,855 -- 3,406 --
3,989 375 600 242 3 940 -- 23
4,193 1,127 25 1,087 1,585 31 150 47
13,041 -- -- -- 3,875 84 720 48
-- -- -- -- -- -- -- --
6 2 1 2 -- -- -- --
940 -- -- -- -- -- 165 --
-------- -------- -------- --------- ------- ------- ------- -------
421,599 238,145 155,163 307,250 70,057 85,501 84,530 32,836
-------- -------- -------- --------- ------- ------- ------- -------
133,750 1,502 6,960 687 818 737 2,669 479
-- 288 121 83 -- -- -- --
-- -- -- 5 234 -- -- --
141 123 111 242 41 53 61 22
22 37 12 24 5 7 6 3
41 55 43 59 34 21 36 10
-- -- -- -- -- -- -- --
-------- -------- -------- --------- ------- ------- ------- -------
133,954 2,005 7,247 1,100 1,132 818 2,772 514
-------- -------- -------- --------- ------- ------- ------- -------
$287,645 $236,140 $147,916 $ 306,150 $68,925 $84,683 $81,758 $32,322
======== ======== ======== ========= ======= ======= ======= =======
$ 27 $ 18 $ 9 $ 27 $ 7 $ 6 $ 7 $ 3
289,812 205,070 119,408 274,937 68,309 73,287 74,676 29,459
6,343 3,029 (826) 1,975 2,609 46 508 127
(11,923) 4,355 2,178 617 (1,748) 691 6 1,046
3,386 23,668 27,147 28,594 (252) 10,653 6,561 1,687
-------- -------- -------- --------- ------- ------- ------- -------
$287,645 $236,140 $147,916 $ 306,150 $68,925 $84,683 $81,758 $32,322
======== ======== ======== ========= ======= ======= ======= =======
27,331 18,464 9,086 26,635 6,751 6,085 6,924 2,521
$ 10.52 $ 12.79 $ 16.28 $ 11.49 $ 10.21 $ 13.92 $ 11.81 $ 12.82
======== ======== ======== ========= ======= ======= ======= =======
$396,901 $212,973 $127,139 $ 267,845 $59,756 $73,793 $73,694 $31,031
======== ======== ======== ========= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------
PORTFOLIO
- ------------------------------
PIMCO ROBERTSON
LIMITED STEPHENS
MATURITY VALUE +
BOND GROWTH
-------- ---------
<S> <C>
$ 193,006 $ 5,129
-- 1,531
14,852 20
1,075 2
5,636 254
-- --
-- --
14 --
-------- -------
214,583 6,936
-------- -------
19,063 1,233
-- --
-- --
100 3
15 --
33 1
-- --
-------- -------
19,211 1,237
-------- -------
$ 195,372 $ 5,699
======== =======
$ 19 $ 1
194,879 5,808
5,058 (2)
(1,819) (10)
(2,765) (98)
-------- -------
$ 195,372 $ 5,699
======== =======
18,774 586
$ 10.41 $ 9.73
======== =======
$195,811 $ 5,227
======== =======
- ------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
SELIGMAN AST
HENDERSON LORD ABBETT AST FEDERATED PHOENIX
INTERNATIONAL GROWTH AND JANCAP MONEY UTILITY BALANCED FEDERATED
EQUITY INCOME GROWTH MARKET INCOME ASSET HIGH YIELD
------------- ----------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest...................... $ 345 $ 759 $ 706 $10,679 $ 158 $ 3,669 $ 4,629
Dividends..................... 3,631 4,229 2,853 -- 2,074 996 14
------- ------- ------- ------- ------ ------- -------
Total Investment Income... 3,976 4,988 3,559 10,679 2,232 4,665 4,643
------- ------- ------- ------- ------ ------- -------
EXPENSES
Investment advisory fees...... 1,495 1,244 2,376 975 373 877 375
Shareholder servicing fees.... 149 166 264 195 56 129 50
Administration and accounting
fees........................ 129 139 183 153 56 117 50
Custodian fees................ 84 20 41 46 15 23 11
Professional fees............. 13 14 23 17 5 11 4
Trustees' fees and expenses... 4 5 8 6 2 4 1
Insurance fees................ 1 4 3 -- -- 2 1
Amortization of organization
costs....................... -- -- 1 -- -- -- --
Miscellaneous expenses........ 16 7 12 10 5 8 16
------- ------- ------- ------- ------ ------- -------
Total Expenses............ 1,891 1,599 2,911 1,402 512 1,171 508
Less: Advisory fee waivers
and expense
reimbursements.......... (168) -- -- (233) -- -- --
------- ------- ------- ------- ------ ------- -------
Net Expenses.............. 1,723 1,599 2,911 1,169 512 1,171 508
------- ------- ------- ------- ------ ------- -------
Net Investment Income (Loss)..... 2,253 3,389 648 9,510 1,720 3,494 4,135
------- ------- ------- ------- ------ ------- -------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Securities and foreign
exchange transactions... 4,058 8,101 22,238 -- 2,924 11,052 765
Futures contracts......... -- -- -- -- -- -- --
Option contracts.......... -- -- -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Net realized gain (loss) on
investments and foreign
currency transactions....... 4,058 8,101 22,238 -- 2,924 11,052 765
Net change in unrealized
appreciation (depreciation)
on investments, foreign
currency transactions, and
forward currency
contracts................... 11,929 8,666 49,728 -- (1) (5,817 ) (1,877)
------- ------- ------- ------- ------ ------- -------
Net Increase (Decrease) in Net
Assets resulting
from Operations............. $18,240 $20,156 $72,614 $ 9,510 $ 4,643 $ 8,729 $ 3,023
======= ======= ======= ======= ====== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on May 2, 1996.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------
PIMCO SELIGMAN
T. ROWE TOTAL INVESCO FOUNDERS T. ROWE PRICE T. ROWE PRICE BERGER HENDERSON
PRICE ASSET RETURN EQUITY CAPITAL INTERNATIONAL INTERNATIONAL CAPITAL INTERNATIONAL
ALLOCATION BOND INCOME APPRECIATION EQUITY BOND GROWTH SMALL CAP
----------- --------- ------- ------------ ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,066 $ 7,587 $2,392 $ 378 $ 510 $ 1,795 $ 278 $ 131
471 -- 1,669 128 3,261 -- 109 774
------ ------- ------- ------- ------- ------- ------ ------
1,537 7,587 4,061 506 3,771 1,795 387 905
------ ------- ------- ------- ------- ------- ------ ------
299 804 767 503 1,273 254 255 257
35 124 102 56 127 27 34 26
38 114 100 56 116 47 39 38
19 19 14 18 81 18 6 12
3 11 9 5 11 2 3 2
1 3 3 2 4 1 1 1
1 3 2 1 2 -- 1 1
-- -- 1 -- -- -- -- --
12 6 7 3 24 5 2 3
------ ------- ------- ------- ------- ------- ------ ------
408 1,084 1,005 644 1,638 354 341 340
-- -- -- -- -- -- -- --
------ ------- ------- ------- ------- ------- ------ ------
408 1,084 1,005 644 1,638 354 341 340
------ ------- ------- ------- ------- ------- ------ ------
1,129 6,503 3,056 (138) 2,133 1,441 46 565
------ ------- ------- ------- ------- ------- ------ ------
2,221 (9,224) 4,328 1,490 1,790 (811) 895 (2)
-- (2,013) -- -- -- -- -- --
-- (77) -- -- -- 188 -- --
------ ------- ------- ------- ------- ------- ------ ------
2,221 (11,314) 4,328 1,490 1,790 (623) 895 (2)
(493) (83) 6,169 13,792 17,020 (1,109) 5,757 6,545
------ ------- ------- ------- ------- ------- ------ ------
$ 2,857 $ (4,894) $13,553 $ 15,144 $20,943 $ (291) $ 6,698 $ 7,108
====== ======= ======= ======= ======= ======= ====== ======
<CAPTION>
-----------------------------------------------
PORTFOLIO
-----------------------------------------------
T. ROWE PIMCO ROBERTSON
PRICE LIMITED STEPHENS
NATURAL MATURITY VALUE +
RESOURCES BOND GROWTH(1)
---------- ----------- ---------
<S> <C> <C>
$ 85 $ 5,814 $ 3
190 -- 1
------ ------- -----
275 5,814 4
------ ------- -----
99 566 4
11 87 1
34 87 1
5 5 --
1 8 --
-- 2 --
-- 4 --
-- -- --
2 1 --
------ ------- -----
152 760 6
(3) -- --
------ ------- -----
149 760 6
------ ------- -----
126 5,054 (2)
------ ------- -----
1,049 (1,418) (10)
-- (272) --
-- -- --
------ ------- -----
1,049 (1,690) (10)
1,304 (3,253) (98)
------ ------- -----
$2,479 $ 111 $(110)
====== ======= =====
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
SELIGMAN HENDERSON LORD ABBETT
INTERNATIONAL EQUITY GROWTH AND INCOME JANCAP GROWTH
---------------------------- ---------------------------- ----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)...... $ 2,253 $ 2,165 $ 3,389 $ 3,534 $ 648 $ 1,686
Net realized gain (loss) on
investments
and foreign currency
transactions.................... 4,058 8,916 8,101 7,136 22,238 38,435
Net change in unrealized
appreciation (depreciation) on
investments, foreign currency
transactions, and forward
currency contracts.............. 11,929 13,385 8,666 23,471 49,728 58,329
-------- -------- -------- -------- -------- --------
Net Increase (Decrease) in Net
Assets from Operations........ 18,240 24,466 20,156 34,141 72,614 98,450
-------- -------- -------- -------- -------- --------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Dividends to shareholders from net
investment income............... (5,032) -- (3,534) (1,700) (753) (1,363)
Distributions to shareholders from
capital gains................... (5,923) (12,667) (7,139) (1,699) (24,162) --
-------- -------- -------- -------- -------- --------
Total Dividends and
Distributions
to Shareholders............. (10,955) (12,667) (10,673) (3,399) (24,915) (1,363)
-------- -------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold......... 66,978 105,273 85,883 170,735 191,668 135,311
Net asset value of shares issued
in
reinvestment of dividends and
distributions................... 10,955 12,667 10,673 3,399 24,915 1,363
Cost of shares redeemed........... (27,651) (99,733) (22,655) (8,177) (84,579) (48,085)
-------- -------- -------- -------- -------- --------
Increase in Net Assets from
Capital
Share Transactions............ 50,282 18,207 73,901 165,957 132,004 88,589
-------- -------- -------- -------- -------- --------
Total Increase in Net
Assets...................... 57,567 30,006 83,384 196,699 179,703 185,676
NET ASSETS
Beginning of Period............... 268,056 238,050 288,749 92,050 431,321 245,645
-------- -------- -------- -------- -------- --------
End of Period..................... $ 325,623 $268,056 $ 372,133 $288,749 $ 611,024 $431,321
======== ======== ======== ======== ======== ========
SHARES ISSUED AND REDEEMED
Shares sold....................... 3,646 6,250 5,601 11,930 11,582 9,644
Shares issued in reinvestment of
dividends and distributions..... 610 823 707 276 1,569 119
Shares redeemed................... (1,534) (5,865) (1,486) (600) (5,104) (3,650)
-------- -------- -------- -------- -------- --------
Net Increase in Shares
Outstanding................... 2,722 1,208 4,822 11,606 8,047 6,113
======== ======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
AST MONEY MARKET FEDERATED UTILITY INCOME AST PHOENIX BALANCED ASSET FEDERATED HIGH YIELD
- ---------------------------- ---------------------------- ---------------------------- ---------------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
- ------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9,510 $ 17,992 $ 1,720 $ 4,023 $ 3,494 $ 5,210 $ 4,135 $ 4,026
-- 156 2,924 358 11,052 9,100 765 124
-- -- (1) 16,069 (5,817) 18,547 (1,877) 3,479
--------- --------- -------- -------- -------- -------- -------- --------
9,510 18,148 4,643 20,450 8,729 32,857 3,023 7,629
--------- --------- -------- -------- -------- -------- -------- --------
(9,510) (17,992) (4,103) (3,376) (5,212) (3,867) (4,032) (1,210)
(149) -- -- -- (8,816) -- -- --
--------- --------- -------- -------- -------- -------- -------- --------
(9,659) (17,992) (4,103) (3,376) (14,028) (3,867) (4,032) (1,210)
--------- --------- -------- -------- -------- -------- -------- --------
672,540 674,956 27,804 43,009 10,438 92,940 52,333 75,531
9,360 17,896 4,103 3,376 14,028 3,867 4,032 1,210
(454,758) (637,371) (18,068) (27,265) (10,115) (16,215) (16,375) (20,776)
--------- --------- -------- -------- -------- -------- -------- --------
227,142 55,481 13,839 19,120 14,351 80,592 39,990 55,965
--------- --------- -------- -------- -------- -------- -------- --------
226,993 55,637 14,379 36,194 9,052 109,582 38,981 62,384
344,225 288,588 107,399 71,205 255,206 145,624 83,692 21,308
--------- --------- -------- -------- -------- -------- -------- --------
$ 571,218 $ 344,225 $ 121,778 $107,399 $ 264,258 $255,206 $ 122,673 $ 83,692
========= ========= ======== ======== ======== ======== ======== ========
672,540 674,956 2,334 4,009 855 7,580 4,732 7,197
9,360 17,896 351 344 1,158 367 368 124
(454,758) (637,371) (1,530) (2,569) (832) (1,473) (1,489) (2,008)
--------- --------- -------- -------- -------- -------- -------- --------
227,142 55,481 1,155 1,784 1,181 6,474 3,611 5,313
========= ========= ======== ======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE PIMCO TOTAL
ASSET ALLOCATION RETURN BOND INVESCO EQUITY INCOME
---------------------------- ---------------------------- ----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..... $ 1,129 $ 1,306 $ 6,503 $ 5,966 $ 3,056 $ 3,658
Net realized gain (loss) on
investments and foreign
currency transactions.......... 2,221 483 (11,314) 6,557 4,328 5,268
Net change in unrealized
appreciation (depreciation) on
investments, foreign currency
transactions, and forward
currency contracts............. (493) 5,440 (83) 4,574 6,169 19,246
------- ------- ------- ------- ------- -------
Net Increase (Decrease) in Net
Assets from Operations....... 2,857 7,229 (4,894) 17,097 13,553 28,172
------- ------- ------- ------- ------- -------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Dividends to shareholders from
net investment income.......... (1,316) (525) (6,111) (1,271) (3,685) (1,056)
Distributions to shareholders
from capital gains............. (226) -- (6,703) -- (4,986) --
------- ------- ------- ------- ------- -------
Total Dividends and
Distributions to
Shareholders............... (1,542) (525) (12,814) (1,271) (8,671) (1,056)
------- ------- ------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold........ 24,926 31,289 86,076 199,583 64,531 93,257
Net asset value of shares issued
in reinvestment of dividends
and distributions.............. 1,542 525 12,814 1,271 8,671 1,056
Cost of shares redeemed.......... (880) (2,582) (18,872) (37,838) (18,660) (9,914)
------- ------- ------- ------- ------- -------
Increase in Net Assets from
Capital Share Transactions... 25,588 29,232 80,018 163,016 54,542 84,399
------- ------- ------- ------- ------- -------
Total Increase in Net
Assets..................... 26,903 35,936 62,310 178,842 59,424 111,515
NET ASSETS
Beginning of Period.............. 59,399 23,463 225,335 46,493 176,716 65,201
------- ------- ------- ------- ------- -------
End of Period.................... $86,302 $ 59,399 $ 287,645 $225,335 $ 236,140 $176,716
======= ======= ======= ======= ======= =======
SHARES ISSUED AND REDEEMED
Shares sold...................... 2,060 2,775 8,014 18,460 5,132 8,188
Shares issued in reinvestment of
dividends and distributions.... 128 52 1,211 128 705 105
Shares redeemed.................. (73) (244) (1,759) (3,491) (1,506) (850)
------- ------- ------- ------- ------- -------
Net Increase in Shares
Outstanding.................. 2,115 2,583 7,466 15,097 4,331 7,443
======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on May 2, 1995.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------
BERGER
T. ROWE PRICE T. ROWE PRICE CAPITAL
FOUNDERS CAPITAL APPRECIATION INTERNATIONAL EQUITY INTERNATIONAL BOND GROWTH
------------------------------ ------------------------------ ------------------------------ -------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED)
------------- ------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ (138) $ (151) $ 2,133 $ 1,454 $ 1,441 $ 1,705 $ 46
1,490 2,836 1,790 (908) (623) 13 895
13,792 10,589 17,020 15,141 (1,109) 1,290 5,757
-------- -------- -------- -------- ------- ------- --------
15,144 13,274 20,943 15,687 (291) 3,008 6,698
-------- -------- -------- -------- ------- ------- --------
(547) (280) (1,759) (121) (697) (263) (150)
(1,109) -- -- (249) (884) -- --
-------- -------- -------- -------- ------- ------- --------
(1,656) (280) (1,759) (370) (1,581) (263) (150)
-------- -------- -------- -------- ------- ------- --------
86,155 62,848 106,172 101,284 27,967 30,340 48,218
1,656 280 1,759 370 1,581 263 150
(43,843) (14,221) (16,632) (30,055) (4,353) (2,964) (16,212)
-------- -------- -------- -------- ------- ------- --------
43,968 48,907 91,299 71,599 25,195 27,639 32,156
-------- -------- -------- -------- ------- ------- --------
57,456 61,901 110,483 86,916 23,323 30,384 38,704
90,460 28,559 195,667 108,751 45,602 15,218 45,979
-------- -------- -------- -------- ------- ------- --------
$ 147,916 $ 90,460 $ 306,150 $195,667 $68,925 $ 45,602 $ 84,683
======== ======== ======== ======== ======= ======= ========
5,469 4,764 9,609 10,012 2,716 2,996 3,568
115 26 161 41 156 27 11
(2,848) (1,074) (1,500) (2,997) (422) (295) (1,201)
-------- -------- -------- -------- ------- ------- --------
2,736 3,716 8,270 7,056 2,450 2,728 2,378
======== ======== ======== ======== ======= ======= ========
<CAPTION>
----------------------------------------------------
PORTFOLIO
----------------------------------------------------
BERGER
CAPITAL SELIGMAN HENDERSON
GROWTH INTERNATIONAL SMALL CAP
------------ ------------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
1995 (UNAUDITED) 1995(1)
------------ ------------- ------------
<S> <C> <C>
$ 150 $ 565 $ 72
(195) (2) 8
4,860 6,545 16
------- ------- -------
4,815 7,108 96
------- ------- -------
(3) (129) --
-- -- --
------- ------- -------
(3) (129) --
------- ------- -------
42,283 50,836 29,685
3 129 --
(4,149) (4,641) (1,326)
------- ------- -------
38,137 46,324 28,359
------- ------- -------
42,949 53,303 28,455
3,030 28,455 --
------- ------- -------
$ 45,979 $81,758 $ 28,455
======= ======= =======
3,773 4,573 2,884
-- 12 --
(370) (417) (128)
------- ------- -------
3,403 4,168 2,756
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE PIMCO LIMITED
NATURAL RESOURCES MATURITY BOND ROBERTSON STEPHENS
-------------------------------- -------------------------------- VALUE + GROWTH
SIX MONTHS SIX MONTHS -------------------
ENDED YEAR ENDED ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996
(UNAUDITED) 1995(1) (UNAUDITED) 1995(1) (UNAUDITED)(2)
------------- ------------ ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss)...................... $ 126 $ 30 $ 5,054 $ 765 $ (2)
Net realized gain (loss) on
investments and foreign
currency transactions....... 1,049 31 (1,690) 174 (10)
Net change in unrealized
appreciation (depreciation)
on investments, foreign
currency transactions, and
forward currency
contracts................... 1,304 383 (3,253) 488 (98)
-------- -------- -------- -------- ---------
Net Increase (Decrease) in
Net Assets from
Operations................ 2,479 444 111 1,427 (110)
-------- -------- -------- -------- ---------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Dividends to shareholders from
net investment income....... (29) -- (761) -- --
Distributions to shareholders
from
capital gains............... (34) -- (303) -- --
-------- -------- -------- -------- ---------
Total Dividends and
Distributions
to Shareholders........... (63) -- (1,064) -- --
-------- -------- -------- -------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold..... 29,362 9,686 53,615 166,622 6,053
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 63 -- 1,064 -- --
Cost of shares redeemed....... (8,781) (868) (20,294) (6,109) (244)
-------- -------- -------- -------- ---------
Increase in Net Assets from
Capital
Share Transactions........ 20,644 8,818 34,385 160,513 5,809
-------- -------- -------- -------- ---------
Total Increase in Net
Assets.................. 23,060 9,262 33,432 161,940 5,699
NET ASSETS
Beginning of Period........... 9,262 -- 161,940 -- --
-------- -------- -------- -------- ---------
End of Period................. $32,322 $9,262 $ 195,372 $161,940 $ 5,699
======== ======== ======== ======== ========
SHARES ISSUED AND REDEEMED
Shares sold................... 2,375 918 5,162 16,062 611
Shares issued in reinvestment
of dividends and
distributions............... 5 -- 102 -- --
Shares redeemed............... (693) (84) (1,955) (597) (25)
-------- -------- -------- -------- ---------
Net Increase in Shares
Outstanding............... 1,687 834 3,309 15,465 586
======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on May 2, 1995.
(2) Commenced operations on May 2, 1996.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
-------------------------------------------------------------------
PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
SELIGMAN HENDERSON INTERNATIONAL EQUITY
---------------------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period......... $ 18.20 $ 17.61 $ 17.34 $ 12.74 $ 13.90 $ 12.99
-------- -------- -------- ------- ------- -------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)............... 0.13 0.14 0.10 0.14 (0.17) 0.01
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions.................... 1.02 1.44 0.36 4.46 (0.99) 0.90
-------- -------- -------- ------- ------- -------
Total Increase (Decrease) From
Investment Operations............... 1.15 1.58 0.46 4.60 (1.16) 0.91
-------- -------- -------- ------- ------- -------
Less Dividends and Distributions
Dividends from Net Investment Income....... (0.32) -- (0.03) -- -- --
Distributions from Net Realized
Capital Gains............................ (0.37) (0.99) (0.16) -- -- --
-------- -------- -------- ------- ------- -------
Total Dividends and Distributions..... (0.69) (0.99) (0.19) -- -- --
-------- -------- -------- ------- ------- -------
Net Asset Value at End of Period............... $ 18.66 $ 18.20 $ 17.61 $ 17.34 $ 12.74 $ 13.90
======== ======== ======== ======= ======= =======
Total Return................................... 6.45% 10.00% 2.64% 36.11% (8.35%) 7.01%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)..... $ 325,623 $268,056 $238,050 $150,646 $24,998 $15,892
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement......................... 1.15%(1) 1.17% 1.22% 1.52% 2.50% 2.50%
Before Advisory Fee Waiver and Expense
Reimbursement......................... 1.26%(1) 1.27% 1.32% 1.52% 2.50% 2.82%
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement......................... 1.51%(1) 0.88% 0.55% 0.28% (1.62%) 0.12%
Before Advisory Fee Waiver and Expense
Reimbursement......................... 1.40%(1) 0.78% 0.46% 0.28% (1.62%) (0.20%)
Portfolio Turnover Rate........................ 24.71% 58.62% 48.69% 31.69% 54.56% 58.74%
Average Commission Rate Paid+.................. $ 0.0150 -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC beginning in 1996.
(1) Annualized.
See Notes to Financial Statements.
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
------------------------------------------------------------
PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
LORD ABBETT GROWTH AND INCOME
----------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 -----------------------------------------
(UNAUDITED) 1995 1994 1993 1992(2)
------------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................. $ 14.98 $ 12.00 $ 12.06 $ 10.70 $ 10.00
-------- ------- ------- ------- --------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)........................ 0.13 0.16 0.20 0.11 0.07
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............................. 0.85 3.22 0.06 1.35 0.63
-------- ------- ------- ------- --------
Total Increase (Decrease) From
Investment Operations........................ 0.98 3.38 0.26 1.46 0.70
-------- ------- ------- ------- --------
Less Dividends and Distributions
Dividends from Net Investment Income................ (0.17) (0.20) (0.12) (0.04) --
Distributions from Net Realized
Capital Gains..................................... (0.35) (0.20) (0.20) (0.06) --
-------- ------- ------- ------- --------
Total Dividends and Distributions.............. (0.52) (0.40) (0.32) (0.10) --
-------- ------- ------- ------- --------
Net Asset Value at End of Period........................ $ 15.44 $ 14.98 $ 12.00 $ 12.06 $ 10.70
======== ======= ======= ======= ========
Total Return............................................ 6.61% 28.91% 2.22% 13.69% 7.00%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's).............. $ 372,133 $288,749 $92,050 $48,385 $10,159
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.......................... 0.96%(1) 0.99% 1.06% 1.22% 0.99%(1)
Before Advisory Fee Waiver and
Expense Reimbursement.......................... 0.96%(1) 0.99% 1.06% 1.33% 1.75%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement.......................... 2.04%(1) 2.50% 2.45% 2.05% 2.49%(1)
Before Advisory Fee Waiver and
Expense Reimbursement.......................... 2.04%(1) 2.50% 2.45% 1.94% 1.73%(1)
Portfolio Turnover Rate................................. 21.36% 50.28% 60.47% 56.70% 34.29%
Average Commission Rate Paid+........................... $ 0.0663 -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC beginning in 1996.
(1) Annualized.
(2) Commenced operations on May 1, 1992.
(3) Commenced operations on November 6, 1992.
(4) Commenced operations on November 10, 1992.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
JANCAP GROWTH AST MONEY MARKET
--------------------------------------------------------------- ----------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
JUNE 30, 1996 -------------------------------------------- JUNE 30, 1996 --------------------------------------------
(UNAUDITED) 1995 1994 1993 1992(3) (UNAUDITED) 1995 1994 1993 1992(4)
------------- -------- -------- -------- ------- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15.40 $ 11.22 $ 11.78 $ 10.53 $ 10.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
0.01 0.06 0.06 0.03 (0.01) 0.0243 0.0494 0.0369 0.0252 0.0032
2.35 4.18 (0.59) 1.22 0.54 0.0005 -- -- -- --
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
2.36 4.24 (0.53) 1.25 0.53 0.0248 0.0494 0.0369 0.0252 0.0032
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
(0.02) (0.06) (0.03) -- -- (0.0243) (0.0494) (0.0367) (0.0252) (0.0032)
(0.80) -- -- -- -- (0.0005) -- (0.0002) -- --
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
(0.82) (0.06) (0.03) -- -- (0.0248) (0.0494) (0.0369) (0.0252) (0.0032)
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
$ 16.94 $ 15.40 $ 11.22 $ 11.78 $ 10.53 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======== ======== ======== ======== ======== ========
15.72% 37.98% (4.51%) 11.87% 5.30% N/A N/A N/A N/A N/A
$ 611,024 $431,321 $245,645 $157,852 $15,218 $ 571,218 $344,225 $288,588 $114,074 $ 4,294
1.10%(1) 1.12% 1.18% 1.22% 1.33% (1) 0.60%(1) 0.60% 0.64% 0.65% 0.65%(1)
1.10%(1) 1.12% 1.18% 1.22% 2.21% (1) 0.72%(1) 0.72% 0.76% 0.84% 1.15%(1)
0.25%(1) 0.51% 0.62% 0.35% (0.90%)(1) 4.88%(1) 5.38% 3.90% 2.53% 2.43%(1)
0.25%(1) 0.51% 0.62% 0.35% (1.78%)(1) 4.76%(1) 5.26% 3.78% 2.34% 1.93%(1)
65.51% 113.32% 93.92% 92.16% 1.52% N/A N/A N/A N/A N/A
$ 0.0630 -- -- -- -- N/A -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
---------------------------------------------------------
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
FEDERATED UTILITY INCOME
--------------------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------------
(UNAUDITED) 1995 1994 1993(5)
------------- -------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................... $ 11.94 $ 9.87 $ 10.79 $ 10.00
-------- -------- ------- --------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss).......................... 0.15 0.40 0.46 0.17
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............................... 0.35 2.09 (1.20) 0.62
-------- -------- ------- --------
Total Increase (Decrease) From
Investment Operations.......................... 0.50 2.49 (0.74) 0.79
-------- -------- ------- --------
Less Dividends and Distributions
Dividends from Net Investment Income.................. (0.44) (0.42) (0.16) --
Distributions from Net Realized
Capital Gains....................................... -- -- (0.02) --
-------- -------- ------- --------
Total Dividends and Distributions................ (0.44) (0.42) (0.18) --
-------- -------- ------- --------
Net Asset Value at End of Period.......................... $ 12.00 $ 11.94 $ 9.87 $ 10.79
======== ======== ======= ========
Total Return.............................................. 4.31% 26.13% (6.95%) 7.90%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)................ $ 121,778 $107,399 $71,205 $57,643
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............................ 0.92%(1) 0.93% 0.99% 1.18%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............................ 0.92%(1) 0.93% 0.99% 1.18%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement............................ 3.07%(1) 4.58% 5.11% 5.09%(1)
Before Advisory Fee Waiver and
Expense Reimbursement............................ 3.07%(1) 4.58% 5.11% 5.09%(1)
Portfolio Turnover Rate................................... 41.42% 70.94% 54.26% 5.30%
Average Commission Rate Paid+............................. $ 0.0488 -- -- --
</TABLE>
- --------------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC beginning in 1996.
(1) Annualized.
(5) Commenced operations on May 4, 1993.
(6) Commenced operations on January 4, 1994.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE ASSET
AST PHOENIX BALANCED ASSET FEDERATED HIGH YIELD ALLOCATION
------------------------------------------------ ------------------------------------- ---------------------------------
SIX MONTHS FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------ JUNE 30, 1996 ------------------- JUNE 30, 1996 -------------------
(UNAUDITED) 1995 1994 1993(5) (UNAUDITED) 1995 1994(6) (UNAUDITED) 1995 1994(6)
------------- -------- -------- ------- ------------ ------- ------- ------------- ------- -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12.53 $ 10.49 $ 10.57 $ 10.00 $ 11.14 $ 9.69 $ 10.00 $ 12.01 $ 9.94 $ 10.00
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
0.16 0.26 0.27 0.08 0.31 0.38 0.55 0.15 0.26 0.21
0.26 2.06 (0.26) 0.49 0.05 1.46 (0.86) 0.36 2.02 (0.27)
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
0.42 2.32 0.01 0.57 0.36 1.84 (0.31) 0.51 2.28 (0.06)
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
(0.25) (0.28) (0.07) -- (0.47) (0.39) -- (0.25) (0.21) --
(0.43) -- (0.02) -- -- -- -- (0.04) -- --
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
(0.68) (0.28) (0.09) -- (0.47) (0.39) -- (0.29) (0.21) --
-------- ------- ------- ------- -------- -------- -------- -------- -------- --------
$ 12.27 $ 12.53 $ 10.49 $ 10.57 $ 11.03 $ 11.14 $ 9.69 $ 12.23 $ 12.01 $ 9.94
======== ======= ======= ======= ======== ======== ======== ======== ======== ========
3.47% 22.60% 0.09% 5.70% 3.28% 19.57% (3.10%) 4.27% 23.36% (0.60%)
$ 264,258 $255,206 $145,624 $91,591 $ 122,673 $83,692 $21,308 $86,302 $59,399 $23,463
0.91%(1) 0.94% 0.99% 1.13%(1) 1.01%(1) 1.11% 1.15%(1) 1.16%(1) 1.25% 1.25%(1)
0.91%(1) 0.94% 0.99% 1.13%(1) 1.01%(1) 1.11% 1.34%(1) 1.16%(1) 1.29% 1.47%(1)
2.71%(1) 3.28% 3.08% 2.53%(1) 8.27%(1) 8.72% 9.06%(1) 3.21%(1) 3.53% 3.64%(1)
2.71%(1) 3.28% 3.08% 2.53%(1) 8.27%(1) 8.72% 8.87%(1) 3.21%(1) 3.49% 3.42%(1)
91.99% 160.94% 86.50% 46.35% 25.94% 29.64% 40.55% 27.64% 17.62% 31.62%
$ 0.0609 -- -- -- N/A -- -- $0.0359 -- --
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
PIMCO TOTAL RETURN BOND INVESCO EQUITY INCOME
------------------------------------ ------------------------------------
SIX MONTHS FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
JUNE 30, 1996 ------------------- JUNE 30, 1996 -------------------
(UNAUDITED) 1995 1994(6) (UNAUDITED) 1995 1994(6)
------------- -------- ------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period... $ 11.34 $ 9.75 $ 10.00 $ 12.50 $ 9.75 $ 10.00
-------- -------- ------- -------- -------- -------
Increase (Decrease) from Investment
Operations
Net Investment Income (Loss)......... 0.21 0.25 0.26 0.15 0.25 0.16
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions.............. (0.44) 1.55 (0.51) 0.71 2.65 (0.41)
-------- -------- ------- -------- -------- -------
Total Increase (Decrease) From
Investment Operations......... (0.23) 1.80 (0.25) 0.86 2.90 (0.25)
-------- -------- ------- -------- -------- -------
Less Dividends and Distributions
Dividends from Net Investment
Income............................. (0.28) (0.21) -- (0.24) (0.15) --
Distributions from Net Realized
Capital Gains...................... (0.31) -- -- (0.33) -- --
-------- -------- ------- -------- -------- -------
Total Dividends and
Distributions................. (0.59) (0.21) -- (0.57) (0.15) --
-------- -------- ------- -------- -------- -------
Net Asset Value at End of Period......... $ 10.52 $ 11.34 $ 9.75 $ 12.79 $ 12.50 $ 9.75
======== ======== ======= ======== ======== =======
Total Return............................. (2.07%) 18.78% (2.50%) 7.04% 30.07% (2.50%)
Ratios/Supplemental Data
Net Assets at End of Period (in
000's)............................. $ 287,645 $225,335 $46,493 $ 236,140 $176,716 $65,201
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........... 0.88%(1) 0.89% 1.02%(1) 0.98%(1) 0.98% 1.14%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........... 0.88%(1) 0.89% 1.02%(1) 0.98%(1) 0.98% 1.14%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........... 5.25%(1) 5.95% 5.57%(1) 2.99%(1) 3.34% 3.41%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........... 5.25%(1) 5.95% 5.57%(1) 2.99%(1) 3.34% 3.41%(1)
Portfolio Turnover Rate.................. 318.44% 124.41% 139.25% 28.83% 89.48% 62.87%
Average Commission Rate Paid+............ N/A -- -- $ 0.0604 -- --
</TABLE>
- --------------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC beginning in 1996.
(1) Annualized.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE T. ROWE PRICE
FOUNDERS CAPITAL APPRECIATION INTERNATIONAL EQUITY INTERNATIONAL BOND
------------------------------------- --------------------------------------- -------------------------------------
SIX MONTHS FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED DECEMBER 31,
JUNE 30, 1996 ------------------- JUNE 30, 1996 --------------------- JUNE 30, 1996 -------------------
(UNAUDITED) 1995 1994(6) (UNAUDITED) 1995 1994(6) (UNAUDITED) 1995 1994(7)
------------- ------- ------- ------------- -------- -------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14.25 $ 10.84 $ 10.00 $ 10.65 $ 9.62 $ 10.00 $ 10.60 $ 9.68 $ 10.00
-------- ------- ------- -------- -------- -------- ------- ------- -------
0.02 (0.04) 0.11 0.07 0.07 0.02 0.09 0.31 0.27
2.28 3.54 0.73 0.85 0.99 (0.40) (0.17) 0.75 (0.59)
-------- ------- ------- -------- -------- -------- ------- ------- -------
2.30 3.50 0.84 0.92 1.06 (0.38) (0.08) 1.06 (0.32)
-------- ------- ------- -------- -------- -------- ------- ------- -------
(0.09) (0.09) -- (0.08) (0.01) -- (0.14) (0.14) --
(0.18) -- -- -- (0.02) -- (0.17) -- --
-------- ------- ------- -------- -------- -------- ------- ------- -------
(0.27) (0.09) -- (0.08) (0.03) -- (0.31) (0.14) --
-------- ------- ------- -------- -------- -------- ------- ------- -------
$ 16.28 $ 14.25 $ 10.84 $ 11.49 $ 10.65 $ 9.62 $ 10.21 $ 10.60 $ 9.68
======== ======= ======= ======== ======== ======== ======= ======= =======
16.33% 32.56% 8.40% 8.68% 11.09% (3.80%) (0.73%) 11.10% (3.20%)
$ 147,916 $90,460 $28,559 $ 306,150 $195,667 $108,751 $68,925 $45,602 $15,218
1.15% (1) 1.22% 1.30%(1) 1.29%(1) 1.33% 1.75%(1) 1.29%(1) 1.53% 1.68%(1)
1.15% (1) 1.22% 1.55%(1) 1.29%(1) 1.33% 1.77%(1) 1.29%(1) 1.53% 1.68%(1)
(0.25%)(1) (0.28%) 2.59%(1) 1.68%(1) 1.03% 0.45%(1) 5.25%(1) 6.17% 7.03%(1)
(0.25%)(1) (0.28%) 2.34%(1) 1.68%(1) 1.03% 0.43%(1) 5.25%(1) 6.17% 7.03%(1)
46.57% 68.32% 197.93% 6.99% 17.11% 15.70% 120.27% 325.00% 163.27%
$ 0.0554 -- -- $ 0.0232 -- -- N/A -- --
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN SKANDIA TRUST
FINANCIAL HIGHLIGHTS
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
--------------------------------------------
PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
BERGER CAPITAL
GROWTH
------------------------------------------
SIX MONTHS FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 ----------------------
(UNAUDITED) 1995 1994(8)
------------- ------- --------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period................................ $ 12.40 $ 9.97 $10.00
-------- -------- -------
Increase (Decrease) from
Investment Operations
Net Investment Income (Loss)...................................... -- 0.04 0.01
Net Realized & Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions........................................... 1.55 2.40 (0.04)
-------- -------- -------
Total Increase (Decrease) From
Investment Operations...................................... 1.55 2.44 (0.03)
-------- -------- -------
Less Dividends and Distributions
Dividends from Net Investment Income.............................. (0.03) (0.01) --
Distributions from Net Realized
Capital Gains................................................... -- -- --
-------- -------- -------
Total Dividends and Distributions............................ (0.03) (0.01) --
-------- -------- -------
Net Asset Value at End of Period...................................... $ 13.92 $ 12.40 $ 9.97
======== ======== =======
Total Return.......................................................... 12.54% 24.42% (0.30%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's)............................ $84,683 $45,979 $3,030
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........................................ 1.00%(1) 1.17% 1.25%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........................................ 1.00%(1) 1.17% 1.70%(1)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement........................................ 0.14%(1) 0.70% 1.41%(1)
Before Advisory Fee Waiver and
Expense Reimbursement........................................ 0.14%(1) 0.70% 0.97%(1)
Portfolio Turnover Rate............................................... 58.88% 84.21% 5.36%
Average Commission Rate Paid+......................................... $0.0590 -- --
</TABLE>
- --------------------------------------------------------------------------------
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
This disclosure is required by the SEC beginning in 1996.
(1) Annualized.
(8) Commenced operations on October 20, 1994.
(9) Commenced operations on May 2, 1995.
(10) Commenced operations on May 2, 1996.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
SELIGMAN HENDERSON T. ROWE PRICE PIMCO LIMITED ROBERTSON STEPHENS
INTERNATIONAL SMALL CAP NATURAL RESOURCES MATURITY BOND VALUE + GROWTH
- ---------------------------------- ---------------------------------- ---------------------------------- -------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED FOR THE YEAR ENDED ENDED FOR THE YEAR ENDED ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996(10)
(UNAUDITED) 1995(9) (UNAUDITED) 1995(9) (UNAUDITED) 1995(9) (UNAUDITED)
- ------------- ------------------ ------------- ------------------ ------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 10.33 $ 10.00 $ 11.11 $10.00 $ 10.47 $ 10.00 $ 10.00
------- ------- ------- ------ -------- -------- ------
0.08 0.03 0.03 0.04 0.27 0.05 --
1.43 0.30 1.72 1.07 (0.26) 0.42 (0.27)
------- ------- ------- ------ -------- -------- ------
1.51 0.33 1.75 1.11 0.01 0.47 (0.27)
------- ------- ------- ------ -------- -------- ------
(0.03) -- (0.02) -- (0.05) -- --
-- -- (0.02) -- (0.02) -- --
------- ------- ------- ------ -------- -------- ------
(0.03) -- (0.04) -- (0.07) -- --
------- ------- ------- ------ -------- -------- ------
$ 11.81 $ 10.33 $ 12.82 $11.11 $ 10.41 $ 10.47 $ 9.73
======= ======= ======= ====== ======== ======== ======
14.66% 3.30% 15.83% 11.10% 0.05% 4.70% (2.70%)
$81,758 $ 28,455 $32,322 $9,262 $ 195,372 $161,940 $ 5,699
1.32%(1) 1.46%(1) 1.35%(1) 1.35%(1) 0.87%(1) 0.89%(1) 1.33%(1)
1.32%(1) 1.46%(1) 1.38%(1) 1.80%(1) 0.87%(1) 0.89%(1) 1.33%(1)
2.19%(1) 0.94%(1) 1.15%(1) 1.28%(1) 5.81%(1) 4.87%(1) (0.41%)(1)
2.19%(1) 0.94%(1) 1.12%(1) 0.83%(1) 5.81%(1) 4.87%(1) (0.41%)(1)
8.58% 3.52% 28.78% 2.32% 158.19% 204.85% 3.42%
$0.0219 -- $0.0171 -- N/A -- $0.0510
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMERICAN SKANDIA TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
American Skandia Trust (the "Trust"), was organized under the laws of the
Commonwealth of Massachusetts on October 31, 1988, as a "Massachusetts Business
Trust". The Trust is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Trust operates as a
series company, issuing eighteen classes of shares of beneficial interest during
1996: Seligman Henderson International Equity Portfolio ("Henderson"), Lord
Abbett Growth and Income Portfolio ("Lord Abbett"), JanCap Growth Portfolio
("JanCap"), AST Money Market Portfolio ("Money Market"), Federated Utility
Income Portfolio ("Federated"), AST Phoenix Balanced Asset Portfolio
("Balanced"), Federated High Yield Portfolio ("High Yield"), T. Rowe Price Asset
Allocation Portfolio ("Asset Allocation"), PIMCO Total Return Bond Portfolio
("PIMCO"), INVESCO Equity Income Portfolio ("INVESCO"), Founders Capital
Appreciation Portfolio ("Founders"), T. Rowe Price International Equity
Portfolio ("T. Rowe"), T. Rowe Price International Bond Portfolio
("International Bond") (formerly, AST Scudder International Bond Portfolio),
Berger Capital Growth Portfolio ("Berger"), Seligman Henderson International
Small Cap Portfolio ("Small Cap"), T. Rowe Price Natural Resources Portfolio
("Natural Resources"), PIMCO Limited Maturity Bond Portfolio ("Limited
Maturity"), and Robertson Stephens Value + Growth Portfolio ("Robertson
Stephens") (collectively "the Portfolios").
The following is a summary of the Trust's significant accounting policies:
Security Valuation
All Portfolios, other than Money Market: Securities are valued at the close of
regular trading on each business day the New York Stock Exchange ("NYSE") is
open. Securities are valued at the last sale price on the securities exchange or
securities market on which such securities primarily are traded. Securities not
listed on an exchange or securities market, or securities on which there were no
transactions, are valued at the average of the most recent bid and asked prices.
Any securities or other assets for which recent market quotations are not
readily available are valued at fair value as determined in good faith by the
Board of Trustees.
Short-term obligations with less than sixty days remaining to maturity are
valued at amortized cost. Short-term obligations with more than sixty days
remaining to maturity are valued at current market value until the sixtieth day
prior to maturity, and thereafter are valued on an amortized cost basis based on
the value on such date.
Money Market: Securities are valued at amortized cost. The amortized cost method
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium.
Foreign Currency Translation and Foreign Currency Exchange Contracts
The Trust's investment valuations, other assets, and liabilities initially
expressed in foreign currencies are converted each business day into U.S.
dollars based upon current exchange rates determined prior to the close of the
NYSE. Purchases and sales of foreign investments and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. Gains and losses attributable to changes
in foreign currency exchange rates are recorded for financial statement purposes
as net realized gains and losses on investments and foreign currency
transactions.
A foreign currency exchange contract (FCEC) is a commitment to purchase or sell
a specified amount of foreign currency at the settlement date at a specified
rate. FCECs are used to hedge against foreign exchange rate risk arising from a
Portfolio's investment or anticipated investment in securities denominated in
foreign
<PAGE>
- --------------------------------------------------------------------------------
currencies. Risks may arise upon entering into FCECs from the potential
inability of counterparties to meet the terms of their contracts. Also, when
utilizing FCECs a Portfolio gives up the opportunity to profit from favorable
exchange rate movements during the term of the contract. FCECs are
marked-to-market daily at the applicable exchange rates and any gains or losses
are recorded as unrealized until the contract settlement date.
Futures and Options
Certain Portfolios, as permitted by the Trust's prospectus, may enter into
futures contracts and purchase and write both put and call options. Futures
contracts provide for the future sale by one party and purchase by another of a
specified amount of a financial instrument at an agreed upon price and date. Put
and call options give the holder the right to sell or purchase, respectively, a
specified amount of a security or currency at a specified price on a certain
date. For both futures and options, risks arise from possible illiquidity and
from movements in security values, interest rates or currency values.
Futures and purchased options are valued based on their quoted daily settlement
prices. The premium received for a written option is recorded as an asset with
an equal liability which is marked-to-market based on the option's quoted daily
settlement price. Fluctuations in the value of futures and options are recorded
as unrealized appreciation (depreciation) until terminated, at which time
realized gains (losses) are recognized.
Investment Transactions and Investment Income
Security transactions are accounted for on the trade date. Realized gains and
losses from security transactions are recognized on the FIFO cost basis.
Dividend income is recognized on the ex-dividend date. Interest income is
accrued daily. Gains or losses on premiums from expired options are recognized
on the date of expiration.
Dividends and Distributions to Shareholders
All Portfolios other than Money Market: Dividends and distributions arising from
net investment income and net short-term and long-term capital gains, if any,
are declared and paid annually.
Money Market: Dividends from net investment income are declared daily and paid
monthly, and capital gains, if any, are declared and paid annually.
Organization Costs
The Trust bears all costs in connection with its organization, including the
initial fees and expenses of registering and qualifying its shares for
distribution under federal and state securities regulations. All such costs are
being amortized on a straight-line basis over a period of five years from May 1,
1992.
Tax Matters
It is the Trust's policy to comply with the requirements of the Internal Revenue
Code pertaining to regulated investment companies and to distribute all of its
taxable income, as well as any net realized gains to its shareholders.
Therefore, no federal income tax provision has been made. Foreign taxes have
been provided for dividend and interest income earned on foreign investments in
accordance with the applicable country's tax rates and, to the extent
unrecoverable, are recorded as a reduction of investment income.
2. INVESTMENT MANAGEMENT AGREEMENTS,
INVESTMENT SUB-ADVISORY
AGREEMENTS AND TRANSACTIONS
WITH AFFILIATES
The Portfolios have entered into Investment Management Agreements with American
Skandia Investment Services, Inc. ("Investment Manager") which provide that the
Investment Manager will furnish each Portfolio with investment advice and
investment management
<PAGE>
- --------------------------------------------------------------------------------
and administrative services. The Investment Manager has engaged the following
entities as sub-advisors for their respective Portfolios: Seligman Henderson
Co., a joint venture between J. & W. Seligman & Co. Incorporated and Henderson
International, Inc. for Henderson and Small Cap, Lord Abbett & Co. for Lord
Abbett, Janus Capital Corporation for JanCap, J. P. Morgan Investment Management
Inc. for Money Market, Federated Investment Counseling for Federated and High
Yield, Phoenix Investment Counsel, Inc. for Balanced, T. Rowe Price Associates,
Inc. for Asset Allocation and Natural Resources, Pacific Investment Management
Co. for PIMCO and Limited Maturity, INVESCO Trust Co. for INVESCO, Founders
Asset Management, Inc. for Founders, Rowe Price-Fleming International, Inc., a
United Kingdom Corporation, for T. Rowe and International Bond, Berger
Associates, Inc. for Berger, and Robertson, Stephens & Company Investment
Management, L.P. for Robertson Stephens. The Investment Manager receives a fee
computed daily and paid monthly based on an annual rate of 1.00%, .75%, .90%,
.50%, .75%, .75%, .75%, .85%, .65%, .75%, .90%, 1.00%, .80%, .75%, 1.00%, .90%,
.65%, and 1.00% of the average daily net assets of the Henderson, Lord Abbett,
JanCap, Money Market, Federated, Balanced, High Yield, Asset Allocation, PIMCO,
INVESCO, Founders, T. Rowe, International Bond, Berger, Small Cap, Natural
Resources, Limited Maturity, and Robertson Stephens Portfolios, respectively.
The fees for Federated are at the rate of .60% for average daily net assets in
excess of $50,000,000 and for Balanced are at the rate of .65% for average daily
net assets in excess of $75,000,000. The Investment Manager is currently
voluntarily waiving .15% of its fee for Henderson on average daily net assets in
excess of $75,000,000, and .05% of its fee for Money Market.
The Investment Manager pays each sub-advisor a fee computed daily and payable
monthly based on an annual rate of 1.00%, .50%, .60%, .25%, .50%, .50%, .50%,
.50%, .30%, .50%, .65%, .75%, .40%, .55%, .60%, .60%, .30%, and .60% of the
average daily net assets of the Henderson, Lord Abbett, JanCap, Money Market,
Federated, Balanced, High Yield, Asset Allocation, PIMCO, INVESCO, Founders, T.
Rowe, International Bond, Berger, Small Cap, Natural Resources, Limited
Maturity, and Robertson Stephens Portfolios, respectively. The sub-advisors for
Henderson and Money Market are currently voluntarily waiving portions of the
fees payable to them by the Investment Manager. The annual rates of the fees
payable by the Investment Manager to the sub-advisors of all Portfolios, other
than International Bond, are reduced for Portfolio net assets in excess of
specified levels.
On April 12, 1996, the shareholders of the AST Scudder International Bond
Portfolio approved a new Investment Management Agreement which, effective May 1,
1996, reduced the Investment Manager's fee to an annual rate of .80% of the
Portfolio's average daily net assets from the previous annual rate of 1.00%.
Also on April 12, 1996, the Portfolio's shareholders approved a Sub-Advisory
Agreement under which Rowe Price-Fleming International, Inc., became sub-advisor
to the Portfolio, effective May 1, 1996, for a fee paid by the Investment
Manager at an annual rate of .40% of the Portfolio's average daily net assets.
Prior to May 1, 1996, Scudder, Stephens & Clark, Inc. served as sub-advisor for
an annual rate of .60% of the average daily net assets of the Portfolio.
Effective May 1, 1996, the name of the Portfolio was changed to the "T. Rowe
Price International Bond Portfolio."
The Investment Manager has agreed to reimburse each Portfolio for the amount, if
any, by which the total operating and management expenses (after fee waivers and
expense reimbursements) of the Portfolio for any fiscal year exceed the most
restrictive state blue sky expense limitation in effect from time to time, to
the extent required by such limitation. The Investment Management Agreement with
each Portfolio also provides that the Investment Manager will reimburse the
<PAGE>
- --------------------------------------------------------------------------------
Portfolio to prevent its expenses from exceeding a specific percentage limit.
During the six months ended June 30, 1996, the Investment Manager reimbursed
Money Market and Natural Resources for expenses pursuant to those provisions.
The Trust has entered into an agreement for the sale of shares with American
Skandia Life Assurance Corporation ("ASLAC") pursuant to which it will pay ASLAC
a shareholder servicing fee at an annual rate of .10% of each Portfolio's
average daily net assets.
Certain officers and/or Trustees of the Trust are also officers and/or directors
of the Investment Manager. During the six months ended June 30, 1996, the Trust
made no direct payments to its officers or interested Trustees.
3. PURCHASES AND SALES OF SECURITIES
The cost of security purchases and proceeds from the sales of securities,
excluding short-term obligations, during the six months ended June 30, 1996 were
($ in thousands): $117,577 and $71,066 for Henderson, $191,842 and $66,081 for
Lord Abbett, $423,041 and $325,164 for JanCap, $55,552 and $45,473 for
Federated, $278,460 and $203,368 for Balanced, $64,264 and $24,857 for High
Yield, $40,226 and $18,389 for Asset Allocation, $999,047 and $755,890 for
PIMCO, $119,361 and $56,071 for INVESCO, $89,348 and $47,062 for Founders,
$120,458 and $16,599 for T. Rowe, $79,074 and $59,411 for International Bond,
$111,799 and $34,753 for Berger, $53,558 and $4,111 for Small Cap, $27,877 and
$5,577 for Natural Resources, $364,423 and $254,856 for Limited Maturity and
$4,696 and $111 for Robertson Stephens.
4. TAX COST OF INVESTMENTS AND CAPITAL LOSS CARRYOVERS
At June 30, 1996, the net unrealized appreciation (depreciation) based on the
cost of investments for federal income tax purposes was as follows ($ in
thousands):
<TABLE>
<CAPTION>
TAX NET UNREALIZED
COST OF APPRECIATED DEPRECIATED APPRECIATION
INVESTMENTS SECURITIES SECURITIES (DEPRECIATION)
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Henderson.............. $ 281,042 $ 39,371 $(8,054) $ 31,317
Lord Abbett............ 344,097 37,259 (4,582) 32,677
JanCap................. 498,676 130,760 (8,557) 122,203
Money Market........... 571,977 -- -- --
Federated.............. 112,871 12,258 (1,257) 11,001
Balanced............... 253,020 14,199 (3,737) 10,462
High Yield............. 122,304 2,420 (2,208) 212
Asset Allocation....... 81,288 6,248 (1,593) 4,655
PIMCO.................. 396,901 4,494 (1,108) 3,386
INVESCO................ 212,973 27,484 (3,816) 23,668
Founders............... 127,139 31,376 (4,229) 27,147
T. Rowe................ 268,147 34,915 (6,321) 28,594
International Bond..... 59,756 991 (1,243) (252)
Berger................. 73,793 12,126 (1,473) 10,653
Small Cap.............. 73,694 8,125 (1,564) 6,561
Natural Resources...... 31,031 2,419 (732) 1,687
Limited Maturity....... 195,811 289 (3,054) (2,765)
Robertson Stephens..... 5,227 73 (171) (98)
</TABLE>
At December 31, 1995, for federal income tax purposes, capital loss carryovers
which may be applied against future net taxable realized gains of each
succeeding year until the earlier of utilization or expiration in 2002 were ($
in thousands): $2,704 for Federated, $26 for High Yield and $9 for Berger.
Capital loss carryovers that expire in 2003 were ($ in thousands): $418 for T.
Rowe, $195 for Berger and $14 for Small Cap.
<PAGE>
- --------------------------------------------------------------------------------
5. OPTION AND FUTURES TRANSACTIONS
Option and futures transactions entered into during the six months ended June
30, 1996, are summarized as follows ($ in thousands):
<TABLE>
<CAPTION>
PIMCO INTERNATIONAL BOND
------------------------ ------------------------
NUMBER NUMBER
OF CONTRACTS PREMIUM OF CONTRACTS PREMIUM
------------ ------- ------------ -------
<S> <C> <C> <C>
WRITTEN PUT OPTION TRANSACTIONS
Balance at beginning
of period............ 80 $ 32 64 $ 71
Written............... 562 585 243 224
Expired............... (80) (32) (177) (186)
Exercised............. (100) (115) -- --
Closing buys.......... (200) (230) (130) (109)
----- ------ ----- -----
Balance at end of
period............... 262 $ 240 -- $ --
===== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
LIMITED MATURITY
------------------------
NUMBER
OF CONTRACTS PREMIUM
------------ -------
<S> <C> <C>
WRITTEN PUT OPTION TRANSACTIONS
Balance at beginning of period................ -- $ --
Written....................................... 43 17
Expired....................................... -- --
Exercised..................................... -- --
Closing buys.................................. -- --
--- ---
Balance at end of period...................... 43 $ 17
=== ===
</TABLE>
<TABLE>
<CAPTION>
PIMCO LIMITED MATURITY
------------------------ -----------------------
NUMBER CONTRACT NUMBER CONTRACT
OF CONTRACTS VALUE OF CONTRACTS VALUE
------------ --------- ------------ --------
<S> <C> <C> <C> <C>
FUTURES TRANSACTIONS
Balance at beginning of
period.................. 710 $ 83,353 110 $ 12,103
Opened................... 2,165 265,950 130 13,908
Closed................... (2,040) (234,402) (220) (23,900)
------- --------- ----- --------
Balance at end of
period.................. 835 $ 114,901 20 $ 2,111
======= ========= ===== ========
</TABLE>
6. SUBSEQUENT EVENT
On October 11, 1996, the shareholders of the Henderson, Balanced and Small Cap
Portfolios approved new Investment Management and Sub-Advisory Agreements,
effective October 15, 1996. Under the new Sub-Advisory Agreements, Putnam
Investment Management, Inc. became sub-advisor to the Henderson and Balanced
Portfolios, and Founders Asset Management, Inc. became sub-advisor to the Small
Cap Portfolio. In conjunction with the adoption of these new agreements, the
names of the Portfolios were changed to AST Putnam International Equity
Portfolio ("Putnam International"), AST Putnam Balanced Portfolio ("Putnam
Balanced") and Founders Passport Portfolio ("Founders Passport") for the
Henderson, Balanced and Small Cap Portfolios, respectively. Under the terms of
the new Investment Management Agreements, the Investment Manager receives a fee
computed daily and paid monthly based on an annual rate of 1.00%, .75% and 1.00%
of the average daily net assets of the Putnam International, Putnam Balanced and
Founders Passport Portfolios, respectively. The fees for Putnam International
are at the rate of .85% for average daily net assets in excess of $75 million
and for Putnam Balanced are at the rate of .70% for average daily net assets in
excess of $300 million. The Investment Manager pays each sub-advisor a fee
computed daily and payable monthly based on an annual rate of .65%, .45% and
.60% of the average daily net assets of the Putnam International, Putnam
Balanced and Founders Passport Portfolios, respectively. The annual rates of the
fees payable by the Investment Manager to the sub-advisors of each Portfolio are
reduced for Portfolio net assets in excess of specified levels.
<PAGE>
APPENDIX
Description of Certain Debt Securities Ratings
Moody's Investors Service, Inc. ("Moody's")
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large, or exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, it is improbable that such changes would impair the
fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the highest rated bonds because
margins of protection may not be as large as in Aaa securities, or because
fluctuation of protective elements may be of greater amplitude, or because there
may be other elements present which make the long-term risks appear somewhat
larger than Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but certain
characteristics may exist which suggest a susceptibility to impairment in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Although interest payments and principal security appear adequate for the
present, certain protective elements may be lacking or may be characteristically
unreliable over time. Such bonds lack high quality investment characteristics
and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative to a large degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard & Poor's Corporation ("Standard & Poor's")
AAA -- Debt issues rated AAA have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt issues rated AA have a strong capacity to pay interest and
repay principal, and differ only in small degree from the highest rated issues.
A -- Debt issues rated A have a strong capacity to pay interest and
repay principal but they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt issues in higher
rated categories.
BBB -- Debt issues rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to weaken their capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC, and CC is regarded on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC is the highest degree of speculative. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is
paid.
D -- Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
Description of Certain Commercial Paper Ratings
Moody's
Prime-1 -- Issuers (or related supporting institutions) rated Prime-1
have a superior capacity for repayment of short-term debt obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Prime-2 -- Issuers rated Prime-2 (or related supporting institutions)
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Prime-3 -- Issuers rated Prime-3 (or related supporting institutions)
have an acceptable ability for repayment of senior short-term debt obligations.
The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Standard & Poor's
A -- Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 -- This designation indicates that the degree of security regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming security characteristics are given a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1".
A-3 -- Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more vulnerable to the adverse
effects of the changes in circumstances than obligations carrying the higher
designations.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial statements contained in Part A:
<TABLE>
<CAPTION>
<S> <C>
(1) Financial Highlights for the period April 19, 1989 (commencement of operations) to June 30,
1996.
Financial Statements contained in Part B:
(1) Audited Financial Statements for the Trust for the year ended December 31, 1995.
(a) Independent Auditors' Report;
(b) Portfolios of Investments as of December 31,
1995;
(c) Statements of Assets and Liabilities as of
December 31, 1995;
(d) Statements of Operations for the year ended
December 31, 1995; (e) Statements of Changes in
Net Assets for the years ended December 31,
1994 and December 31, 1995; and
(f) Financial Highlights for the period April 19,
1989 (commencement of operations) to
December 31, 1995.
(g) Notes to Financial Statements.
(2) Unaudited Financial Statements for the Trust for the period ended June 30, 1996.
(a) Schedules of Investments as of June 30, 1996;
(b) Statements of Assets and Liabilities as of June 30, 1996;
(c) Statements of Operations for the six month period ended June 30, 1996;
(d) Statements of Changes in Net Assets for the year ended December 31, 1995 and
and the six month period ended June 30, 1996; and
(e) Financial Highlights for the period April 19, 1989 (commencement of operations) to
June 30, 1996.
(f) Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(b) Exhibits
* 1. (a) Form of Declaration of Trust of Registrant.
i (b) Amendment to Agreement and Declaration of Trust of Registrant.
ii (c) Amendment to Declaration of Trust of Registrant.
* 2. Form of By-laws of Registrant.
3. None.
** 4. Specimen certificate for shares of beneficial interest of Registrant.
ii 5. (a) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the Lord Abbett Growth and Income Portfolio.
iii (b) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the JanCap Growth Portfolio.
iii (c) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the AST Money Market.
iv (d) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the Federated Utility Income Portfolio.
v (e) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the Federated High Yield Portfolio.
v (f) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the T. Rowe Price Asset Allocation Portfolio.
v (g) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the T. Rowe Price International Equity Portfolio.
v (h) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the Founders Capital Appreciation Portfolio.
v (i) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the INVESCO Equity Income Portfolio.
v (j) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the PIMCO Total Return Portfolio.
vii (k) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for the Berger Capital Growth Portfolio.
viii (l) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for T. Rowe Price Natural Resources Portfolio.
viii (m) Investment Management Agreement between Registrant and American Skandia Life
Investment Management, Inc. for PIMCO Limited Maturity Bond Portfolio.
ix (n) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the T. Rowe Price International Bond Portfolio.
ix (o) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the Robertson Stephens Value + Growth Portfolio.
(p) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the AST Janus Overseas Growth Portfolio.
(q) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the T. Rowe Price Small Company Value Portfolio.
(r) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the Founders Passport Portfolio.
(s) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the Twentieth Century International Growth Portfolio.
(t) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the Twentieth Century Strategic Balanced Portfolio.
(u) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the AST Putnam Value Growth & Income Portfolio.
(v) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the AST Putnam International Equity Portfolio.
(w) Investment Management Agreement between Registrant and American Skandia Investment
Services, Incorporated for the AST Putnam Balanced Portfolio.
ii (x) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
Lord, Abbett & Co. for the Lord Abbett Growth and Income Portfolio.
iii (y) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
Janus Capital Corporation for the JanCap Growth Portfolio.
iii (z) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
J.P. Morgan Investment Management, Inc. for the AST Money Market Portfolio.
iv (aa) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
Federated Investment Counseling for the Federated Utility Income Portfolio.
v (bb) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
Federated Investment Counseling for the Federated High Yield Portfolio.
v (cc) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
T. Rowe Price Associates, Inc. for the T. Rowe Price Asset Allocation Portfolio.
v (dd) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
Rowe Price-Fleming International, Inc. for the T. Rowe Price International Equity
Portfolio.
v (ee) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
Founders Asset Management, Inc. for the Founders Capital Appreciation Portfolio.
v (ff) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
INVESCO Trust Company for the INVESCO Equity Income Portfolio.
v (gg) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
Pacific Investment Management Company for the PIMCO Total Return Portfolio.
vii (hh) Sub-advisory Agreement between American Skandia Life Investment Management, Inc. and
Berger Associates, Inc.
viii (ii) Sub-Advisory Agreement between American Skandia Life Investment Management, Inc. and
T. Rowe Price Associates, Inc. for the T. Rowe Price Natural Resources Portfolio.
viii (jj) Sub-Advisory Agreement between American Skandia Life Investment Management, Inc. and
Pacific Investment Management Company for the PIMCO Limited Maturity Bond Portfolio.
ix (kk) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Rowe Price-Fleming International, Inc. for the T. Rowe Price International Bond
Portfolio.
ix (ll) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Robertson, Stephens & Company Investment Management, L.P. for the Robertson Stephens
Value + Growth Portfolio.
(mm) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Janus Capital Corporation for the AST Janus Overseas Growth Portfolio.
(nn) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
T. Rowe Price Associates, Inc. for the T. Rowe Price Small Company Value Portfolio.
(oo) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Founders Asset Management, Inc. for the Founders Passport Portfolio.
(pp) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Investors Research Corporation for the Twentieth Century International Growth
Portfolio.
(qq) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Investors Research Corporation for the Twentieth Century Strategic Balanced
Portfolio.
(rr) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the AST Putnam Value Growth & Income Portfolio.
(ss) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the AST Putnam International Equity Portfolio.
(tt) Sub-Advisory Agreement between American Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the AST Putnam Balanced Portfolio.
iii Amended Administration Agreement between Registrant and Provident Financial Processing
Corporation
ii 6. (a) Sales Agreement between Registrant and American Skandia Life Assurance
Corporation.
(b) Sales Agreement between Registrant and Kemper Investors Life Insurance Company.
7. None.
iii 8. (a) Custodian Agreement between Registrant and Morgan Stanley Trust Company for the
Henderson International Growth Portfolio.
iii (b) Amended Custodian Agreement between Registrant and Provident National Bank.
iii (c) Amended Transfer Agency Agreement between Registrant and Provident Financial
Processing Corporation.
9. None.
10. Consent of Counsel for the Registrant.
11. Independent Auditors' Consent.
12. None.
** 13. Certificate re: initial $100,000 capital.
14. None.
15. None.
*** 16. Calculation of Total Return.
17. Financial Data Schedules.
18. None.
</TABLE>
- --------------------------
<TABLE>
<CAPTION>
<S> <C>
* Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration Statement, which Amendment was filed on
October 7, 1988, and is incorporated herein by reference.
** Filed as an Exhibit to Pre-Effective Amendment No. 2 to Registration Statement, which Amendment was filed on
April 20, 1989, and is incorporated herein by reference.
*** Filed as an Exhibit to Post-Effective Amendment No. 1 to Registration Statement, which Amendment was filed on
March 2, 1990, and is incorporated herein by reference.
i Filed as an Exhibit to Post-Effective Amendment No. 2 to Registration Statement, which Amendment was filed on
April 30, 1991, and is incorporated herein by reference.
ii Filed as an Exhibit to Post-Effective Amendment No. 4 to Registration Statement, which Amendment was filed on
August 25, 1992, and is incorporated herein by reference.
iii Filed as an Exhibit to Post-Effective Amendment No. 5 to Registration Statement, which Amendment was filed on
October 30, 1992, and is incorporated herein by reference.
iv Filed as an Exhibit to Post-Effective Amendment No. 7 to Registration Statement, which was filed on April 20,
1993 and is incorporated herein by reference.
v Filed as an Exhibit to Post-Effective Amendment No. 10 to Registration Statement, which Amendment was filed on
December 9, 1993, and is incorporated herein by reference.
vi Filed as an Exhibit to Post-Effective Amendment No. 12 to Registration Statement, which Amendment was filed on
April 29, 1994, and is incorporated herein by reference.
vii Filed as an Exhibit to Post-Effective Amendment No. 13 to Registration Statement, which Amendment was filed on
October 12, 1994, and is incorporated herein by reference.
viii Filed as an Exhibit to Post-Effective Amendment No. 16 to Registration Statement, which Amendment was filed on
April 21, 1995, and is incorporated herein by reference.
ix Filed as an Exhibit to Post-Effective Amendment No. 18 to Registration Statement, which Amendment was filed on
April 30, 1996, and is incorporated herein by reference.
</TABLE>
ITEM 25. Persons Controlled By or Under Common Control with Registrant
See "Investment Manager and Investment Management Agreements" in the
Prospectus and in the Statement of Additional Information.
<TABLE>
<CAPTION>
ITEM 26. Number of Holders of Securities
<S> <C> <C> <C>
Number of Record Holders
Title of Class as of December 1, 1996
-------------- --------------------
Lord Abbett Growth and Income Portfolio 1
AST Money Market Portfolio 1
JanCap Growth Portfolio 1
Federated Utility Income Portfolio 1
Federated High Yield Portfolio 1
T. Rowe Price Asset Allocation Portfolio 1
T. Rowe Price International Equity Portfolio 1
T. Rowe Price Natural Resources Portfolio 1
T. Rowe Price International Bond Portfolio 1
(formerly, the AST Scudder
International Bond Portfolio)
Founders Capital Appreciation Portfolio 1
Founders Passport Portfolio 1
(formerly, the Seligman Henderson
International Small Cap Portfolio)
INVESCO Equity Income Portfolio 1
PIMCO Total Return Bond Portfolio 1
PIMCO Limited Maturity Bond Portfolio 1
Berger Capital Growth Portfolio 1
Robertson Stephens Value + Growth Portfolio 1
AST Putnam International Equity Portfolio 1
(formerly, the Seligman Henderson
International Equity Portfolio)
AST Putnam Balanced Portfolio 1
(formerly, the AST Phoenix Balanced Asset Portfolio)
</TABLE>
ITEM 27. Indemnification
Article VIII of the Registrant's Declaration of Trust provides as
follows:
The Trust shall indemnify each of its Trustees and officers (including
persons who serve at the Trust's request as directors, officers or trustees of
another organization in which the Trust has any interest as a shareholder,
creditor or otherwise) (hereinafter referred to as a "Covered Person") against
all liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees reasonably incurred by as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or any other proceeding, whether civil or criminal, before any
court or administrative legislative body, in which such Covered Person may be or
may have been involved as a party or otherwise or with which such Covered Person
may be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding (a) not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust or (b) to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties) shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of any
undertaking by or on behalf of such Covered Person repay amounts so paid to the
Trust if it is ultimately determined that indemnification of such expenses is
not authorized under this Article, provided, however, that either (1) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (providing that a majority of the disinterested Trustees then in the
office act on the matter), or independent legal counsel in a written opinion
shall have determined, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that there is reason to believe that such
Covered Person will be found entitled to indemnification under this Article.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant or expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. Business and Other Connections of Investment Adviser
See "Management of the Trust" in the Prospectus and "Management" in the
Statement of Additional Information.
ITEM 29. Principal Underwriter
Registrant's shares are presently offered exclusively as an investment
medium for life insurance companies writing both variable annuity and variable
life insurance policies. Pursuant to an exemptive order of the Securities and
Exchange Commission, Registrant may also sell its shares directly to qualified
plans. If Registrant does so, it intends to use American Skandia Marketing,
Incorporated ("ASM, Inc.") or another affiliated broker-dealer as underwriter,
if so required by applicable law. ASM, Inc. is registered as a broker-dealer
with the Securities and Exchange Commission and the National Association of
Securities Dealers. It is an affiliate of American Skandia Life Assurance
Corporation, being a wholly-owned subsidiary of American Skandia Investment
Holding Corporation.
The following individuals, all of whom have as their principal business
address, One Corporate Drive, Shelton, Connecticut 06484, are the current
officers and/or directors of ASM, Inc.: Jan R. Carendi (Chief Executive Officer
& Director); Gordon C. Boronow (Director); Wade A. Dokken (President, Chief
Operating Officer, Chief Marketing Officer & Director); Thomas M. Mazzaferro
(Executive Vice President & Chief Financial Officer); Bayard F. Tracy (Senior
Vice President, National Sales Manager & Director); N. David Kuperstock (Vice
President & Director); Don Thomas Peck (Senior Vice President, National Sales
Manager & Director); Hayward Sawyer (Senior Vice President, National Sales
Manager & Director); Walter G. Kenyon (Vice President & National Accounts
Manager); Kimberly A. Bradshaw (Vice President & National Accounts Manager);
Daniel LaBonte (Vice President & Associate Marketing Director); Heidi Ann
Richardson (Vice President & Portfolio Marketing Director); Tamara L. Wood (Vice
President & National Sales Director, Special Products); Paul DeSimone (Vice
President, Controller & Director); Christian Thwaites (Vice President, Qualified
Plans); M. Priscilla Pannell (Corporate Secretary); and Kristen E. Newall
(Assistant Corporate Secretary).
Of the above, the following individuals are also officers and/or
directors of Registrant: Jan R. Carendi (President, Principal Executive
Officer & Trustee); Gordon C. Boronow (Vice President & Trustee); Thomas M.
Mazzaferro (Treasurer); and M. Priscilla Pannell (Assistant Corporate
Secretary).
ITEM 30. Location of Accounts and Records
The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company act of 1940 are maintained at the
offices of the Trust, One Corporate Drive, Shelton, Connecticut 06484, except
for those maintained by the Trust's Custodian.
ITEM 31. Management Services
None.
ITEM 32. Undertakings
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the Undersigned,
thereunto duly authorized, in the City of Shelton and State of Connecticut, on
the 24th day of December, 1996.
AMERICAN SKANDIA TRUST
By: /s/ Mary Ellen O'Leary
Mary Ellen O'Leary
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Signature Title Date
/s/ Jan R. Carendi* President (Principal
Jan R. Carendi Executive Officer)
and Trustee 12/24/96
/s/ Gordon Boronow* Vice President
Gordon C. Boronow and Trustee 12/24/96
/s/ Mary Ellen O'Leary Secretary 12/24/96
Mary Ellen O'Leary
/s/ Thomas M. Mazzaferro Treasurer 12/24/96
Thomas M. Mazzaferro
/s/ Richard G. Davy, Jr. Controller 12/24/96
Richard G. Davy, Jr.
/s/ David E. A. Carson* Trustee 12/24/96
David E. A. Carson
/s/ Julian A. Lerner* Trustee 12/24/96
Julian A. Lerner
/s/ Thomas M. O'Brien* Trustee 12/24/96
Thomas M. O'Brien
/s/ F. Don Schwartz* Trustee 12/24/96
F. Don Schwartz
</TABLE>
*By: /s/ Mary Ellen O'Leary
Mary Ellen O'Leary
*Pursuant to Powers of Attorney previously filed
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned trustee of
American Skandia Trust (the "Trust") does hereby make, constitute and appoint
Mary Ellen O'Leary, Secretary of the Trust, or M. Priscilla Pannell, Assistant
Corporate Secretary, as his true and lawful attorney-in-fact and agent with all
power and authority on his behalf to sign his name on any and all registration
statements, documents, instruments and/or exhibits related thereto and any and
all amendments thereto (including any and all pre- and post-effective amendments
to any registration statement) on any form or forms for the purpose of
registering the Trust under the Investment Company Act of 1940 with the
Securities and Exchange commission, or amending any such registration, or
registering shares in one or more series, to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, and
under the Investment Company Act of 1940, as amended, and granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act authorized by the Power of Attorney and the undersigned does hereby
ratify all that said attorney-in-fact and agent may lawfully do or cause to be
done by virtue thereof.
IN WITNESS THEREOF, the undersigned has subscribed hereunder this 18th
day of December, 1996.
/s/ Julian A. Lerner
Julian A. Lerner
<PAGE>
Registration No. 33-24962
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED WITH POST-EFFECTIVE AMENDMENT NO. 20
TO FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND
INVESTMENT COMPANY ACT OF 1940
AMERICAN SKANDIA TRUST
<PAGE>
<TABLE>
<CAPTION>
Exhibits
Table of Contents
Exhibit Number Description
<S> <C>
5(p) Investment Management Agreement between Registrant
and American Skandia Investment Services,
Incorporated for the AST Janus Overseas Growth
Portfolio.
5(q) Investment Management Agreement between Registrant
and American Skandia Investment Services,
Incorporated for the T. Rowe Price Small Company
Value Portfolio.
5(r) Investment Management Agreement between Registrant
and American Skandia Investment Services,
Incorporated for the Founders Passport Portfolio.
5(s) Investment Management Agreement between Registrant
and American Skandia Investment Services,
Incorporated for the Twentieth Century
International Growth Portfolio.
5(t) Investment Management Agreement between Registrant
and American Skandia Investment Services,
Incorporated for the Twentieth Century Strategic
Balanced Portfolio.
5(u) Investment Management Agreement between Registrant
and American Skandia Investment Services,
Incorporated for the AST Putnam Value Growth &
Income Portfolio.
5(v) Investment Management Agreement between Registrant
and American Skandia Investment Services,
Incorporated for the AST Putnam International
Equity Portfolio.
5(w) Investment Management Agreement between Registrant
and American Skandia Investment Services,
Incorporated for the AST Putnam Balanced Portfolio.
5(mm) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated and
Janus Capital Corporation for the AST Janus Overseas
Growth Portfolio.
5(nn) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated and
T. Rowe Price Associates, Inc. for the T. Rowe
Price Small Company Value Portfolio.
5(oo) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated and
Founders Asset Management, Inc. for the Founders
Passport Portfolio.
5(pp) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated and
Investors Research Corporation for the Twentieth
Century International Growth Portfolio.
5(qq) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated and
Investors Research Corporation for the Twentieth
Century Strategic Balanced Portfolio.
5(rr) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the AST
Putnam Value Growth & Income Portfolio.
5(ss) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the AST
Putnam International Equity Portfolio.
5(tt) Sub-advisory Agreement between American
Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the AST
Putnam Balanced Portfolio.
6(b) Sales Agreement between Registrant and Kemper
Investors Life Insurance Company.
10 Consent of Counsel for the Registrant
11 Independent Auditors' Consent
17 Financial Data Schedules
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(p) Investment Management Agreement between
Registrant and American Skandia Investment
Services, Incorporated for the AST Janus Overseas
Growth Portfolio.
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 30th day of December, 1996 by and between American
Skandia Trust, a Massachusetts business trust (the "Fund"), and American Skandia
Investment Services, Incorporated, a Connecticut corporation (the "Investment
Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations promulgated thereunder;
and
WHEREAS, the Investment Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into an agreement
to provide for the management of the assets of the AST Janus Overseas Growth
Portfolio (the "Portfolio") on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment manager for the
Portfolio and shall, in such capacity, manage the investment operations of the
Portfolio, including the purchase, retention, disposition and lending of
securities, subject at all times to the policies and control of the Fund's Board
of Trustees. The Investment Manager shall give the Portfolio the benefit of its
best judgments, efforts and facilities in rendering its services as investment
manager.
2. Duties of Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's operations:
(b) provide the Portfolio or obtain for it, and thereafter supervise,
such executive, administrative, clerical and shareholder servicing services as
are deemed advisable by the Fund's Board of Trustees;
(c) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Portfolio's
shareholders, reports to and filings with the Securities and Exchange
Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a regular basis,
written financial reports and analyses on the Portfolio's securities
transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Portfolio, and whether
concerning the individual issuers whose securities are included in the Portfolio
or the activities in which they engage, or with respect to securities which the
Investment Manager considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be represented in the
Portfolio's portfolio and regularly report them in writing to the Board of
Trustees;
(g) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report in writing thereon
to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which appear to the
Fund necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall
determine the securities to be purchased or sold by the Portfolio pursuant to
its determinations with or through such persons, brokers or dealers, in
conformity with the policy with respect to brokerage as set forth in the Fund's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Investment Manager's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of, execution at the
best net price and in the most effective manner possible. The Investment Manager
may consider sale of the shares of the Portfolio, subject to the requirements of
best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Investment Manager pursuant to this Agreement, as well as any other activities
undertaken by the Investment Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of the
Fund.
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Investment Manager shall at all times
conform to:
(a) all applicable provisions of the Investment Company Act and
Investment Advisers Act and any rules and regulations adopted thereunder, as
amended; and
(b) the provisions of the Registration Statements of the Fund under the
Securities Act of 1933 and the Investment Company Act, including the investment
objectives, policies and restrictions, and permissible investments specified
therein; and
(c) the provisions of the Declaration of Trust of the Fund,as amended;
and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense and without
cost to the Fund, the services of a President, Secretary, and one or more Vice
Presidents of the Fund, to the extent that such additional officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at its expense and
without cost to the Fund, a trading function in order to carry out its
obligations under subparagraphs (f), (g) and (h) of paragraph 2 hereof to place
orders for the purchase and sale of portfolio securities for the Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed to require
the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of
the Fund; including the reviewing of calculations of net asset
value and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the
personnel operating under the direction of such principal
financial officer. Notwithstanding the obligation of the Fund
to bear the expense of the functions referred to in clauses
(i) and (ii) of this subparagraph (c), the Investment Manager
may pay the salaries, including any applicable employment or
payroll taxes and other salary costs, of the principal
financial officer and other personnel carrying out such
functions and the Fund shall reimburse the Investment Manager
therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations of
the Fund and the offering of its shares shall be borne by the Fund unless
specifically provided otherwise in this paragraph 6. These expenses include but
are not limited to brokerage commissions, legal, auditing, taxes or governmental
fees, the cost of preparing share certificates, custodian, depository, transfer
and shareholder service agent costs, expenses of issue, sale, redemption and
repurchase of shares, expenses of registering and qualifying shares for sale,
insurance premiums on property or personnel (including officers and trustees if
available) of the Fund which inure to its benefit, expenses relating to trustee
and shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the Fund in
connection with membership in investment company organizations and the cost of
printing copies of prospectuses and statements of additional information
distributed to shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Trustees, the Investment Manager may perform services on behalf of the Fund
which are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Investment Manager's cost in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment Manager may
engage, subject to approval of the Fund's Board of Trustees, and where required,
the shareholders of the Portfolio, a sub-advisor to provide advisory services in
relation to the Portfolio. Under such sub-advisory agreement, the Investment
Manager may delegate to the sub-advisor the duties outlined in subparagraphs
(e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in full
compensation for services rendered hereunder an annual investment advisory
fee, payable monthly, of 1.00% of the average daily net assets of the
Portfolio.
10. Non-Exclusivity. The services of the Investment Manager to the Portfolio are
not to be deemed to be exclusive, and the Investment Manager shall be free to
render investment advisory and corporate administrative or other services to
others (including other investment companies) and to engage in other activities.
It is understood and agreed that officers or directors of the Investment Manager
may serve as officers or trustees of the Fund, and that officers or trustees of
the Fund may serve as officers or directors of the Investment Manager to the
extent permitted by law; and that the officers and directors of the Investment
Manager are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers or
directors of any other firm or corporation, including other investment
companies.
11. Term and Approval. This Agreement shall become effective on
December 30, 1996 and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of a
majority of the Portfolio's outstanding voting securities (as defined in Section
2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this Agreement
(other than as Fund trustees), by votes cast in person at a meeting specifically
called for such purpose.
12. Termination. This Agreement may be terminated at any time without the
payment of any penalty or prejudice to the completion of any transactions
already initiated on behalf of the Portfolio, by vote of the Fund's Board of
Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
13. Liability of Investment Manager and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Investment Manager or any of
its officers, trustees or employees, it shall not be subject to liability to the
Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
14. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
15. Notices. Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice,
it is agreed that the address of the Fund shall be 126 High Street, Boston,
Massachusetts, 02110, and the address of the Investment Manager shall be One
Corporate Drive, Shelton, Connecticut 06484.
16. Questions of Interpretation. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment Company Act, shall be resolved by reference
to such term or provision of the Act and to interpretations thereof, if any, by
the United States Courts or in the absence of any controlling decision of any
such court, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said Act. In addition, where the effect of a
requirement of the Investment Company Act, reflected in any provision of this
Agreement is released by rules, regulation or order of the Securities and
Exchange Commission, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
AMERICAN SKANDIA TRUST
Attest: By: _______________________________________
Gordon C. Boronow
______________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By: _______________________________________
Thomas M. Mazzaferro
______________________ President & Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(q) Investment Management Agreement between
Registrant and American Skandia Investment
Services, Incorporated for the T. Rowe Price
Small Company Value Portfolio.
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 30th day of December, 1996 by and between American
Skandia Trust, a Massachusetts business trust (the "Fund"), and American Skandia
Investment Services, Incorporated, a Connecticut corporation (the "Investment
Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations promulgated thereunder;
and
WHEREAS, the Investment Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into an agreement
to provide for the management of the assets of the T. Rowe Price Small Company
Value Portfolio (the "Portfolio") on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment manager for the
Portfolio and shall, in such capacity, manage the investment operations of the
Portfolio, including the purchase, retention, disposition and lending of
securities, subject at all times to the policies and control of the Fund's Board
of Trustees. The Investment Manager shall give the Portfolio the benefit of its
best judgments, efforts and facilities in rendering its services as investment
manager.
2. Duties of Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's operations:
(b) provide the Portfolio or obtain for it, and thereafter supervise,
such executive, administrative, clerical and shareholder servicing services as
are deemed advisable by the Fund's Board of Trustees;
(c) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Portfolio's
shareholders, reports to and filings with the Securities and Exchange
Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a regular basis,
written financial reports and analyses on the Portfolio's securities
transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Portfolio, and whether
concerning the individual issuers whose securities are included in the Portfolio
or the activities in which they engage, or with respect to securities which the
Investment Manager considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be represented in the
Portfolio's portfolio and regularly report them in writing to the Board of
Trustees;
(g) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report in writing thereon
to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which appear to the
Fund necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall
determine the securities to be purchased or sold by the Portfolio pursuant to
its determinations with or through such persons, brokers or dealers, in
conformity with the policy with respect to brokerage as set forth in the Fund's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Investment Manager's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of, execution at the
best net price and in the most effective manner possible. The Investment Manager
may consider sale of the shares of the Portfolio, subject to the requirements of
best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Investment Manager pursuant to this Agreement, as well as any other activities
undertaken by the Investment Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of the
Fund.
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Investment Manager shall at all times
conform to:
(a) all applicable provisions of the Investment Company Act and
Investment Advisers Act and any rules and regulations adopted thereunder, as
amended; and
(b) the provisions of the Registration Statements of the Fund under the
Securities Act of 1933 and the Investment Company Act, including the investment
objectives, policies and restrictions, and permissible investments specified
therein; and
(c) the provisions of the Declaration of Trust of the Fund, as
amended; and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense and without
cost to the Fund, the services of a President, Secretary, and one or more Vice
Presidents of the Fund, to the extent that such additional officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at its expense and
without cost to the Fund, a trading function in order to carry out its
obligations under subparagraphs (f), (g) and (h) of paragraph 2 hereof to place
orders for the purchase and sale of portfolio securities for the Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed to require
the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of
the Fund; including the reviewing of calculations of net asset
value and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the
personnel operating under the direction of such principal
financial officer. Notwithstanding the obligation of the Fund
to bear the expense of the functions referred to in clauses
(i) and (ii) of this subparagraph (c), the Investment Manager
may pay the salaries, including any applicable employment or
payroll taxes and other salary costs, of the principal
financial officer and other personnel carrying out such
functions and the Fund shall reimburse the Investment Manager
therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations of
the Fund and the offering of its shares shall be borne by the Fund unless
specifically provided otherwise in this paragraph 6. These expenses include but
are not limited to brokerage commissions, legal, auditing, taxes or governmental
fees, the cost of preparing share certificates, custodian, depository, transfer
and shareholder service agent costs, expenses of issue, sale, redemption and
repurchase of shares, expenses of registering and qualifying shares for sale,
insurance premiums on property or personnel (including officers and trustees if
available) of the Fund which inure to its benefit, expenses relating to trustee
and shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the Fund in
connection with membership in investment company organizations and the cost of
printing copies of prospectuses and statements of additional information
distributed to shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Trustees, the Investment Manager may perform services on behalf of the Fund
which are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Investment Manager's cost in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment Manager may
engage, subject to approval of the Fund's Board of Trustees, and where required,
the shareholders of the Portfolio, a sub-advisor to provide advisory services in
relation to the Portfolio. Under such sub-advisory agreement, the Investment
Manager may delegate to the sub-advisor the duties outlined in subparagraphs
(e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in full
compensation for services rendered hereunder an annual investment advisory
fee, payable monthly, of .90% of the average daily net assets of the
Portfolio.
10. Non-Exclusivity. The services of the Investment Manager to the Portfolio are
not to be deemed to be exclusive, and the Investment Manager shall be free to
render investment advisory and corporate administrative or other services to
others (including other investment companies) and to engage in other activities.
It is understood and agreed that officers or directors of the Investment Manager
may serve as officers or trustees of the Fund, and that officers or trustees of
the Fund may serve as officers or directors of the Investment Manager to the
extent permitted by law; and that the officers and directors of the Investment
Manager are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers or
directors of any other firm or corporation, including other investment
companies.
11. Term and Approval. This Agreement shall become effective on
December 30, 1996 and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of a
majority of the Portfolio's outstanding voting securities (as defined in Section
2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this Agreement
(other than as Fund trustees), by votes cast in person at a meeting specifically
called for such purpose.
12. Termination. This Agreement may be terminated at any time without the
payment of any penalty or prejudice to the completion of any transactions
already initiated on behalf of the Portfolio, by vote of the Fund's Board of
Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
13. Liability of Investment Manager and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Investment Manager or any of
its officers, trustees or employees, it shall not be subject to liability to the
Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
14. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
15. Notices. Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice,
it is agreed that the address of the Fund shall be 126 High Street, Boston,
Massachusetts, 02110, and the address of the Investment Manager shall be One
Corporate Drive, Shelton, Connecticut 06484.
16. Questions of Interpretation. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment Company Act, shall be resolved by reference
to such term or provision of the Act and to interpretations thereof, if any, by
the United States Courts or in the absence of any controlling decision of any
such court, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said Act. In addition, where the effect of a
requirement of the Investment Company Act, reflected in any provision of this
Agreement is released by rules, regulation or order of the Securities and
Exchange Commission, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
AMERICAN SKANDIA TRUST
Attest: By: _______________________________________
Gordon C. Boronow
__________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By: _______________________________________
Thomas M. Mazzaferro
__________________________________ President & Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(r) Investment Management Agreement between
Registrant and American Skandia Investment
Services, Incorporated for the Founders
Passport Portfolio.
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 15th day of October, 1996 by and
between American Skandia Trust, a Massachusetts business trust (the "Fund"), and
American Skandia Investment Services, Incorporated, a Connecticut corporation
(the "Investment Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations
promulgated thereunder; and
WHEREAS, the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into
an agreement to provide for the management of the assets of the Founders
Passport Portfolio (the "Portfolio") on the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment
manager for the Portfolio and shall, in such capacity, manage the investment
operations of the Portfolio, including the purchase, retention, disposition and
lending of securities, subject at all times to the policies and control of the
Fund's Board of Trustees. The Investment Manager shall give the Portfolio the
benefit of its best judgments, efforts and facilities in rendering its services
as investment manager.
2. Duties of Investment Manager. In carrying out its
obligation under paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's
operations:
(b) provide the Portfolio or obtain for it, and
thereafter supervise, such executive, administrative, clerical and
shareholder servicing services as are deemed advisable by the Fund's Board of
Trustees;
(c) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Portfolio's shareholders, reports to and filings with the Securities and
Exchange Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a
regular basis, written financial reports and analyses on the Portfolio's
securities transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or
the Portfolio, and whether concerning the individual issuers whose
securities are included in the Portfolio or the activities in which they
engage, or with respect to securities which the Investment Manager
considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be
represented in the Portfolio's portfolio and regularly report them in writing
to the Board of Trustees;
(g) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and regularly report
in writing thereon to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which
appear to the Fund necessary to carry into effect such purchase and sale
programs and supervisory functions as aforesaid, including the placing of
orders for the purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is
responsible for decisions to buy and sell securities for the Portfolio,
broker-dealer selection, and negotiation of its brokerage commission rates. The
Investment Manager shall determine the securities to be purchased or sold by the
Portfolio pursuant to its determinations with or through such persons, brokers
or dealers, in conformity with the policy with respect to brokerage as set forth
in the Fund's Prospectus and Statement of Additional Information, or as the
Board of Trustees may determine from time to time. Generally, the Investment
Manager's primary consideration in placing Portfolio securities transactions
with broker-dealers for execution is to obtain and maintain the availability of,
execution at the best net price and in the most effective manner possible. The
Investment Manager may consider sale of the shares of the Portfolio, subject to
the requirements of best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program
undertaken by the Investment Manager pursuant to this Agreement, as well as any
other activities undertaken by the Investment Manager on behalf of the Fund
pursuant thereto, shall at all times be subject to any directives of the Board
of Trustees of the Fund.
5. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Investment Manager shall at all times
conform to:
(a) all applicable provisions of the Investment Company
Act and Investment Advisers Act and any rules and regulations adopted
thereunder, as amended; and
(b) the provisions of the Registration Statements of the
Fund under the Securities Act of 1933 and the Investment Company Act, including
the investment objectives, policies and restrictions, and permissible
investments specified therein; and
(c) the provisions of the Declaration of Trust of the
Fund, as amended; and
(d) the provisions of the By-laws of the Fund, as
amended; and
(e) any other applicable provisions of state and federal
law.
6. Expenses. The expenses connected with the Fund shall
be allocable between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense
and without cost to the Fund, the services of a President, Secretary, and one
or more Vice Presidents of the Fund, to the extent that such additional
officers may be required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at
its expense and without cost to the Fund, a trading function in order to carry
out its obligations under subparagraphs (f), (g) and (h) of paragraph 2 hereof
to place orders for the purchase and sale of portfolio securities for the
Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed
to require the Investment Manager to bear:
(i) any of the costs(including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of the
Fund; including the reviewing of calculations of net asset value
and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the personnel
operating under the direction of such principal financial
officer. Notwithstanding the obligation of the Fund to bear the
expense of the functions referred to in clauses (i) and (ii) of
this subparagraph (c), the Investment Manager may pay the
salaries, including any applicable employment or payroll taxes
and other salary costs, of the principal financial officer and
other personnel carrying out such functions and the Fund shall
reimburse the Investment Manager therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the
operations of the Fund and the offering of its shares shall be borne by the
Fund unless specifically provided otherwise in this paragraph 6. These
expenses include but are not limited to brokerage commissions, legal, auditing,
taxes or governmental fees, the cost of preparing share certificates, custodian
, depository, transfer and shareholder service agent costs, expenses of issue,
sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, insurance premiums on property or personnel
(including officers and trustees if available) of the Fund which inure to its
benefit, expenses relating to trustee and shareholder meetings, the cost of
preparing and distributing reports and notices to shareholders,
the fees and other expenses incurred by the Fund in connection with membership
in investment company organizations and the cost of printing copies of
prospectuses and statements of additional information distributed to
shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's
Board of Trustees, the Investment Manager may perform services on behalf of the
Fund which are not required by this Agreement. Such services will be performed
on behalf of the Fund and the Investment Manager's cost in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment
Manager may engage, subject to approval of the Fund's Board of Trustees, and
where required, the shareholders of the Portfolio, a sub-advisor to provide
advisory services in relation to the Portfolio. Under such sub-advisory
agreement, the Investment Manager may delegate to the sub-advisor the duties
outlined in subparagraphs (e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager
in full compensation for services rendered hereunder an annual investment
advisory fee, payable monthly, of 1.00% of the average daily net assets of the
Portfolio.
10. Expense Limitation. If, for any fiscal year of the Fund, the
total of all ordinary business expenses of the Portfolio, including all
investment advisory and administration fees but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation, would
exceed 1.75% of the average daily net assets of the Portfolio, the Investment
Manager agrees to pay the Fund such excess expenses, and if required to do so
pursuant to such applicable statute or regulatory authority, to pay to the Fund
such excess expenses no later than the last day of the first month of the next
succeeding fiscal year of the Fund. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the Fund's current fiscal year which
shall have elapsed prior to the date hereof and shall include the portion of the
then current fiscal year which shall have elapsed at the date of termination of
this Agreement.
11. Non-Exclusivity. The services of the Investment Manager to
the Portfolio are not to be deemed to be exclusive, and the Investment Manager
shall be free to render investment advisory and corporate administrative or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that officers or directors of the
Investment Manager may serve as officers or trustees of the Fund, and that
officers or trustees of the Fund may serve as officers or directors of the
Investment Manager to the extent permitted by law; and that the officers and
directors of the Investment Manager are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
12. Term and Approval. This Agreement shall become effective on
October 15, 1996 and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the fund's Board of Trustees or (ii) by the
vote of a majority of the Portfolio's outstanding voting securities (as
defined in Section 2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees
who are not parties to this Agreement or interested persons of a party to this
Agreement (other than as Fund trustees), by votes cast in person at a meeting
specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time
without the payment of any penalty or prejudice to the completion of any
transactions already initiated on behalf of the Portfolio, by vote of the Fund's
Board of Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
14. Liability of Investment Manager and Indemnification. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Investment
Manager or any of its officers, trustees or employees, it shall not be subject
to liability to the Fund or to any shareholder of the Portfolio for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
15. Liability of Trustees and Shareholders. A copy of the
Agreement and Declaration of Trust of the Fund is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice, it is agreed that the address of the Fund shall be 126
High Street, Boston, Massachusetts, 02110, and the address of the Investment
Manager shall be One Corporate Drive, Shelton, Connecticut 06484.
17. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Investment Company Act, shall be
resolved by reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Investment Company Act,
reflected in any provision of this Agreement is released by rules, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers on the day and year
first above written.
AMERICAN SKANDIA TRUST
Attest: By___________________________________
Gordon C. Boronow
___________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By___________________________________
Thomas M. Mazzaferro
___________________________________ President & Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(s) Investment Management Agreement between
Registrant and American Skandia Investment
Services, Incorporated for the Twentieth
Century International Growth Portfolio.
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 30th day of December, 1996 by and between American
Skandia Trust, a Massachusetts business trust (the "Fund"), and American Skandia
Investment Services, Incorporated, a Connecticut corporation (the "Investment
Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations promulgated thereunder;
and
WHEREAS, the Investment Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into an agreement
to provide for the management of the assets of the Twentieth Century
International Growth Portfolio (the "Portfolio") on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment manager for the
Portfolio and shall, in such capacity, manage the investment operations of the
Portfolio, including the purchase, retention, disposition and lending of
securities, subject at all times to the policies and control of the Fund's Board
of Trustees. The Investment Manager shall give the Portfolio the benefit of its
best judgments, efforts and facilities in rendering its services as investment
manager.
2. Duties of Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's operations:
(b) provide the Portfolio or obtain for it, and thereafter supervise,
such executive, administrative, clerical and shareholder servicing services as
are deemed advisable by the Fund's Board of Trustees;
(c) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Portfolio's
shareholders, reports to and filings with the Securities and Exchange
Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a regular basis,
written financial reports and analyses on the Portfolio's securities
transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Portfolio, and whether
concerning the individual issuers whose securities are included in the Portfolio
or the activities in which they engage, or with respect to securities which the
Investment Manager considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be represented in the
Portfolio's portfolio and regularly report them in writing to the Board of
Trustees;
(g) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report in writing thereon
to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which appear to the
Fund necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall
determine the securities to be purchased or sold by the Portfolio pursuant to
its determinations with or through such persons, brokers or dealers, in
conformity with the policy with respect to brokerage as set forth in the Fund's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Investment Manager's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of, execution at the
best net price and in the most effective manner possible. The Investment Manager
may consider sale of the shares of the Portfolio, subject to the requirements of
best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Investment Manager pursuant to this Agreement, as well as any other activities
undertaken by the Investment Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of the
Fund.
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Investment Manager shall at all times
conform to:
(a) all applicable provisions of the Investment Company Act and
Investment Advisers Act and any rules and regulations adopted thereunder, as
amended; and
(b) the provisions of the Registration Statements of the Fund under the
Securities Act of 1933 and the Investment Company Act, including the investment
objectives, policies and restrictions, and permissible investments specified
therein; and
(c) the provisions of the Declaration of Trust of the Fund, as
amended; and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense and without
cost to the Fund, the services of a President, Secretary, and one or more Vice
Presidents of the Fund, to the extent that such additional officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at its expense and
without cost to the Fund, a trading function in order to carry out its
obligations under subparagraphs (f), (g) and (h) of paragraph 2 hereof to place
orders for the purchase and sale of portfolio securities for the Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed to require
the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of
the Fund; including the reviewing of calculations of net asset
value and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the
personnel operating under the direction of such principal
financial officer. Notwithstanding the obligation of the Fund
to bear the expense of the functions referred to in clauses
(i) and (ii) of this subparagraph (c), the Investment Manager
may pay the salaries, including any applicable employment or
payroll taxes and other salary costs, of the principal
financial officer and other personnel carrying out such
functions and the Fund shall reimburse the Investment Manager
therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations of
the Fund and the offering of its shares shall be borne by the Fund unless
specifically provided otherwise in this paragraph 6. These expenses include but
are not limited to brokerage commissions, legal, auditing, taxes or governmental
fees, the cost of preparing share certificates, custodian, depository, transfer
and shareholder service agent costs, expenses of issue, sale, redemption and
repurchase of shares, expenses of registering and qualifying shares for sale,
insurance premiums on property or personnel (including officers and trustees if
available) of the Fund which inure to its benefit, expenses relating to trustee
and shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the Fund in
connection with membership in investment company organizations and the cost of
printing copies of prospectuses and statements of additional information
distributed to shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Trustees, the Investment Manager may perform services on behalf of the Fund
which are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Investment Manager's cost in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment Manager may
engage, subject to approval of the Fund's Board of Trustees, and where required,
the shareholders of the Portfolio, a sub-advisor to provide advisory services in
relation to the Portfolio. Under such sub-advisory agreement, the Investment
Manager may delegate to the sub-advisor the duties outlined in subparagraphs
(e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in full
compensation for services rendered hereunder an annual investment advisory
fee, payable monthly, of 1.00% of the average daily net assets of the
Portfolio.
10. Non-Exclusivity. The services of the Investment Manager to the Portfolio are
not to be deemed to be exclusive, and the Investment Manager shall be free to
render investment advisory and corporate administrative or other services to
others (including other investment companies) and to engage in other activities.
It is understood and agreed that officers or directors of the Investment Manager
may serve as officers or trustees of the Fund, and that officers or trustees of
the Fund may serve as officers or directors of the Investment Manager to the
extent permitted by law; and that the officers and directors of the Investment
Manager are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers or
directors of any other firm or corporation, including other investment
companies.
11. Term and Approval. This Agreement shall become effective on
December 30, 1996 and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of a
majority of the Portfolio's outstanding voting securities (as defined in Section
2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this Agreement
(other than as Fund trustees), by votes cast in person at a meeting specifically
called for such purpose.
12. Termination. This Agreement may be terminated at any time without the
payment of any penalty or prejudice to the completion of any transactions
already initiated on behalf of the Portfolio, by vote of the Fund's Board of
Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
13. Liability of Investment Manager and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Investment Manager or any of
its officers, trustees or employees, it shall not be subject to liability to the
Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
14. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
15. Notices. Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice,
it is agreed that the address of the Fund shall be 126 High Street, Boston,
Massachusetts, 02110, and the address of the Investment Manager shall be One
Corporate Drive, Shelton, Connecticut 06484.
16. Questions of Interpretation. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment Company Act, shall be resolved by reference
to such term or provision of the Act and to interpretations thereof, if any, by
the United States Courts or in the absence of any controlling decision of any
such court, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said Act. In addition, where the effect of a
requirement of the Investment Company Act, reflected in any provision of this
Agreement is released by rules, regulation or order of the Securities and
Exchange Commission, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
AMERICAN SKANDIA TRUST
Attest: By: _______________________________________
Gordon C. Boronow
_______________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By: _______________________________________
Thomas M. Mazzaferro
_______________________________ President & Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(t) Investment Management Agreement between
Registrant and American Skandia Investment
Services, Incorporated for the Twentieth
Century Strategic Balanced Portfolio.
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 30th day of December, 1996 by and between American
Skandia Trust, a Massachusetts business trust (the "Fund"), and American Skandia
Investment Services, Incorporated, a Connecticut corporation (the "Investment
Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations promulgated thereunder;
and
WHEREAS, the Investment Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into an agreement
to provide for the management of the assets of the Twentieth Century Strategic
Balanced Portfolio (the "Portfolio") on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment manager for the
Portfolio and shall, in such capacity, manage the investment operations of the
Portfolio, including the purchase, retention, disposition and lending of
securities, subject at all times to the policies and control of the Fund's Board
of Trustees. The Investment Manager shall give the Portfolio the benefit of its
best judgments, efforts and facilities in rendering its services as investment
manager.
2. Duties of Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's operations:
(b) provide the Portfolio or obtain for it, and thereafter supervise,
such executive, administrative, clerical and shareholder servicing services as
are deemed advisable by the Fund's Board of Trustees;
(c) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Portfolio's
shareholders, reports to and filings with the Securities and Exchange
Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a regular basis,
written financial reports and analyses on the Portfolio's securities
transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Portfolio, and whether
concerning the individual issuers whose securities are included in the Portfolio
or the activities in which they engage, or with respect to securities which the
Investment Manager considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be represented in the
Portfolio's portfolio and regularly report them in writing to the Board of
Trustees;
(g) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report in writing thereon
to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which appear to the
Fund necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall
determine the securities to be purchased or sold by the Portfolio pursuant to
its determinations with or through such persons, brokers or dealers, in
conformity with the policy with respect to brokerage as set forth in the Fund's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Investment Manager's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of, execution at the
best net price and in the most effective manner possible. The Investment Manager
may consider sale of the shares of the Portfolio, subject to the requirements of
best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Investment Manager pursuant to this Agreement, as well as any other activities
undertaken by the Investment Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of the
Fund.
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Investment Manager shall at all times
conform to:
(a) all applicable provisions of the Investment Company Act and
Investment Advisers Act and any rules and regulations adopted thereunder,
as amended; and
(b) the provisions of the Registration Statements of the Fund under the
Securities Act of 1933 and the Investment Company Act, including the investment
objectives, policies and restrictions, and permissible investments specified
therein; and
(c) the provisions of the Declaration of Trust of the Fund, as
amended; and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense and without
cost to the Fund, the services of a President, Secretary, and one or more Vice
Presidents of the Fund, to the extent that such additional officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at its expense and
without cost to the Fund, a trading function in order to carry out its
obligations under subparagraphs (f), (g) and (h) of paragraph 2 hereof to place
orders for the purchase and sale of portfolio securities for the Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed to require
the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of
the Fund; including the reviewing of calculations of net asset
value and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the
personnel operating under the direction of such principal
financial officer. Notwithstanding the obligation of the Fund
to bear the expense of the functions referred to in clauses
(i) and (ii) of this subparagraph (c), the Investment Manager
may pay the salaries, including any applicable employment or
payroll taxes and other salary costs, of the principal
financial officer and other personnel carrying out such
functions and the Fund shall reimburse the Investment Manager
therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations of
the Fund and the offering of its shares shall be borne by the Fund unless
specifically provided otherwise in this paragraph 6. These expenses include but
are not limited to brokerage commissions, legal, auditing, taxes or governmental
fees, the cost of preparing share certificates, custodian, depository, transfer
and shareholder service agent costs, expenses of issue, sale, redemption and
repurchase of shares, expenses of registering and qualifying shares for sale,
insurance premiums on property or personnel (including officers and trustees if
available) of the Fund which inure to its benefit, expenses relating to trustee
and shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the Fund in
connection with membership in investment company organizations and the cost of
printing copies of prospectuses and statements of additional information
distributed to shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Trustees, the Investment Manager may perform services on behalf of the Fund
which are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Investment Manager's cost in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment Manager may
engage, subject to approval of the Fund's Board of Trustees, and where required,
the shareholders of the Portfolio, a sub-advisor to provide advisory services in
relation to the Portfolio. Under such sub-advisory agreement, the Investment
Manager may delegate to the sub-advisor the duties outlined in subparagraphs
(e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in full
compensation for services rendered hereunder an annual investment advisory
fee, payable monthly, of .85% of the average daily net assets of the
Portfolio.
10. Non-Exclusivity. The services of the Investment Manager to the Portfolio are
not to be deemed to be exclusive, and the Investment Manager shall be free to
render investment advisory and corporate administrative or other services to
others (including other investment companies) and to engage in other activities.
It is understood and agreed that officers or directors of the Investment Manager
may serve as officers or trustees of the Fund, and that officers or trustees of
the Fund may serve as officers or directors of the Investment Manager to the
extent permitted by law; and that the officers and directors of the Investment
Manager are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers or
directors of any other firm or corporation, including other investment
companies.
11. Term and Approval. This Agreement shall become effective on
December 30, 1996 and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of a
majority of the Portfolio's outstanding voting securities (as defined in Section
2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this Agreement
(other than as Fund trustees), by votes cast in person at a meeting specifically
called for such purpose.
12. Termination. This Agreement may be terminated at any time without the
payment of any penalty or prejudice to the completion of any transactions
already initiated on behalf of the Portfolio, by vote of the Fund's Board of
Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
13. Liability of Investment Manager and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Investment Manager or any of
its officers, trustees or employees, it shall not be subject to liability to the
Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
14. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
15. Notices. Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice,
it is agreed that the address of the Fund shall be 126 High Street, Boston,
Massachusetts, 02110, and the address of the Investment Manager shall be One
Corporate Drive, Shelton, Connecticut 06484.
16. Questions of Interpretation. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment Company Act, shall be resolved by reference
to such term or provision of the Act and to interpretations thereof, if any, by
the United States Courts or in the absence of any controlling decision of any
such court, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said Act. In addition, where the effect of a
requirement of the Investment Company Act, reflected in any provision of this
Agreement is released by rules, regulation or order of the Securities and
Exchange Commission, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
AMERICAN SKANDIA TRUST
Attest: By: _______________________________________
Gordon C. Boronow
__________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By: _______________________________________
Thomas M. Mazzaferro
__________________________________ President & Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(u) Investment Management Agreement between
Registrant and American Skandia Investment
Services, Incorporated for the AST Putnam
Value Growth & Income Portfolio.
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 30th day of December, 1996 by and between American
Skandia Trust, a Massachusetts business trust (the "Fund"), and American Skandia
Investment Services, Incorporated, a Connecticut corporation (the "Investment
Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations promulgated thereunder;
and
WHEREAS, the Investment Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into an agreement
to provide for the management of the assets of the AST Putnam Value Growth &
Income Portfolio (the "Portfolio") on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment manager for the
Portfolio and shall, in such capacity, manage the investment operations of the
Portfolio, including the purchase, retention, disposition and lending of
securities, subject at all times to the policies and control of the Fund's Board
of Trustees. The Investment Manager shall give the Portfolio the benefit of its
best judgments, efforts and facilities in rendering its services as investment
manager.
2. Duties of Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's operations:
(b) provide the Portfolio or obtain for it, and thereafter supervise,
such executive, administrative, clerical and shareholder servicing services as
are deemed advisable by the Fund's Board of Trustees;
(c) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Portfolio's
shareholders, reports to and filings with the Securities and Exchange
Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a regular basis,
written financial reports and analyses on the Portfolio's securities
transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Portfolio, and whether
concerning the individual issuers whose securities are included in the Portfolio
or the activities in which they engage, or with respect to securities which the
Investment Manager considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be represented in the
Portfolio's portfolio and regularly report them in writing to the Board of
Trustees;
(g) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report in writing thereon
to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which appear to the
Fund necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall
determine the securities to be purchased or sold by the Portfolio pursuant to
its determinations with or through such persons, brokers or dealers, in
conformity with the policy with respect to brokerage as set forth in the Fund's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Investment Manager's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of, execution at the
best net price and in the most effective manner possible. The Investment Manager
may consider sale of the shares of the Portfolio, subject to the requirements of
best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Investment Manager pursuant to this Agreement, as well as any other activities
undertaken by the Investment Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of the
Fund.
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Investment Manager shall at all times
conform to:
(a) all applicable provisions of the Investment Company Act and
Investment Advisers Act and any rules and regulations adopted thereunder,
as amended; and
(b) the provisions of the Registration Statements of the Fund under the
Securities Act of 1933 and the Investment Company Act, including the investment
objectives, policies and restrictions, and permissible investments specified
therein; and
(c) the provisions of the Declaration of Trust of the Fund, as
amended; and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense and without
cost to the Fund, the services of a President, Secretary, and one or more Vice
Presidents of the Fund, to the extent that such additional officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at its expense and
without cost to the Fund, a trading function in order to carry out its
obligations under subparagraphs (f), (g) and (h) of paragraph 2 hereof to place
orders for the purchase and sale of portfolio securities for the Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed to require
the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of
the Fund; including the reviewing of calculations of net asset
value and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the
personnel operating under the direction of such principal
financial officer. Notwithstanding the obligation of the Fund
to bear the expense of the functions referred to in clauses
(i) and (ii) of this subparagraph (c), the Investment Manager
may pay the salaries, including any applicable employment or
payroll taxes and other salary costs, of the principal
financial officer and other personnel carrying out such
functions and the Fund shall reimburse the Investment Manager
therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations of
the Fund and the offering of its shares shall be borne by the Fund unless
specifically provided otherwise in this paragraph 6. These expenses include but
are not limited to brokerage commissions, legal, auditing, taxes or governmental
fees, the cost of preparing share certificates, custodian, depository, transfer
and shareholder service agent costs, expenses of issue, sale, redemption and
repurchase of shares, expenses of registering and qualifying shares for sale,
insurance premiums on property or personnel (including officers and trustees if
available) of the Fund which inure to its benefit, expenses relating to trustee
and shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the Fund in
connection with membership in investment company organizations and the cost of
printing copies of prospectuses and statements of additional information
distributed to shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Trustees, the Investment Manager may perform services on behalf of the Fund
which are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Investment Manager's cost in rendering such services
may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment Manager may
engage, subject to approval of the Fund's Board of Trustees, and where required,
the shareholders of the Portfolio, a sub-advisor to provide advisory services in
relation to the Portfolio. Under such sub-advisory agreement, the Investment
Manager may delegate to the sub-advisor the duties outlined in subparagraphs
(e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in full
compensation for services rendered hereunder an annual investment advisory
fee, payable monthly, of .75% of the average daily net assets of the
Portfolio.
10. Non-Exclusivity. The services of the Investment Manager to the Portfolio are
not to be deemed to be exclusive, and the Investment Manager shall be free to
render investment advisory and corporate administrative or other services to
others (including other investment companies) and to engage in other activities.
It is understood and agreed that officers or directors of the Investment Manager
may serve as officers or trustees of the Fund, and that officers or trustees of
the Fund may serve as officers or directors of the Investment Manager to the
extent permitted by law; and that the officers and directors of the Investment
Manager are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers or
directors of any other firm or corporation, including other investment
companies.
11. Term and Approval. This Agreement shall become effective on
December 30, 1996 and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of a
majority of the Portfolio's outstanding voting securities (as defined in Section
2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this Agreement
(other than as Fund trustees), by votes cast in person at a meeting specifically
called for such purpose.
12. Termination. This Agreement may be terminated at any time without the
payment of any penalty or prejudice to the completion of any transactions
already initiated on behalf of the Portfolio, by vote of the Fund's Board of
Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
13. Liability of Investment Manager and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Investment Manager or any of
its officers, trustees or employees, it shall not be subject to liability to the
Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
14. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
15. Notices. Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice,
it is agreed that the address of the Fund shall be 126 High Street, Boston,
Massachusetts, 02110, and the address of the Investment Manager shall be One
Corporate Drive, Shelton, Connecticut 06484.
16. Questions of Interpretation. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment Company Act, shall be resolved by reference
to such term or provision of the Act and to interpretations thereof, if any, by
the United States Courts or in the absence of any controlling decision of any
such court, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said Act. In addition, where the effect of a
requirement of the Investment Company Act, reflected in any provision of this
Agreement is released by rules, regulation or order of the Securities and
Exchange Commission, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
AMERICAN SKANDIA TRUST
Attest: By: _______________________________________
Gordon C. Boronow
__________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By: _______________________________________
Thomas M. Mazzaferro
__________________________________ President & Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(v) Investment Management Agreement between
Registrant and American Skandia Investment
Services, Incorporated for the AST Putnam
International Equity Portfolio.
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 15th day of October, 1996 by and
between American Skandia Trust, a Massachusetts business trust (the "Fund"), and
American Skandia Investment Services, Incorporated, a Connecticut corporation
(the "Investment Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations
promulgated thereunder; and
WHEREAS, the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into
an agreement to provide for the management of the assets of the AST Putnam
International Equity Portfolio (the "Portfolio") on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment
manager for the Portfolio and shall, in such capacity, manage the investment
operations of the Portfolio, including the purchase, retention, disposition and
lending of securities, subject at all times to the policies and control of the
Fund's Board of Trustees. The Investment Manager shall give the Portfolio the
benefit of its best judgments, efforts and facilities in rendering its services
as investment manager.
2. Duties of Investment Manager. In carrying out its
obligation under paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's
operations:
(b) provide the Portfolio or obtain for it, and
thereafter supervise, such executive, administrative, clerical and
shareholder servicing services as are deemed advisable by the Fund's Board of
Trustees;
(c) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Portfolio's shareholders, reports to and filings with the Securities and
Exchange Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a
regular basis, written financial reports and analyses on the Portfolio's
securities transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Portfolio, and whether concerning the individual issuers whose
securities are included in the Portfolio or the activities in which they
engage, or with respect to securities which the Investment Manager
considers desirable for inclusion in the Portfolio;
(f) determine what issuers and securities shall be
represented in the Portfolio's portfolio and regularly report them in
writing to the Board of Trustees;
(g) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and regularly report
in writing thereon to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which
appear to the Fund necessary to carry into effect such purchase and sale
programs and supervisory functions as aforesaid, including the placing of
orders for the purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is
responsible for decisions to buy and sell securities for the Portfolio,
broker-dealer selection, and negotiation of its brokerage commission rates. The
Investment Manager shall determine the securities to be purchased or sold by the
Portfolio pursuant to its determinations with or through such persons, brokers
or dealers, in conformity with the policy with respect to brokerage as set forth
in the Fund's Prospectus and Statement of Additional Information, or as the
Board of Trustees may determine from time to time. Generally, the Investment
Manager's primary consideration in placing Portfolio securities transactions
with broker-dealers for execution is to obtain and maintain the availability of,
execution at the best net price and in the most effective manner possible. The
Investment Manager may consider sale of the shares of the Portfolio, subject to
the requirements of best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program
undertaken by the Investment Manager pursuant to this Agreement, as well as any
other activities undertaken by the Investment Manager on behalf of the Fund
pursuant thereto, shall at all times be subject to any directives of the Board
of Trustees of the Fund.
5. Compliance with Applicable Requirements. In carrying
out its obligations under this Agreement, the Investment Manager shall at all
times conform to:
(a) all applicable provisions of the Investment
Company Act and Investment Advisers Act and any rules and regulations adopted
thereunder, as amended; and
(b) the provisions of the Registration Statements of
the Fund under the Securities Act of 1933 and the Investment Company Act,
including the investment objectives, policies and restrictions, and
permissible investments specified therein; and
(c) the provisions of the Declaration of Trust of the
Fund, as amended; and
(d) the provisions of the By-laws of the Fund, as
amended; and
(e) any other applicable provisions of state and federal
law.
6. Expenses. The expenses connected with the Fund
shall be allocable between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense
and without cost to the Fund, the services of a President, Secretary, and one
or more Vice Presidents of the Fund, to the extent that such additional
officers may be required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at
its expense and without cost to the Fund, a trading function in order to carry
out its obligations under subparagraphs (f), (g) and (h) of paragraph 2 hereof
to place orders for the purchase and sale of portfolio securities for the
Portfolio.
(c) Nothing in subparagraph (a) hereof shall be
construed to require the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of the
Fund; including the reviewing of calculations of net asset value
and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the personnel
operating under the direction of such principal financial
officer. Notwithstanding the obligation of the Fund to bear the
expense of the functions referred to in clauses (i) and (ii) of
this subparagraph (c), the Investment Manager may pay the
salaries, including any applicable employment or payroll taxes
and other salary costs, of the principal financial officer and
other personnel carrying out such functions and the Fund shall
reimburse the Investment Manager therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in
the operations of the Fund and the offering of its shares shall be borne by the
Fund unless specifically provided otherwise in this paragraph 6. These
expenses include but are not limited to brokerage commissions, legal,
auditing, taxes or governmental fees, the cost of preparing share certificates,
custodian , depository, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering
and qualifying shares for sale, insurance premiums on property or personnel
(including officers and trustees if available) of the Fund which inure to its
benefit, expenses relating to trustee and shareholder meetings, the cost
of preparing and distributing reports and notices to shareholders, the
fees and other expenses incurred by the Fund in connection with membership
in investment company organizations and the cost of printing copies of
prospectuses and statements of additional information distributed to
shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's
Board of Trustees, the Investment Manager may perform services on behalf of the
Fund which are not required by this Agreement. Such services will be performed
on behalf of the Fund and the Investment Manager's cost in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment
Manager may engage, subject to approval of the Fund's Board of Trustees, and
where required, the shareholders of the Portfolio, a sub-advisor to provide
advisory services in relation to the Portfolio. Under such sub-advisory
agreement, the Investment Manager may delegate to the sub-advisor the duties
outlined in subparagraphs (e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in
full compensation for services rendered hereunder an annual investment advisory
fee, payable monthly, of 1.00% of the average daily net assets of the Portfolio
not in excess of $75 million; plus .85% of the Portfolio's average daily net
assets over $75 million.
10. Expense Limitation. If, for any fiscal year of the Fund, the
total of all ordinary business expenses of the Portfolio, including all
investment advisory and administration fees but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation
("Portfolio Expenses"), would exceed (i) 1.75% on the first $100 million of the
Portfolio's average daily net assets, and (ii) 1.50% with respect to the
Portfolio's average daily net assets over $100 million, the Investment Manager
agrees, if required to do so pursuant to applicable statute or regulatory
authority, to pay to the Fund such excess expenses no later than the last day of
the first month of the next succeeding fiscal year of the Fund; provided that,
in the event the most restrictive expense limits imposed by any statute or
regulatory authority of any jurisdiction in which shares of the Portfolio are
offered for sale is at any time established at a limit higher than 1.75% or no
limit at all, with respect to the Portfolio's average daily net assets over $100
million, the Manager agrees to reimburse the Fund, from that point forward, for
Portfolio Expenses in excess of 1.75% on all of the average daily net assets of
the Portfolio. For the purposes of this paragraph, the term "fiscal year" shall
exclude the portion of the Fund's current fiscal year which shall have elapsed
prior to the date hereof and shall include the portion of the then current
fiscal year which shall have elapsed at the date of termination of this
Agreement.
11. Non-Exclusivity. The services of the Investment Manager to
the Portfolio are not to be deemed to be exclusive, and the Investment Manager
shall be free to render investment advisory and corporate administrative or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that officers or directors of the
Investment Manager may serve as officers or trustees of the Fund, and that
officers or trustees of the Fund may serve as officers or directors of the
Investment Manager to the extent permitted by law; and that the officers and
directors of the Investment Manager are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
12. Term and Approval. This Agreement shall become effective on
October 15, 1996 and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by
the vote of a majority of the Portfolio's outstanding voting securities
(as defined in Section 2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the
trustees who are not parties to this Agreement or interested persons of a
party to this Agreement (other than as Fund trustees), by votes cast in person
at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time
without the payment of any penalty or prejudice to the completion of any
transactions already initiated on behalf of the Portfolio, by vote of the Fund's
Board of Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
14. Liability of Investment Manager and Indemnification. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Investment
Manager or any of its officers, trustees or employees, it shall not be subject
to liability to the Fund or to any shareholder of the Portfolio for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
15. Liability of Trustees and Shareholders. A copy of the
Agreement and Declaration of Trust of the Fund is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice, it is agreed that the address of the Fund shall be 126
High Street, Boston, Massachusetts, 02110, and the address of the Investment
Manager shall be One Corporate Drive, Shelton, Connecticut 06484.
17. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Investment Company Act, shall be
resolved by reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Investment Company Act,
reflected in any provision of this Agreement is released by rules, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers on the day and year
first above written.
AMERICAN SKANDIA TRUST
Attest: By___________________________________
Gordon C. Boronow
___________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By___________________________________
Thomas M. Mazzaferro
___________________________________ President & Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(w) Investment Management Agreement between
Registrant and American Skandia Investment
Services, Incorporated for the AST Putnam
Balanced Portfolio.
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 15th day of October, 1996 by and
between American Skandia Trust, a Massachusetts business trust (the "Fund"), and
American Skandia Investment Services, Incorporated, a Connecticut corporation
(the "Investment Manager");
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations
promulgated thereunder; and
WHEREAS, the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"); and
WHEREAS, the Fund and the Investment Manager desire to enter into
an agreement to provide for the management of the assets of the AST Putnam
Balanced Portfolio (the "Portfolio") on the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Management. The Investment Manager shall act as investment
manager for the Portfolio and shall, in such capacity, manage the investment
operations of the Portfolio, including the purchase, retention, disposition and
lending of securities, subject at all times to the policies and control of the
Fund's Board of Trustees. The Investment Manager shall give the Portfolio the
benefit of its best judgments, efforts and facilities in rendering its services
as investment manager.
2. Duties of Investment Manager. In carrying out its
obligation under paragraph 1 hereof, the Investment Manager shall:
(a) supervise and manage all aspects of the Portfolio's
operations:
(b) provide the Portfolio or obtain for it, and
thereafter supervise, such executive, administrative, clerical and shareholder
servicing services as are deemed advisable by the Fund's Board of Trustees;
(c) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Portfolio's shareholders, reports to and filings with the Securities and
Exchange Commission, state Blue Sky authorities and other applicable regulatory
authorities;
(d) provide to the Board of Trustees of the Fund on a
regular basis, written financial reports and analyses on the Portfolio's
securities transactions and the operations of comparable investment companies;
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or
the Portfolio, and whether concerning the individual issuers whose securities
are included in the Portfolio or the activities in which they engage, or
with respect to securities which the Investment Manager considers desirable
for inclusion in the Portfolio;
(f) determine what issuers and securities shall be
represented in the Portfolio's portfolio and regularly report them in writing
to the Board of Trustees;
(g) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers and regularly report in
writing thereon to the Board of Trustees; and
(h) take, on behalf of the Portfolio, all actions which
appear to the Fund necessary to carry into effect such purchase and sale
programs and supervisory functions as aforesaid, including the placing of orders
for the purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Investment Manager is
responsible for decisions to buy and sell securities for the Portfolio,
broker-dealer selection, and negotiation of its brokerage commission rates. The
Investment Manager shall determine the securities to be purchased or sold by the
Portfolio pursuant to its determinations with or through such persons, brokers
or dealers, in conformity with the policy with respect to brokerage as set forth
in the Fund's Prospectus and Statement of Additional Information, or as the
Board of Trustees may determine from time to time. Generally, the Investment
Manager's primary consideration in placing Portfolio securities transactions
with broker-dealers for execution is to obtain and maintain the availability of,
execution at the best net price and in the most effective manner possible. The
Investment Manager may consider sale of the shares of the Portfolio, subject to
the requirements of best net price and most favorable execution.
Consistent with this policy, the Investment Manager will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Fund may determine, the Investment Manager shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker or dealer that provides research services to the
Investment Manager for the Portfolio's use an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Investment Manager, determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the Investment
Manager's ongoing responsibilities with respect to the Portfolio. The Investment
Manager is further authorized to allocate the orders placed by it on behalf of
the Portfolio to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Manager.
Such allocation shall be in such amounts and proportions as the Investment
Manager shall determine and the Investment Manager will report on said
allocations to the Board of Trustees of the Fund regularly as requested by the
Board and, in any event, at least once each calendar year if no specific request
is made, indicating the brokers to whom such allocations have been made and the
basis therefor.
4. Control by Board of Trustees. Any investment program
undertaken by the Investment Manager pursuant to this Agreement, as well as any
other activities undertaken by the Investment Manager on behalf of the Fund
pursuant thereto, shall at all times be subject to any directives of the Board
of Trustees of the Fund.
5. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Investment Manager shall at all times
conform to:
(a) all applicable provisions of the Investment Company
Act and Investment Advisers Act and any rules and regulations adopted
thereunder, as amended; and
(b) the provisions of the Registration Statements of
the Fund under the Securities Act of 1933 and the Investment Company Act,
including the investment objectives, policies and restrictions, and
permissible investments specified therein; and
(c) the provisions of the Declaration of Trust of the
Fund, as amended; and
(d) the provisions of the By-laws of the Fund, as
amended; and
(e) any other applicable provisions of state and federal
law.
6. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Investment Manager as follows:
(a) The Investment Manager shall furnish, at its expense
and without cost to the Fund, the services of a President, Secretary, and one or
more Vice Presidents of the Fund, to the extent that such additional officers
may be required by the Fund for the proper conduct of its affairs.
(b) The Investment Manager shall further maintain, at
its expense and without cost to the Fund, a trading function in order to carry
out its obligations under subparagraphs (f), (g) and (h) of paragraph 2 hereof
to place orders for the purchase and sale of portfolio securities for the
Portfolio.
(c) Nothing in subparagraph (a) hereof shall be construed
to require the Investment Manager to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Fund whose normal duties consist of
maintaining the financial accounts and books and records of the
Fund; including the reviewing of calculations of net asset value
and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the personnel
operating under the direction of such principal financial
officer. Notwithstanding the obligation of the Fund to bear the
expense of the functions referred to in clauses (i) and (ii) of
this subparagraph (c), the Investment Manager may pay the
salaries, including any applicable employment or payroll taxes
and other salary costs, of the principal financial officer and
other personnel carrying out such functions and the Fund shall
reimburse the Investment Manager therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in
the operations of the Fund and the offering of its shares shall be borne by the
Fund unless specifically provided otherwise in this paragraph 6. These expenses
include but are not limited to brokerage commissions, legal, auditing, taxes or
governmental fees, the cost of preparing share certificates, custodian,
depository, transfer and shareholder service agent costs, expenses of issue,
sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, insurance premiums on property or personnel
(including officers and trustees if available) of the Fund which inure to its
benefit, expenses relating to trustee and shareholder meetings, the cost of
preparing and distributing reports and notices to shareholders, the fees and
other expenses incurred by the Fund in connection with membership in investment
company organizations and the cost of printing copies of prospectuses and
statements of additional information distributed to shareholders.
7. Delegation of Responsibilities. Upon the request of the Fund's
Board of Trustees, the Investment Manager may perform services on behalf of the
Fund which are not required by this Agreement. Such services will be performed
on behalf of the Fund and the Investment Manager's cost in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Investment Manager of any
Fund expense that the Investment Manager is not required to pay or assume under
this Agreement shall not relieve the Investment Manager of any of its
obligations to the Fund nor obligate the Investment Manager to pay or assume any
similar Fund expense on any subsequent occasion.
8. Engagement of Sub-advisors and Broker-Dealers. The Investment
Manager may engage, subject to approval of the Fund's Board of Trustees, and
where required, the shareholders of the Portfolio, a sub-advisor to provide
advisory services in relation to the Portfolio. Under such sub-advisory
agreement, the Investment Manager may delegate to the sub-advisor the duties
outlined in subparagraphs (e), (f), (g) and (h) of paragraph 2 hereof.
9. Compensation. The Fund shall pay the Investment Manager in
full compensation for services rendered hereunder an annual investment advisory
fee, payable monthly, of .75% of the average daily net assets of the Portfolio
not in excess of $300 million; plus .70% of the Portfolio's average daily net
assets in excess of $300 million.
10. Expense Limitation. If, for any fiscal year of the Fund, the
total of all ordinary business expenses of the Portfolio, including all
investment advisory and administration fees but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation, would
exceed 1.25% of the average daily net assets of the Portfolio, the Investment
Manager agrees to pay the Fund such excess expenses, and if required to do so
pursuant to such applicable statute or regulatory authority, to pay to the Fund
such excess expenses no later than the last day of the first month of the next
succeeding fiscal year of the Fund. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the Fund's current fiscal year which
shall have elapsed prior to the date hereof and shall include the portion of the
then current fiscal year which shall have elapsed at the date of termination of
this Agreement.
11. Non-Exclusivity. The services of the Investment Manager to
the Portfolio are not to be deemed to be exclusive, and the Investment Manager
shall be free to render investment advisory and corporate administrative or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that officers or directors of the
Investment Manager may serve as officers or trustees of the Fund, and that
officers or trustees of the Fund may serve as officers or directors of the
Investment Manager to the extent permitted by law; and that the officers and
directors of the Investment Manager are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
12. Term and Approval. This Agreement shall become effective on
October 15, 1996 and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the
vote of a majority of the Portfolio's outstanding voting securities
(as defined in Section 2(a)(42) of the Investment Company Act); and
(b) by the affirmative vote of a majority of the trustees
who are not parties to this Agreement or interested persons of a party to this
Agreement (other than as Fund trustees), by votes cast in person at a meeting
specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time
without the payment of any penalty or prejudice to the completion of any
transactions already initiated on behalf of the Portfolio, by vote of the Fund's
Board of Trustees or by vote of a majority of the Portfolio's outstanding voting
securities, or by the Investment Manager, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either party.
This Agreement automatically terminates in the event of its assignment, the term
"assignment" for the purpose having the meaning defined in Section 2(a)(4) of
the Investment Company Act.
14. Liability of Investment Manager and Indemnification. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Investment
Manager or any of its officers, trustees or employees, it shall not be subject
to liability to the Fund or to any shareholder of the Portfolio for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
15. Liability of Trustees and Shareholders. A copy of the
Agreement and Declaration of Trust of the Fund is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees or shareholders individually but are binding only upon the
assets and property of the Fund. Federal and state laws impose responsibilities
under certain circumstances on persons who act in good faith, and therefore,
nothing herein shall in any way constitute a waiver of limitation of any rights
which the Fund or Investment Manager may have under applicable law.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice, it is agreed that the address of the Fund shall be 126
High Street, Boston, Massachusetts, 02110, and the address of the Investment
Manager shall be One Corporate Drive, Shelton, Connecticut 06484.
17. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Investment Company Act, shall be
resolved by reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Investment Company Act,
reflected in any provision of this Agreement is released by rules, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers on the day and year
first above written.
AMERICAN SKANDIA TRUST
Attest: By: ___________________________________
Gordon C. Boronow
___________________________________ Vice President
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
Attest: By: ___________________________________
Thomas M. Mazzaferro
___________________________________ President & Chief Operating Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(mm) Sub-Advisory Agreement between American
Skandia Investment Services, Incorporated and
Janus Capital Corporation for the AST Janus
Overseas Growth Portfolio.
</TABLE>
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services, Incorporated
(the "Investment Manager") and Janus Capital Corporation (the "Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the AST Janus Overseas Growth Portfolio
(the "Portfolio") under the terms of a management agreement, dated December 30,
1996, with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with the Trust's Declaration of Trust and By-laws. Officers,
directors, and employees of Sub-Advisor will be available upon reasonable
request to consult with Investment Manager and the Trust, their officers,
employees and Trustees concerning the business of the Trust. Investment Manager
will promptly furnish Sub-Advisor with any amendments to any of the foregoing
documents (the "Documents") before filing with the Securities and Exchange
Commission, if applicable. Any amendments to the Documents will not be deemed
effective with respect to the Sub-Advisor until the Sub-Advisor's receipt
thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal.
The Sub-Advisor will obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, affecting the Portfolio and concerning the individual
issuers whose securities are included in the Portfolio or the activities in
which they engage, or with respect to securities which the Sub-Advisor considers
desirable for inclusion in the Portfolio.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and provided to the Sub-Advisor by the
Investment Manager, and represents and warrants that any disclosure about the
Sub-Advisor or information relating to the Sub-Advisor's activities in
connection with the investment program for the Portfolio, as provided to the
Investment Manager by the Sub-Advisor or as expressly approved by the
Sub-Advisor, incorporated in such Registration Statement or Proxy Statement
contains, as of the date thereof, no untrue statement of any material fact and
does not omit any statement of material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
The Sub-Advisor further represents and warrants that it is an investment advisor
registered under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and under the laws of all jurisdictions in which the conduct of its
business hereunder requires such registration.
Sub-Advisor shall use its best judgment, effort, and advice in
rendering services under this Agreement.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapters L and M (including,
respectively, Section 817(h) and Section 851(b)(1), (2), (3) and (4)) of the
Internal Revenue Code, applicable to the Portfolio, and the regulations
promulgated thereunder. The Sub-Advisor shall comply with (i) other applicable
provisions of state or federal law; (ii) the provision of the Declaration of
Trust and By-laws of the Trust; (iii) policies and determinations of the Trust
and Investment Manager communicated to the Sub-Advisor in writing; (iv) the
fundamental policies and investment restrictions of the Trust, as set out in the
Trust's registration statement under the ICA, or as amended by the Trust's
shareholders; (v) the Prospectus and Statement of Additional Information of the
Trust; and (vi) investment guidelines or other instructions received in writing
from Investment Manager. Notwithstanding the above, the Sub-Advisor shall have
no responsibility to monitor compliance with limitations or restrictions for
which it has not received sufficient information from the Investment Manager or
its authorized agents to enable the Sub-Advisor to monitor compliance with such
limitations or restrictions. Sub-Advisor shall supervise and monitor the
activities of its representatives, personnel and agents in connection with the
investment program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which the Sub-Advisor does
not provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
The Sub-Advisor shall be responsible for the preparation and filing of
Schedule 13-G and Form 13-F on behalf of the Portfolio. The Sub-Advisor shall
not be responsible for the preparation or filing of any other reports required
of the Portfolio by any governmental or regulatory agency, except as expressly
agreed to in writing.
2. Delivery of Documents to the Sub-Advisor. The Investment Manager
has furnished the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date
hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Sub-Advisor as Sub-Advisor to
the Investment Manager and approving the form of this agreement;
(d) The resolutions of the Trustees selecting the Investment
Manager as investment manager to the Trust and approving the
form of the Investment Manager's Management Agreement with the
Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager as
currently in effect; and
(g) A list of companies the securities of which are not to be
bought or sold for the Portfolio because of non-public
information regarding such companies that is available to
Investment Manager or the Trust, or which, in the sole opinion
of the Investment Manager, it believes such non-public
information would be deemed to be available to Investment
Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager. The Investment Manager shall promptly furnish the
Sub-Advisor with additional information as may be reasonably necessary for, or
reasonably requested by, the Sub-Advisor to perform its responsibilities
pursuant to this Agreement.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor has
furnished the Investment Manager with copies of each of the following documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to have
authorized to give written and/or oral instructions to Custodians
of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will furnish the Investment Manager from time to time
with copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to the foregoing, if any. Such amendments or
supplements as to items (a) through (d) above will be provided within 30 days of
the time such materials became available to the Sub-Advisor.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense,
will furnish all necessary investment facilities, including salaries of
personnel required for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. The Sub-Advisor is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. The Investment Manager shall,
to the extent necessary and within its control, assist in the establishment and
maintenance of brokerage accounts and other accounts the Sub-Advisor deems
advisable to allow for the purchase or sale of securities for the Portfolio
pursuant to this Agreement. Sub-Advisor shall determine the securities to be
purchased or sold by the Portfolio pursuant to its determinations with or
through such persons, brokers or dealers, including, to the extent permissible
under applicable law, brokers or dealers affiliated with the Sub-Advisor, in
conformity with the policy with respect to brokerage as set forth in the Trust's
Prospectus and Statement of Additional Information, or as the Board of Trustees
may determine from time to time. Generally, the Sub-Advisor's primary
consideration in placing Portfolio securities transactions with broker-dealers
for execution is to obtain and maintain the availability of best execution at
the best net price and in the most effective manner possible. The Sub-Advisor
may consider sale of the shares of the Portfolio, as well as recommendations of
the Investment Manager, subject to the requirements of best net price and most
favorable execution.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor for the Portfolio's use an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the
Sub-Advisor's ongoing responsibilities with respect to the Portfolio and other
accounts serviced by the Sub-Advisor. The Sub-Advisor is further authorized to
allocate the orders placed by it on behalf of the Portfolio to such
broker-dealers who also provide research or statistical material, or other
services to the Portfolio or the Sub-Advisor. Such allocation shall be in such
amounts and proportions as the Sub-Advisor shall determine in good faith in
conformity with its responsibilities under applicable laws, rules and
regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager indicating
the brokers to whom such allocations have been made and the basis therefor.
Purchase or sell orders for the Portfolio may be aggregated with contemporaneous
purchase or sell orders of other clients of the Sub-Advisor to the extent
permissible under applicable law.
The Sub-Advisor shall have no liability for the acts or omissions of
any custodian of the Portfolio's assets. The Sub-Advisor shall have no
responsibility for the segregation requirement of the ICA or other applicable
law.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information required in the Trust's Registration
Statement, in such form as may be mutually agreed, to review the Portfolio and
discuss the management of it. The Sub-Advisor shall permit the financial
statements, books and records with respect to the Portfolio to be inspected and
audited by the Trust, the Investment Manager or their agents at all reasonable
times during normal business hours. The Sub-Advisor shall promptly notify and
forward to both Investment Manager and the Trust any legal process served upon
it on behalf of the Investment Manager or the Trust. The Sub-Advisor shall
promptly notify the Investment Manager of any changes in any information
required to be disclosed in the Trust's Registration Statement relating to the
Sub-Advisor or the Sub-Advisor's activities in connection with the investment
program for the Portfolio. Notwithstanding the foregoing, the Sub-Advisor is not
required to provide proprietary information to the Investment Manager not
otherwise required for the Sub-Advisor to perform its responsibilities pursuant
to this Agreement; nor is the Sub-Advisor responsible for Portfolio accounting
or required to generate information derived from Portfolio accounting data.
7. Compensation of the Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each month,
at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .65 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $100 million; plus
.60 of 1% of the portion of the net assets over $100 million but not in excess
of $500 million; and .50 of 1% of the portion of the net assets over $500
million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor. Any reimbursement of management fees required by
any expense limitation provision or in connection with any liability arising out
of its violation of Section 36(b) of the ICA shall be the sole responsibility of
the Investment Manager.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that (a) it is registered as an investment advisor under the
Advisers Act, that it will use its reasonable best efforts to maintain such
registration, and that it will promptly notify the other if it ceases to be so
registered, if its registration is suspended for any reason, or if it is
notified by any regulatory organization or court of competent jurisdiction that
it should show cause why its registration should not be suspended or terminated;
(b) it has been duly incorporated and is validly existing and in good standing
as a corporation under the laws of its state of incorporation; (c) it has all
requisite corporate power and authority under the laws of its state of
incorporation and federal securities laws to execute, deliver and to perform its
obligations under this Agreement; (d) all necessary corporate proceedings have
been duly taken by it to authorize the execution, delivery and performance of
this Agreement; and (e) the shares of the Trust have been duly registered with
the Securities and Exchange Commission to the extent required by applicable law.
The Sub-Advisor further represents that it has adopted a written Code of Ethics
in compliance with Rule 17j-1(b) of the ICA. The Sub-Advisor shall be subject to
such Code of Ethics and shall not be subject to any other Code of Ethics,
including the Investment Manager's Code of Ethics, unless specifically adopted
by the Sub-Advisor.
The Investment Manager acknowledges and agrees that the Sub-Advisor
makes no representation or warranty, express or implied, that any level of
performance or investment results will be achieved by the Portfolio or that the
Portfolio will perform comparably with any standard or index, including other
clients of the Sub-Advisor, whether public or private.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that the Sub-Advisor shall not be liable
for any failure to recommend the purchase or sale of any security on behalf of
the Portfolio on the basis of any information which might, in Sub-Advisor's
opinion, constitute a violation of any federal or state laws, rules or
regulations.
11. Other Activities of the Sub-Advisor. Investment Manager agrees that the
Sub-Advisor and any of its partners or employees, and persons affiliated with it
or with any such partner or employee may render investment management or
advisory services to other investors and institutions, and such investors and
institutions may own, purchase or sell, securities or other interests in
property the same as or similar to those which are selected for purchase,
holding or sale for the Portfolio, and the Sub-Advisor shall be in all respects
free to take action with respect to investments in securities or other interests
in property the same as, similar to or different from those selected for
purchase, holding or sale for the Portfolio. Purchases and sales of individual
securities on behalf of the Portfolio and other portfolios of the Trust or
accounts for other investors or institutions will be made on a basis that is
equitable to all portfolios of the Trust and other accounts. Nothing in this
agreement shall impose upon the Sub-Advisor any obligation to purchase or sell
or recommend for purchase or sale, for the Portfolio any security which it, its
partners, affiliates or employees may purchase or sell for the Sub-Advisor or
such partner's, affiliate's or employee's own accounts or for the account of any
other client, advisory or otherwise.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
by either party to this Agreement, as defined in the ICA, or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager within
a reasonable time of any change in the personnel of the Sub-Advisor with
responsibility for making investment decisions in relation to the Portfolio
or who have been authorized to give instructions to a Custodian of the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different address for such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Advisor: Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206-4923
Attention: General Counsel
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities as portfolio manager of the Portfolio (1) to the
extent of and as a result of the willful misconduct, bad faith, or gross
negligence by Sub-Advisor, any of Sub-Advisor's employees or representatives or
any affiliate of or any person acting on behalf of Sub-Advisor, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
contained in a prospectus or statement of additional information covering the
Portfolio or the Trust or any amendment thereof or any supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, if
such a statement or omission was made in reliance upon written information
furnished to Investment Manager, the Trust or any affiliated person of the
Investment Manager or the Trust by the Sub-Advisor or upon verbal information
confirmed by the Sub-Advisor in writing or (3) to the extent of, and as a result
of, the failure of the Sub-Advisor to execute, or cause to be executed,
Portfolio transactions according to the standards and requirements of the ICA;
provided, however, that in no case is Sub-Advisor's indemnity in favor of
Investment Manager or any affiliated person or controlling person of Investment
Manager deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misconduct, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, if such a statement
or omission was made by the Trust other than in reliance upon written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case is Investment Manager's indemnity
in favor of Sub-Advisor or any affiliated person or controlling person of
Sub-Advisor deemed to protect such person against any liability to which any
such person would otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. This Agreement is made under, and shall be governed by
and construed in accordance with, the laws of the State of Connecticut.
The effective date of this Agreement is December 30, 1996.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
___________________________________ _____________________________
Thomas Mazzaferro
President & Chief Operating Officer
Date:__________ Date:__________
Attest:____________________________ Attest:______________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(nn) Sub-Advisory Agreement between American
Skandia Investment Services, Incorporated and
T. Rowe Price Associates, Inc. for the T.
Rowe Price Small Company Value Portfolio.
</TABLE>
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services, Incorporated
(the "Investment Manager") and T. Rowe Price Associates, Inc.
(the "Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the T. Rowe Price Small Company Value
Portfolio (the "Portfolio") under the terms of a management agreement, dated
December 30, 1996, with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with the Trust's Declaration of Trust and By-Laws. Representatives of
Sub-Advisor will be available as reasonably requested to consult with Investment
Manager and the Trust, their officers, employees and Trustees concerning the
business of the Trust. Investment Manager will promptly furnish Sub-Advisor with
any amendments to such documents. Such amendments will not be effective with
respect to the Sub-Advisor until receipt thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor, will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. The Portfolio
will be maintained by a custodian bank (the "Custodian") and the Investment
Manager will authorize the Custodian to honor orders and instructions by
employees of the Sub-Advisor authorized by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal.
The Sub-Advisor will obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Portfolio,
and concerning the individual issuers whose securities are included in the
Portfolio or the activities in which they engage, or with respect to securities
which the Sub-Advisor considers desirable for inclusion in the Portfolio.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that information
relating directly or indirectly to the Sub-Advisor, supplied or to be supplied
by Sub-Advisor for inclusion or incorporation by reference in such Registration
Statement or Proxy Statement, contained or contains no untrue statement of any
material fact and did not or does not omit any statement of material fact which
was required to be stated therein or necessary to make the statements contained
therein not misleading. The Sub-Advisor further represents and warrants that it
is an investment advisor registered under the ICA, and under the laws of all
jurisdictions in which the conduct of its business hereunder requires such
registration.
The Investment Manager represents that it reviewed the Registration
Statement of the Trust, including any amendments or supplements thereto and any
Proxy Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the manager or information relating directly or indirectly
to the Investment Manager, such Registration Statement or Proxy Statement
contains, as of the date hereof, no untrue statement of any material fact and
does not omit any statement of material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
The Investment Manager further represents and warrants that it is an investment
adviser registered under the ICA and under the laws of all jurisdictions in
which the conduct of its business hereunder requires such registration.
Sub-Advisor shall use its best judgment, effort, and advice in
rendering services under this Agreement.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapter M (including Section
851(b)(1), (2) and (3)) of the Internal Revenue Code, applicable to the
Portfolio, and the regulations promulgated thereunder. Sub-Advisor shall comply
with (i) other applicable provisions of state or federal law; (ii) the provision
of the Declaration of Trust and By-Laws of the Trust; (iii) policies and
determinations of the Trust and Investment Manager; (iv) the fundamental
policies and investment restrictions of the Trust, as set out in the Trust's
registration statement under the ICA, or as amended by the Trust's shareholders;
(v) the Prospectus and Statement of Additional Information of the Trust; and
(vi) investment guidelines or other instructions received in writing from
Investment Manager. Sub-Advisor shall supervise and monitor the investment
program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has
furnished the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the
date hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement
of the Sub-Advisor as Sub-Advisor to the Investment Manager
and approving the form of this agreement;
(d) The resolutions of the Trustees selecting the Investment
Manager as investment manager to the Trust and approving the
form of the Investment Manager's Management Agreement with the
Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager
as currently in effect; and
(g) A list of companies the securities of which are not to be
bought or sold for the Portfolio because of non-public
information regarding such companies that is available to
Investment Manager or the Trust, or which, in the sole opinion
of the Investment Manager, it believes such non-public
information would be deemed to be available to Investment
Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor
has furnished the Investment Manager with copies of each of the following
documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to
have authorized to give written and/or oral instructions to
Custodians of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will furnish the Investment Manager from time to time
with copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to the foregoing, if any. Such amendments or
supplements as to items (a) through (d) above will be provided within 30 days of
the time such materials became available to the Sub-Advisor.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense,
will furnish all necessary investment facilities, including salaries of
personnel required for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor for the Portfolio's use an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the
Sub-Advisor's ongoing responsibilities with respect to the Portfolio. The
Sub-Advisor is further authorized to allocate the orders placed by it on behalf
of the Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine and
the Sub-Advisor will report on said allocations to the Investment Manager
regularly as requested by the Investment Manager and, in any event, at least
once each calendar year if no specific request is made, indicating the brokers
to whom such allocations have been made and the basis therefor.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information required in the Trust's Registration, in
such form as may be mutually agreed, to review the Portfolio and discuss the
management of it. The Sub-Advisor shall permit the financial statements, books
and records with respect to the Portfolio to be inspected and audited by the
Trust, the Investment Manager or their agents at all reasonable times during
normal business hours. The Sub-Advisor shall immediately notify and forward to
both Investment Manager and legal counsel for the Trust any legal process served
upon it on behalf of the Investment Manager or the Trust. The Sub-Advisor shall
promptly notify the Investment Manager of any changes in any information
required to be disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each
month, at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .60 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $20 million; plus .50
of 1% of the portion of the net assets over $20 million but not in excess of $50
million. When the net assets of the Portfolio exceed $50 million, the fee is an
annual rate of .50 of 1% of the average daily net assets of the Portfolio.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Investment
Advisers Act of 1940, it will use its reasonable best efforts to maintain such
registration, and it will promptly notify the other if it ceases to be so
registered, if its registration is suspended for any reason, or if it is
notified by any regulatory organization or court of competent jurisdiction that
it should show cause why its registration should not be suspended or terminated.
The Investment Manager hereby represents that it has provided to the
Sub-Advisor a true, correct and complete copy of the Registration Statement of
the Trust as in effect on the date of this Agreement, including any amendments
and supplements thereto, and agrees to provide to Sub-Advisor true, correct and
complete copies of any amendments and supplements thereto subsequent to the date
of this Agreement.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that the Sub-Advisor shall not be liable
for any failure to recommend the purchase or sale of any security on behalf of
the Portfolio on the basis of any information which might, in Sub-Advisor's
opinion, constitute a violation of any federal or state laws, rules or
regulations.
11. Other Activities of Sub-Advisor. Investment Manager agrees that the
Sub-Advisor and any of its partners or employees, and persons affiliated with it
or with any such partner or employee may render investment management or
advisory services to other investors and institutions, and such investors and
institutions may own, purchase or sell, securities or other interests in
property the same as or similar to those which are selected for purchase,
holding or sale for the Portfolio, and the Sub-Advisor shall be in all respects
free to take action with respect to investments in securities or other interests
in property the same as or similar to those selected for purchase, holding or
sale for the Portfolio. Purchases and sales of individual securities on behalf
of the Portfolio and other portfolios of the Trust or accounts for other
investors or institutions will be made on a basis that is equitable to all
portfolios of the Trust and other accounts. Nothing in this agreement shall
impose upon the Sub-Advisor any obligation to purchase or sell or recommend for
purchase or sale, for the Portfolio any security which it, its partners,
affiliates or employees may purchase or sell for the Sub-Advisor or such
partner's, affiliate's or employee's own accounts or for the account of any
other client, advisory or otherwise.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
by either party to this Agreement, as defined in the ICA, or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager within a
reasonable time of any change in the personnel of the Sub-Advisor with
responsibility for making investment decisions in relation to the Portfolio or
who have been authorized to give instructions to a Custodian of the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different address for such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Advisor: T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Mr. Henry H. Hopkins
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the 1940 Act ("affiliated person") of Investment Manager and each person, if
any who, within the meaning of Section 15 of the Securities Act of 1933 (the
"1933 Act"), controls ("controlling person") Investment Manager, against any and
all losses, claims, damages, liabilities or litigation (including reasonable
legal and other expenses), to which Investment Manager or such affiliated person
or controlling person may become subject under the 1933 Act, the 1940 Act, the
Investment Adviser's Act of 1940 ("Adviser's Act"), under any other statute, at
common law or otherwise, arising out of Sub-Advisor's responsibilities as
portfolio manager of the Portfolio (1) to the extent of and as a result of the
willful misconduct, bad faith, or gross negligence by Sub-Advisor, any of
Sub-Advisor's employees or representatives or any affiliate of or any person
acting on behalf of Sub-Advisor, or (2) as a result of any untrue statement or
alleged untrue statement of a material fact contained in information relating
directly or indirectly to the Sub-Advisor supplied or to be supplied by
Sub-Advisor for inclusion or incorporation by reference in a prospectus or
statement of additional information covering the Portfolio or the Trust or any
amendment thereof or any supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statement therein not misleading, or (3) to the extent of, and as a
result of, the failure of the Sub-Advisor to execute, or cause to be executed,
Portfolio transactions according to the standards and requirements of the 1940
Act; provided, however, that in no case is Sub-Advisor's indemnity in favor of
Investment Manager or any affiliated person or controlling person of Investment
Manager deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misconduct, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person within the meaning of Section 2(a)(3) of the
1940 Act ("affiliated person") of Sub-Advisor and each person, if any who,
within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"),
controls ("controlling person") Sub-Advisor, against any and all losses, claims,
damages, liabilities or litigation (including reasonable legal and other
expenses), to which Sub-Advisor or such affiliated person or controlling person
may become subject under the 1933 Act, the 1940 Act, the Investment Adviser's
Act of 1940 ("Adviser's Act"), under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, if such a statement
or omission was made by the Trust other than in reliance upon information
relating directly or indirectly to the Sub-Advisor supplied or to be supplied by
Sub-Advisor for inclusion or incorporation by reference in such prospectus or
statement of additional information; provided, however, that in no case is
Investment Manager's indemnity in favor of Sub-Advisor or any affiliated person
or controlling person of Sub-Advisor deemed to protect such person against any
liability to which any such person would otherwise be subject by reason of
willful misconduct, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the Investment Company Act of 1940, the Trust's governing
documents and other applicable laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Amendment. This Agreement may be amended by mutual written consent
of the parties, subject to the provisions of the ICA.
17. Governing Law. This agreement is made under, and shall be governed
by and construed in accordance with, the laws of the State of Connecticut.
The effective date of this agreement is December 30, 1996.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
___________________________________ ___________________________________
Thomas Mazzaferro
President & Chief Operating Officer
Date: _________________________ Date: __________________________
Attest: _________________________ Attest: __________________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(oo) Sub-Advisory Agreement between American
Skandia Investment Services, Incorporated and
Founders Asset Management, Inc. for the
Founders Passport Portfolio.
</TABLE>
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services, Incorporated
(the "Investment Manager") and Founders Asset Management, Inc.
(the "Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the Founders Passport Portfolio (the
"Portfolio") under the terms of a management agreement, dated October 15, 1996,
with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager
with investment advisory services in connection with a continuous investment
program for the Portfolio which is to be managed in accordance with the
investment objective, investment policies and restrictions of the Portfolio as
set forth in the Prospectus and Statement of Additional Information of the Trust
and in accordance with the Trust's Declaration of Trust and By-laws. Officers,
directors, and employees of Sub-Advisor will be available upon reasonable
request to consult with Investment Manager and the Trust, their officers,
employees and Trustees concerning the business of the Trust. Investment Manager
will promptly furnish Sub-Advisor with any amendments to any of the foregoing
documents (the "Documents"). Any amendments to the Documents will not be deemed
effective with respect to the Sub-Advisor until the Sub-Advisor's receipt
thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal.
The Sub-Advisor will obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Portfolio,
and concerning the individual issuers whose securities are included in the
Portfolio or the activities in which they engage, or with respect to securities
which the Sub-Advisor considers desirable for inclusion in the Portfolio.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and provided to the Sub-Advisor by the
Investment Manager, and represents and warrants that with respect to disclosure
about the Sub-Advisor or information relating directly to the Sub-Advisor, such
Registration Statement or Proxy Statement contains, as of the date thereof, no
untrue statement of any material fact and does not omit any statement of
material fact which was required to be stated therein or necessary to make the
statements contained therein not misleading. The Sub-Advisor further represents
and warrants that it is an investment advisor registered under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and under the laws of all
jurisdictions in which the conduct of its business hereunder requires such
registration.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapters L and M (including,
respectively, Section 817(h) and Section 851(b)(1), (2), (3) and (4)) of the
Internal Revenue Code, applicable to the Portfolio, and the regulations
promulgated thereunder. Sub-Advisor shall comply with (i) other applicable
provisions of state or federal law; (ii) the provisions of the Declaration of
Trust and By-laws of the Trust; (iii) policies and determinations of the Trust
and Investment Manager communicated to the Sub-Advisor in writing; (iv) the
fundamental policies and investment restrictions of the Trust, as set out in the
Trust's registration statement under the ICA, or as amended by the Trust's
shareholders and communicated to the Sub-Advisor in writing; (v) the Prospectus
and Statement of Additional Information of the Trust; and (vi) investment
guidelines or other instructions received in writing from Investment Manager.
Sub-Advisor shall supervise and monitor the activities of its representatives,
personnel and agents in connection with the investment program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has
furnished the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the
date hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement
of the Sub-Advisor as Sub-Advisor to the Investment
Manager and approving the form of this agreement;
(d) The resolutions of the Trustees selecting the Investment
Manager as investment manager to the Trust and approving the
form of the Investment Manager's Management Agreement with the
Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager
as currently in effect; and
(g) A list of companies the securities of which are not to be
bought or sold for the Portfolio because of non-public
information regarding such companies that is available to
Investment Manager or the Trust, or which, in the sole opinion
of the Investment Manager, it believes such non-public
information would be deemed to be available to Investment
Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor has
furnished the Investment Manager with copies of each of the following documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent audited balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to
have authorized to give written and/or oral instructions
to Custodians of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will furnish the Investment Manager from time to time
with copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to the foregoing, if any. Such amendments or
supplements as to items (a) through (d) above will be provided within 30 days of
the time such materials became available to the Sub-Advisor.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense,
will furnish all necessary investment facilities, including salaries of
personnel required for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for
decisions to buy and sell securities for the Portfolio, broker-dealer selection,
and negotiation of its brokerage commission rates. Sub-Advisor shall determine
the securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time and communicate to the Sub-Advisor in writing.
Generally, Sub-Advisor's primary consideration in placing Portfolio securities
transactions with broker-dealers for execution is to obtain and maintain the
availability of best execution at the best net price and in the most effective
manner possible. The Sub-Advisor may consider sale of the shares of the
Portfolio, as well as recommendations of the Investment Manager, subject to the
requirements of best net price and most favorable execution.
Consistent with this policy, the Sub-Advisor will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction, if the Sub-Advisor determines in
good faith that such amount of commission was reasonable in relation to the
value of the research services provided by such broker, viewed in terms of
either that particular transaction or the Sub-Advisor's ongoing responsibilities
with respect to the Portfolio and its other clients. The Sub-Advisor is further
authorized to allocate the orders placed by it on behalf of the Portfolio to
such broker-dealers who also provide research or statistical material, or other
services to the Portfolio or the Sub-Advisor. Such allocation shall be in such
amounts and proportions as the Sub-Advisor shall determine in good faith in
conformity with its responsibilities under applicable laws, rules and
regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information required in the Trust's Registration
Statement, in such form as may be mutually agreed, to review the Portfolio and
discuss the management of it. The Sub-Advisor shall permit the financial
statements, books and records with respect to the Portfolio to be inspected and
audited by the Trust, the Investment Manager or their agents at all reasonable
times during normal business hours. The Sub-Advisor shall immediately notify and
forward to both Investment Manager and legal counsel for the Trust any legal
process served upon it on behalf of the Investment Manager or the Trust. The
Sub-Advisor shall promptly notify the Investment Manager of any changes in any
information required to be disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each
month, at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .60 of 1% of the portion of the net
assets of the Portfolio not in excess of $100 million; plus .50 of 1% of the
portion of the net assets of the Portfolio in excess of $100 million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Advisers
Act, that it will use its reasonable best efforts to maintain such registration,
and that it will promptly notify the other if it ceases to be so registered, if
its registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it should show
cause why its registration should not be suspended or terminated.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that the Sub-Advisor shall not be liable
for any failure to recommend the purchase or sale of any security on behalf of
the Portfolio on the basis of any information which might, in Sub-Advisor's
opinion, constitute a violation of any federal or state laws, rules or
regulations.
11. Other Activities of Sub-Advisor. Notwithstanding the first sentence of
Section 8 of this Agreement, the Investment Manager agrees that the Sub-Advisor
and any of its partners or employees, and persons affiliated with it or with any
such partner or employee may render investment management or advisory services
to other investors and institutions, and such investors and institutions may
own, purchase or sell, securities or other interests in property the same as or
similar to those which are selected for purchase, holding or sale for the
Portfolio, and the Sub-Advisor shall be in all respects free to take action with
respect to investments in securities or other interests in property the same as
or similar to those selected for purchase, holding or sale for the Portfolio.
Purchases and sales of individual securities on behalf of the Portfolio and
other portfolios of the Trust or accounts for other investors or institutions
will be made on a basis that is equitable to all portfolios of the Trust and
other accounts. Nothing in this agreement shall impose upon the Sub-Advisor any
obligation to purchase or sell or recommend for purchase or sale, for the
Portfolio any security which it, its partners, affiliates or employees may
purchase or sell for the Sub-Advisor or such partner's, affiliate's or
employee's own accounts or for the account of any other client, advisory or
otherwise.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
by either party to this Agreement, as defined in the ICA, or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager
within a reasonable time of any change in the personnel of the Sub-Advisor
with responsibility for making investment decisions in relation to the
Portfolio or who have been authorized to give instructions to a Custodian of
the Trust.
Any notice, instruction or other communication required or contemplated
by this Agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different address for such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Advisor: Founders Asset Management, Inc.
Founders Financial Center
2930 East Third Avenue
Denver, CO 80206
Attention: General Counsel
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities as portfolio manager of the Portfolio (1) to the
extent of and as a result of the willful misconduct, bad faith, or gross
negligence by Sub-Advisor, any of Sub-Advisor's employees or representatives or
any affiliate of or any person acting on behalf of Sub-Advisor, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
contained in a prospectus or statement of additional information covering the
Portfolio or the Trust or any amendment thereof or any supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, if
such a statement or omission was made in reliance upon written information
furnished by the Sub-Advisor, or any affiliated person of the Sub-Advisor, to
the Investment Manager, the Trust or any affiliated person of the Investment
Manager or the Trust or upon verbal information confirmed by the Sub-Advisor in
writing or (3) to the extent of, and as a result of, the failure of the
Sub-Advisor to execute, or cause to be executed, Portfolio transactions
according to the standards and requirements of the ICA; provided, however, that
in no case is Sub-Advisor's indemnity in favor of Investment Manager or any
affiliated person or controlling person of Investment Manager deemed to protect
such person against any liability to which any such person would otherwise be
subject by reason of willful misconduct, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, if such a statement
or omission was made by the Trust other than in reliance upon written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case is Investment Manager's indemnity
in favor of Sub-Advisor or any affiliated person or controlling person of
Sub-Advisor deemed to protect such person against any liability to which any
such person would otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. This agreement is made under, and shall be governed by
and construed in accordance with, the laws of the State of Connecticut.
The effective date of this agreement is October 15, 1996.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
___________________________________ ____________________________
Thomas Mazzaferro
President & Chief Operating Officer
Date:__________ Date:__________
Attest:____________________________ Attest:_____________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(pp) Sub-Advisory Agreement between American
Skandia Investment Services, Incorporated and
Investors Research Corporation for the
Twentieth Century International Growth
Portfolio.
</TABLE>
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services, Incorporated
(the "Investment Manager") and Investors Research Corporation (the
"Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the Twentieth Century International
Growth Portfolio (the "Portfolio") under the terms of a management agreement,
dated December 30, 1996, with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with the Trust's Declaration of Trust and By-laws. Officers and
employees of Sub-Advisor will be available to consult with Investment Manager
and the Trust, their officers, employees and Trustees concerning the business of
the Trust, as reasonably requested from time to time. Investment Manager will
promptly furnish Sub-Advisor with any amendments to any of the foregoing
documents (the "Documents"). Any amendments to the Documents will not be deemed
effective with respect to the Sub-Advisor until the Sub-Advisor's receipt
thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal.
The Sub-Advisor will obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data concerning
the individual issuers whose securities are included in the Portfolio or the
activities in which they engage, or with respect to securities which the
Sub-Advisor considers desirable for inclusion in the Portfolio.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the Sub-Advisor or information relating directly or
indirectly to the Sub-Advisor, such Registration Statement or Proxy Statement
contains, as of the date thereof, no untrue statement of any material fact and
does not omit any statement of material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
Sub-Advisor shall use its best judgment, effort, and advice in
rendering services under this Agreement.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapter M (including, Section
851(b)(1), (2), (3) and (4)) and Section 817(h) of the Internal Revenue Code,
applicable to the Portfolio, and the regulations promulgated thereunder.
Sub-Advisor shall comply with (i) other applicable provisions of state or
federal law; (ii) the provisions of the Declaration of Trust and By-laws of the
Trust communicated to the Sub-Advisor by the Investment Manager in writing;
(iii) policies and determinations of the Trust and Investment Manager; (iv) the
fundamental policies and investment restrictions of the Trust, as set out in the
Trust's registration statement under the ICA, or as amended by the Trust's
shareholders; (v) the Prospectus and Statement of Additional Information of the
Trust; and (vi) investment guidelines or other instructions received in writing
from Investment Manager. Sub-Advisor shall supervise and monitor the activities
of its representatives, personnel and agents in connection with the investment
program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has
furnished the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Sub-Advisor as Sub-Advisor to the Investment Manager and approving the form of
this agreement;
(d) The resolutions of the Trustees selecting the Investment
Manager as investment manager to the Trust and approving the
form of the Investment Manager's Management Agreement with the
Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager as
currently in effect; and
(g) A list of companies the securities of which are not to be bought or
sold for the Portfolio.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor has
furnished the Investment Manager with copies of each of the following documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and Exchange
Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to have authorized
to give written and/or oral instructions to Custodians of Trust assets for the
Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will thereafter furnish the Investment Manager with
copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to items (a), (c) and (d) above within 30 days of
the time such materials become available to the Sub-Advisor. With respect to
item (b) above, the Sub-Advisor will thereafter timely furnish the Investment
Manager with a copy of the document, properly certified or otherwise
authenticated, upon request by the Investment Manager.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense, will
furnish all necessary investment facilities, including salaries of personnel
required for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor for the Portfolio's use an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the
Sub-Advisor's ongoing responsibilities with respect to the Portfolio. The
Sub-Advisor is further authorized to allocate the orders placed by it on behalf
of the Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine in
good faith in conformity with its responsibilities under applicable laws, rules
and regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor. Notwithstanding the above, nothing shall require the Sub-Advisor to
use a broker which provides research services or to use a particular broker
which the Investment Manager has recommended.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information required in the Trust's Registration
Statement, in such form as may be mutually agreed, to review the Portfolio and
discuss the management of it. The Sub-Advisor shall permit the financial
statements, books and records with respect to the Portfolio to be inspected and
audited by the Trust, the Investment Manager or their agents at all reasonable
times during normal business hours. The Sub-Advisor shall immediately notify and
forward to both Investment Manager and legal counsel for the Trust any legal
process served upon it on behalf of the Investment Manager or the Trust. The
Sub-Advisor shall promptly notify the Investment Manager of any changes in any
information concerning the Sub-Advisor or the Sub-Advisor's activities in
connection with the investment program for the Portfolio required to be
disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor shall be computed at an annual rate. The fee shall be payable
monthly in arrears, based on the average daily net assets of the Portfolio for
each month, at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .70 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $100 million; plus
.60 of 1% of the portion of the net assets over $100 million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the effective date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), that it will use its
reasonable best efforts to maintain such registration, and that it will promptly
notify the other if it ceases to be so registered, if its registration is
suspended for any reason, or if it is notified by any regulatory organization or
court of competent jurisdiction that it should show cause why its registration
should not be suspended or terminated. Each party further acknowledges that it
is registered under the laws of all jurisdictions in which the conduct of its
business hereunder requires such registration.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that, subject to the investment
objective, investment policies and investment restrictions of the Portfolio as
set forth in the Trust's Registration Statement as in effect from time to time,
the Sub-Advisor's adherence to an investment style generally used by the
Sub-Advisor in managing any of its domestic or foreign equity or fixed income
mutual funds shall not constitute a failure by the Sub-Advisor to use its best
judgment, efforts and advice under this Agreement. For purposes of this
provision, the Sub-Advisor represents, and the Investment Manager acknowledges,
that the Sub-Advisor's style generally is to purchase equity securities of
companies that have demonstrated revenues and earnings growth, to keep the
Portfolio's assets invested to the maximum extent practicable regardless of the
performance or stability of the capital markets and to use teams of portfolio
managers, assistant managers and analysts acting together to manage the assets
of the Portfolio. The Investment Manager shall consult from time to time with
the Sub-Advisor to review the Sub-Advisor's performance under this Agreement. In
the event that any claim is made by the Investment Manager against the
Sub-Advisor based upon a failure by the Sub-Advisor to use its best judgment,
efforts and advice in rendering services under this Agreement, the Investment
Manager shall bear the burden of proving such failure.
11. Other Activities of Sub-Advisor. Investment Manager understands and agrees
that the Sub-Advisor and any of its partners or employees, and persons
affiliated with it or with any such partner or employee may render investment
management or advisory services to other investors and institutions, and such
investors and institutions may own, purchase or sell, securities or other
interests in property the same as or similar to those which are selected for
purchase, holding or sale for the Portfolio, and the Sub-Advisor shall be in all
respects free to take action with respect to investments in securities or other
interests in property the same as or similar to those selected for purchase,
holding or sale for the Portfolio. The Investment Manager understands that the
Sub-Advisor shall not favor or disfavor any client or class of clients in the
allocation of investment opportunities, so that to the extent practical, such
opportunities will be allocated among clients over a period of time on a fair
and equitable basis. Notwithstanding paragraph 8 above, nothing in this
Agreement shall impose upon the Sub-Advisor any obligation (1) to purchase or
sell, or recommend for purchase or sale, for the Portfolio any security which
it, its partners, affiliates or employees may purchase or sell for the
Sub-Advisor or such partner's, affiliate's or employee's own accounts or for the
account of any other client, advisory or otherwise; or (2) to abstain from the
purchase or sale of any security for the Sub-Advisor's other clients, advisory
or otherwise, which the Investment Manager has placed on the list provided
pursuant to paragraph 2(g) above.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
(as defined in the ICA) by either party to this Agreement or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager within a
reasonable time of any change in the personnel of the Sub-Advisor with
responsibility for making investment decisions in relation to the Portfolio or
who have been authorized to give instructions to a Custodian of the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different contact person and/or address for
such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Advisor: Investors Research Corporation
Twentieth Century Tower
4500 Main Street
Kansas City, Missouri 64111
Attention: William M. Lyons
Executive Vice President & Chief Operating Officer
Trust Legal Counsel: Werner & Kennedy
1633 Broadway, 46th Floor
New York, New York 10019
Attention: Robert K. Fulton, Esq.
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities hereunder (1) to the extent of and as a result of
the willful misconduct, bad faith, or negligence by Sub-Advisor, any of
Sub-Advisor's employees or representatives or any affiliate of or any person
acting on behalf of Sub-Advisor, or (2) as a result of any untrue statement or
alleged untrue statement of a material fact contained in a prospectus or
statement of additional information covering the Portfolio or the Trust or any
amendment thereof or any supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statement therein not misleading, if such a statement or omission was
made in reliance upon and in conformity with written information furnished to
Investment Manager, the Trust or any affiliated person of the Investment Manager
or the Trust by the Sub-Advisor or upon verbal information confirmed by the
Sub-Advisor in writing or (3) to the extent of, and as a result of, the failure
of the Sub-Advisor to execute, or cause to be executed, Portfolio transactions
according to the standards and requirements of the ICA; provided, however, that
in no case shall Sub-Advisor indemnify the Investment Manager or any affiliated
person or controlling person of the Investment Manager for any liability
resulting from the Investment Manager's willful misconduct, bad faith or
negligence in its actions with respect to the Sub-Advisor, the Portfolio or the
Trust or information concerning any of them, or by reason of the Investment
Manager's failure to perform its obligations and duties in the manner required
under this Agreement.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or negligence by Investment Manager, any of Investment
Manager's employees or representatives or any affiliate of or any person acting
on behalf of Investment Manager, or (2) as a result of any untrue statement or
alleged untrue statement of a material fact contained in a prospectus or
statement of additional information covering the Portfolio or the Trust or any
amendment thereof or any supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statement therein not misleading, if such a statement or omission was
made by the Trust other than in reliance upon and in conformity with written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case shall Investment Manager
indemnify the Sub-Advisor or any affiliated person or controlling person of the
Sub-Advisor for any liability resulting from the Sub-Advisor's willful
misconduct, bad faith or negligence in its actions with respect to the
Sub-Advisor, the Portfolio or the Trust or information concerning any of them,
or by reason of the Sub-Advisor's failure to perform its obligations and duties
in the manner required under this Agreement. It is agreed that the Investment
Manager's indemnification obligations under this Section 14 will extend to
expenses and costs (including reasonable attorneys fees) incurred by the
Sub-Advisor as a result of any litigation brought by the Investment Manager
alleging Sub-Advisor's failure to perform its obligations and duties in the
manner required under this Agreement unless judgment is rendered for the
Investment Manager.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. This agreement is made under, and shall be governed by
and construed in accordance with, the laws of the State of Connecticut.
The effective date of this agreement is December 30, 1996.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
___________________________________ ____________________________
Thomas Mazzaferro
President & Chief Operating Officer
Date:__________ Date:__________
Attest:____________________________ Attest:_____________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(qq) Sub-Advisory Agreement between American
Skandia Investment Services, Incorporated and
Investors Research Corporation for the
Twentieth Century Strategic Balanced
Portfolio.
</TABLE>
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services, Incorporated
(the "Investment Manager") and Investors Research Corporation (the
"Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the Twentieth Century Strategic
Balanced Portfolio (the "Portfolio") under the terms of a management agreement,
dated December 30, 1996, with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with the Trust's Declaration of Trust and By-laws. Officers and
employees of Sub-Advisor will be available to consult with Investment Manager
and the Trust, their officers, employees and Trustees concerning the business of
the Trust, as reasonably requested from time to time. Investment Manager will
promptly furnish Sub-Advisor with any amendments to any of the foregoing
documents (the "Documents"). Any amendments to the Documents will not be deemed
effective with respect to the Sub-Advisor until the Sub-Advisor's receipt
thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal.
The Sub-Advisor will obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data concerning
the individual issuers whose securities are included in the Portfolio or the
activities in which they engage, or with respect to securities which the
Sub-Advisor considers desirable for inclusion in the Portfolio.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the Sub-Advisor or information relating directly or
indirectly to the Sub-Advisor, such Registration Statement or Proxy Statement
contains, as of the date thereof, no untrue statement of any material fact and
does not omit any statement of material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
Sub-Advisor shall use its best judgment, effort, and advice in
rendering services under this Agreement.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapter M (including, Section
851(b)(1), (2), (3) and (4)) and Section 817(h) of the Internal Revenue Code,
applicable to the Portfolio, and the regulations promulgated thereunder.
Sub-Advisor shall comply with (i) other applicable provisions of state or
federal law; (ii) the provisions of the Declaration of Trust and By-laws of the
Trust communicated to the Sub-Advisor by the Investment Manager in writing;
(iii) policies and determinations of the Trust and Investment Manager; (iv) the
fundamental policies and investment restrictions of the Trust, as set out in the
Trust's registration statement under the ICA, or as amended by the Trust's
shareholders; (v) the Prospectus and Statement of Additional Information of the
Trust; and (vi) investment guidelines or other instructions received in writing
from Investment Manager. Sub-Advisor shall supervise and monitor the activities
of its representatives, personnel and agents in connection with the investment
program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has
furnished the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the date hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement of the
Sub-Advisor as Sub-Advisor to the Investment Manager and approving the form of
this agreement;
(d) The resolutions of the Trustees selecting the Investment
Manager as investment manager to the Trust and approving the
form of the Investment Manager's Management Agreement with the
Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager as
currently in effect; and
(g) A list of companies the securities of which are not to be bought or
sold for the Portfolio.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor has
furnished the Investment Manager with copies of each of the following documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and Exchange
Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to have authorized
to give written and/or oral instructions to Custodians of Trust assets for the
Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will thereafter furnish the Investment Manager with
copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to items (a), (c) and (d) above within 30 days of
the time such materials become available to the Sub-Advisor. With respect to
item (b) above, the Sub-Advisor will thereafter timely furnish the Investment
Manager with a copy of the document, properly certified or otherwise
authenticated, upon request by the Investment Manager.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense, will
furnish all necessary investment facilities, including salaries of personnel
required for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor for the Portfolio's use an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the
Sub-Advisor's ongoing responsibilities with respect to the Portfolio. The
Sub-Advisor is further authorized to allocate the orders placed by it on behalf
of the Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine in
good faith in conformity with its responsibilities under applicable laws, rules
and regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor. Notwithstanding the above, nothing shall require the Sub-Advisor to
use a broker which provides research services or to use a particular broker
which the Investment Manager has recommended.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information required in the Trust's Registration
Statement, in such form as may be mutually agreed, to review the Portfolio and
discuss the management of it. The Sub-Advisor shall permit the financial
statements, books and records with respect to the Portfolio to be inspected and
audited by the Trust, the Investment Manager or their agents at all reasonable
times during normal business hours. The Sub-Advisor shall immediately notify and
forward to both Investment Manager and legal counsel for the Trust any legal
process served upon it on behalf of the Investment Manager or the Trust. The
Sub-Advisor shall promptly notify the Investment Manager of any changes in any
information concerning the Sub-Advisor or the Sub-Advisor's activities in
connection with the investment program for the Portfolio required to be
disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor shall be computed at an annual rate. The fee shall be payable
monthly in arrears, based on the average daily net assets of the Portfolio for
each month, at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .50 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $50 million; plus .45
of 1% of the portion of the net assets over $50 million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the effective date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), that it will use its
reasonable best efforts to maintain such registration, and that it will promptly
notify the other if it ceases to be so registered, if its registration is
suspended for any reason, or if it is notified by any regulatory organization or
court of competent jurisdiction that it should show cause why its registration
should not be suspended or terminated. Each party further acknowledges that it
is registered under the laws of all jurisdictions in which the conduct of its
business hereunder requires such registration.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that, subject to the investment
objective, investment policies and investment restrictions of the Portfolio as
set forth in the Trust's Registration Statement as in effect from time to time,
the Sub-Advisor's adherence to an investment style generally used by the
Sub-Advisor in managing any of its domestic or foreign equity or fixed income
mutual funds shall not constitute a failure by the Sub-Advisor to use its best
judgment, efforts and advice under this Agreement. For purposes of this
provision, the Sub-Advisor represents, and the Investment Manager acknowledges,
that the Sub-Advisor's style generally is to purchase equity securities of
companies that have demonstrated revenues and earnings growth, to keep the
Portfolio's assets invested to the maximum extent practicable regardless of the
performance or stability of the capital markets and to use teams of portfolio
managers, assistant managers and analysts acting together to manage the assets
of the Portfolio. The Investment Manager shall consult from time to time with
the Sub-Advisor to review the Sub-Advisor's performance under this Agreement. In
the event that any claim is made by the Investment Manager against the
Sub-Advisor based upon a failure by the Sub-Advisor to use its best judgment,
efforts and advice in rendering services under this Agreement, the Investment
Manager shall bear the burden of proving such failure.
11. Other Activities of Sub-Advisor. Investment Manager understands and agrees
that the Sub-Advisor and any of its partners or employees, and persons
affiliated with it or with any such partner or employee may render investment
management or advisory services to other investors and institutions, and such
investors and institutions may own, purchase or sell, securities or other
interests in property the same as or similar to those which are selected for
purchase, holding or sale for the Portfolio, and the Sub-Advisor shall be in all
respects free to take action with respect to investments in securities or other
interests in property the same as or similar to those selected for purchase,
holding or sale for the Portfolio. The Investment Manager understands that the
Sub-Advisor shall not favor or disfavor any client or class of clients in the
allocation of investment opportunities, so that to the extent practical, such
opportunities will be allocated among clients over a period of time on a fair
and equitable basis. Notwithstanding paragraph 8 above, nothing in this
Agreement shall impose upon the Sub-Advisor any obligation (1) to purchase or
sell, or recommend for purchase or sale, for the Portfolio any security which
it, its partners, affiliates or employees may purchase or sell for the
Sub-Advisor or such partner's, affiliate's or employee's own accounts or for the
account of any other client, advisory or otherwise; or (2) to abstain from the
purchase or sale of any security for the Sub-Advisor's other clients, advisory
or otherwise, which the Investment Manager has placed on the list provided
pursuant to paragraph 2(g) above.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
(as defined in the ICA) by either party to this Agreement or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager within a
reasonable time of any change in the personnel of the Sub-Advisor with
responsibility for making investment decisions in relation to the Portfolio or
who have been authorized to give instructions to a Custodian of the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different contact person and/or address for
such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Advisor: Investors Research Corporation
Twentieth Century Tower
4500 Main Street
Kansas City, Missouri 64111
Attention: William M. Lyons
Executive Vice President & Chief Operating Officer
Trust Legal Counsel: Werner & Kennedy
1633 Broadway, 46th Floor
New York, New York 10019
Attention: Robert K. Fulton, Esq.
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities hereunder (1) to the extent of and as a result of
the willful misconduct, bad faith, or negligence by Sub-Advisor, any of
Sub-Advisor's employees or representatives or any affiliate of or any person
acting on behalf of Sub-Advisor, or (2) as a result of any untrue statement or
alleged untrue statement of a material fact contained in a prospectus or
statement of additional information covering the Portfolio or the Trust or any
amendment thereof or any supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statement therein not misleading, if such a statement or omission was
made in reliance upon and in conformity with written information furnished to
Investment Manager, the Trust or any affiliated person of the Investment Manager
or the Trust by the Sub-Advisor or upon verbal information confirmed by the
Sub-Advisor in writing or (3) to the extent of, and as a result of, the failure
of the Sub-Advisor to execute, or cause to be executed, Portfolio transactions
according to the standards and requirements of the ICA; provided, however, that
in no case shall Sub-Advisor indemnify the Investment Manager or any affiliated
person or controlling person of the Investment Manager for any liability
resulting from the Investment Manager's willful misconduct, bad faith or
negligence in its actions with respect to the Sub-Advisor, the Portfolio or the
Trust or information concerning any of them, or by reason of the Investment
Manager's failure to perform its obligations and duties in the manner required
under this Agreement.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or negligence by Investment Manager, any of Investment
Manager's employees or representatives or any affiliate of or any person acting
on behalf of Investment Manager, or (2) as a result of any untrue statement or
alleged untrue statement of a material fact contained in a prospectus or
statement of additional information covering the Portfolio or the Trust or any
amendment thereof or any supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statement therein not misleading, if such a statement or omission was
made by the Trust other than in reliance upon and in conformity with written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case shall Investment Manager
indemnify the Sub-Advisor or any affiliated person or controlling person of the
Sub-Advisor for any liability resulting from the Sub-Advisor's willful
misconduct, bad faith or negligence in its actions with respect to the
Sub-Advisor, the Portfolio or the Trust or information concerning any of them,
or by reason of the Sub-Advisor's failure to perform its obligations and duties
in the manner required under this Agreement. It is agreed that the Investment
Manager's indemnification obligations under this Section 14 will extend to
expenses and costs (including reasonable attorneys fees) incurred by the
Sub-Advisor as a result of any litigation brought by the Investment Manager
alleging Sub-Advisor's failure to perform its obligations and duties in the
manner required under this Agreement unless judgment is rendered for the
Investment Manager.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. This agreement is made under, and shall be governed by
and construed in accordance with, the laws of the State of Connecticut.
The effective date of this agreement is December 30, 1996.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
___________________________________ ____________________________
Thomas Mazzaferro
President & Chief Operating Officer
Date:__________ Date:__________
Attest:____________________________ Attest:_____________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(rr) Sub-Advisory Agreement between American
Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the
AST Putnam Value Growth & Income Portfolio.
</TABLE>
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services,
Incorporated (the "Investment Manager") and Putnam Investment Management,
Inc. (the "Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the AST Putnam Value Growth & Income
Portfolio (the "Portfolio") under the terms of a management agreement, dated
December 30, 1996, with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with applicable provisions of the Trust's Declaration of Trust and
By-laws provided to the Sub-Advisor from time to time by the Investment Manager.
Officers, directors, and employees of Sub-Advisor will be available to consult
with Investment Manager and the Trust, their officers, employees and Trustees
concerning the business of the Trust. Investment Manager will promptly furnish
Sub-Advisor with any amendments to any of the foregoing documents (the
"Documents"). Any amendments to the Documents will not be deemed effective with
respect to the Sub-Advisor until the Sub-Advisor's receipt thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal. The Sub-Advisor shall not be responsible for the provision of
administrative, bookkeeping or accounting services to the Trust. The Sub-Advisor
shall supply the Investment Manager and the Trust with such information as is
specifically provided herein, as required by the ICA or the Investment Advisers
Act of 1940, as amended (the "Advisers Act") in connection with the
Sub-Advisor's management of the Portfolio, or as may be necessary to supply the
information to the Investment Manager, the Trust, the Trust's Board of Trustees
or their respective agents required to be supplied under this Agreement. Any
records required to be maintained shall be the property of the Trust and
surrendered to the Trust promptly upon request or upon termination of this
Agreement. The Sub-Advisor may retain copies of any records surrendered to the
Trust.
To the extent deemed necessary by the Sub-Advisor in connection with
the investment program for the Portfolio, the Sub-Advisor will obtain and
evaluate pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the Portfolio, and concerning the individual
issuers whose securities are included in the Portfolio or the activities in
which they engage, or with respect to securities which the Sub-Advisor considers
desirable for inclusion in the Portfolio or such other information as the
Sub-Advisor deems relevant.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the Sub-Advisor or information relating to the Sub-Advisor
or the Sub-Advisor's activities in connection with the investment program for
the Portfolio, such Registration Statement or Proxy Statement contains, as of
the date thereof, no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or necessary
to make the statements contained therein not misleading. The Sub-Advisor further
represents and warrants that it is an investment advisor registered under the
Advisers Act and under the laws of all jurisdictions in which the conduct of its
business hereunder requires such registration.
Sub-Advisor shall use its best judgment, effort, and advice in
rendering services under this Agreement.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapters L and M (including,
respectively, Section 817(h) and Section 851(b)(1), (2), (3) and (4)) of the
Internal Revenue Code, applicable to the Portfolio, and the regulations
promulgated thereunder, to the extent such compliance is within the
Sub-Advisor's control. Sub-Advisor shall also comply with (i) other applicable
provisions of state or federal law; (ii) the provisions of the Declaration of
Trust and By-laws of the Trust communicated to the Sub-Advisor pursuant to
paragraph 1 of this Agreement; (iii) policies and determinations of the Trust
and Investment Manager communicated to the Sub-Advisor in writing; (iv) the
fundamental policies and investment restrictions of the Trust, as set out in the
Trust's registration statement under the ICA, or as amended by the Trust's
shareholders; (v) the Prospectus and Statement of Additional Information of the
Trust; and (vi) investment guidelines or other instructions received in writing
from Investment Manager. Sub-Advisor shall supervise and monitor the activities
of its representatives, personnel and agents in connection with the investment
program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has
furnished the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the
date hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement
of the Sub-Advisor as Sub-Advisor to the Investment
Manager and approving the form of this agreement;
(d) The resolutions of the Trustees selecting the Investment
Manager as investment manager to the Trust and approving the
form of the Investment Manager's Management Agreement with the
Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager
as currently in effect; and
(g) A list of companies the securities of which are not to be
bought or sold for the Portfolio because of non-public
information regarding such companies that is available to
Investment Manager or the Trust, or which, in the sole opinion
of the Investment Manager, it believes such non-public
information would be deemed to be available to Investment
Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor
has furnished the Investment Manager with copies of each of the following
documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to
have authorized to give written and/or oral instructions
to Custodians of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will thereafter furnish the Investment Manager with
copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to items (a), (c) and (d) above within 30 days of
the time such materials become available to the Sub-Advisor. With respect to
item (b) above, the Sub-Advisor will thereafter furnish the Investment Manager,
within 30 days of the time such materials become available to the Sub-Advisor,
with a copy of the Sub-Advisor's audited balance sheet as at the end of each
fiscal year of the Sub-Advisor.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense,
will furnish all necessary investment facilities, including salaries of
personnel required for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor for the Portfolio's use an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the
Sub-Advisor's ongoing responsibilities with respect to the Portfolio. The
Sub-Advisor is further authorized to allocate the orders placed by it on behalf
of the Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine in
good faith in conformity with its responsibilities under applicable laws, rules
and regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information requested for inclusion in the Trust's
Registration Statement, in such form as may be mutually agreed, to review the
Portfolio and discuss the management of it. The Sub-Advisor shall permit the
financial statements, books and records with respect to the Portfolio to be
inspected and audited by the Trust, the Investment Manager or their agents at
all reasonable times during normal business hours. The Sub-Advisor shall
immediately notify and forward to the Investment Manager and the Trust any legal
process served upon it on behalf of the Investment Manager or the Trust. The
Sub-Advisor shall promptly notify the Investment Manager of any changes in any
information concerning the Sub-Advisor or the Sub-Advisors activities in
connection with the investment program for the Portfolio required to be
disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each
month, at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .45 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $150 million; plus
.40 of 1% of the portion of the net assets over $150 million but not in excess
of $300 million; plus .35 of 1% of the portion of the net assets over $300
million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Advisers
Act, that it will use its reasonable best efforts to maintain such registration,
and that it will promptly notify the other if it ceases to be so registered, if
its registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it should show
cause why its registration should not be suspended or terminated.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that the Sub-Advisor shall not be liable
for any failure to recommend the purchase or sale of any security on behalf of
the Portfolio on the basis of any information which might, in Sub-Advisor's
opinion, constitute a violation of any federal or state laws, rules or
regulations.
11. Other Activities of Sub-Advisor. Investment Manager agrees that the
Sub-Advisor and any of its partners or employees, and persons affiliated with it
or with any such partner or employee may render investment management or
advisory services to other investors and institutions, and such investors and
institutions may own, purchase or sell, securities or other interests in
property the same as or similar to those which are selected for purchase,
holding or sale for the Portfolio, and the Sub-Advisor shall be in all respects
free to take action with respect to investments in securities or other interests
in property the same as or similar to those selected for purchase, holding or
sale for the Portfolio. Purchases and sales of individual securities on behalf
of the Portfolio and other portfolios of the Trust or accounts for other
investors or institutions will be made on a basis that is equitable to all
portfolios of the Trust and other accounts. Nothing in this agreement shall
impose upon the Sub-Advisor any obligation to purchase or sell or recommend for
purchase or sale, for the Portfolio any security which it, its partners,
affiliates or employees may purchase or sell for the Sub-Advisor or such
partner's, affiliate's or employee's own accounts or for the account of any
other client, advisory or otherwise.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
by either party to this Agreement, as defined in the ICA, or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager
within a reasonable time of any change in the personnel of the Sub-Advisor
with responsibility for making investment decisions in relation to the
Portfolio or who have been authorized to give instructions to a Custodian of
the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different address for such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Advisor: Putnam Investment Management, Inc.
One Post Office Square
Boston, Massachusetts 02109
Attention: Charles A. Ruys de Perez, Esq.
Senior Vice President & Senior Counsel
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities as portfolio manager of the Portfolio (1) to the
extent of and as a result of the willful misconduct, bad faith, or gross
negligence by Sub-Advisor, any of Sub-Advisor's employees or representatives or
any affiliate of or any person acting on behalf of Sub-Advisor, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
relating to the Sub-Advisor or the Sub-Advisor's activities in connection with
the investment program for the Portfolio contained in a prospectus or statement
of additional information covering the Portfolio or the Trust or any amendment
thereof or any supplement thereto or the omission or alleged omission to state
therein such a material fact required to be stated therein or necessary to make
the statement therein not misleading, if such a statement or omission was made
in reliance upon written information furnished to the Investment Manager, the
Trust or any affiliated person of the Investment Manager or the Trust by the
Sub-Advisor or upon verbal information confirmed by the Sub-Advisor in writing
or (3) to the extent of, and as a result of, the failure of the Sub-Advisor to
execute, or cause to be executed, Portfolio transactions according to the
standards and requirements of the ICA; provided, however, that in no case is
Sub-Advisor's indemnity in favor of Investment Manager or any affiliated person
or controlling person of Investment Manager deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misconduct, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement; and, provided further, that in the case of an
alleged untrue statement or omission of a material fact for which the
Sub-Advisor provides this indemnity, the Investment Manager shall reimburse the
Sub-Advisor for all amounts paid pursuant to this indemnity unless a court of
competent jurisdiction shall issue a final judgment finding that such an untrue
statement or omission of material fact did occur.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein such a material fact required to be stated
therein or necessary to make the statement therein not misleading, if such a
statement or omission was made by the Trust other than in reliance upon written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case is Investment Manager's indemnity
in favor of Sub-Advisor or any affiliated person or controlling person of
Sub-Advisor deemed to protect such person against any liability to which any
such person would otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. This agreement is made under, and shall be governed by
and construed in accordance with, the laws of the State of Connecticut.
The effective date of this agreement is December 30, 1996.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
___________________________________ ____________________________
Thomas Mazzaferro
President & Chief Operating Officer
Date:__________ Date:__________
Attest:____________________________ Attest:_____________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(ss) Sub-Advisory Agreement between American
Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the
AST Putnam International Equity Portfolio.
</TABLE>
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services,
Incorporated (the "Investment Manager") and Putnam Investment Management,
Inc. (the "Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the AST Putnam International Equity
Portfolio (the "Portfolio") under the terms of a management agreement, dated
October 15, 1996, with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with applicable provisions of the Trust's Declaration of Trust and
By-laws provided to the Sub-Advisor from time to time by the Investment Manager.
Officers, directors, and employees of Sub-Advisor will be available to consult
with Investment Manager and the Trust, their officers, employees and Trustees
concerning the business of the Trust. Investment Manager will promptly furnish
Sub-Advisor with any amendments to any of the foregoing documents (the
"Documents"). Any amendments to the Documents will not be deemed effective with
respect to the Sub-Advisor until the Sub-Advisor's receipt thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal. The Sub-Advisor shall not be responsible for the provision of
administrative, bookkeeping or accounting services to the Trust. The Sub-Advisor
shall supply the Investment Manager and the Trust with such information as is
specifically provided herein, as required by the ICA or the Investment Advisers
Act of 1940, as amended (the "Advisers Act") in connection with the
Sub-Advisor's management of the Portfolio, or as may be necessary to supply the
information to the Investment Manager, the Trust, the Trust's Board of Trustees
or their respective agents required to be supplied under this Agreement. Any
records required to be maintained shall be the property of the Trust and
surrendered to the Trust promptly upon request or upon termination of this
Agreement. The Sub-Advisor may retain copies of any records surrendered to the
Trust.
To the extent deemed necessary by the Sub-Advisor in connection with
the investment program for the Portfolio, the Sub-Advisor will obtain and
evaluate pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the Portfolio, and concerning the individual
issuers whose securities are included in the Portfolio or the activities in
which they engage, or with respect to securities which the Sub-Advisor considers
desirable for inclusion in the Portfolio or such other information as the
Sub-Advisor deems relevant.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the Sub-Advisor or information relating to the Sub-Advisor
or the Sub-Advisor's activities in connection with the investment program for
the Portfolio, such Registration Statement or Proxy Statement contains, as of
the date thereof, no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or necessary
to make the statements contained therein not misleading. The Sub-Advisor further
represents and warrants that it is an investment advisor registered under the
Advisers Act and under the laws of all jurisdictions in which the conduct of its
business hereunder requires such registration.
Sub-Advisor shall use its best judgment, effort, and advice in
rendering services under this Agreement.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapters L and M (including,
respectively, Section 817(h) and Section 851(b)(1), (2), (3) and (4)) of the
Internal Revenue Code, applicable to the Portfolio, and the regulations
promulgated thereunder, to the extent such compliance is within the
Sub-Advisor's control. Sub-Advisor shall also comply with (i) other applicable
provisions of state or federal law; (ii) the provisions of the Declaration of
Trust and By-laws of the Trust communicated to the Sub-Advisor pursuant to
paragraph 1 of this Agreement; (iii) policies and determinations of the Trust
and Investment Manager communicated to the Sub-Advisor in writing; (iv) the
fundamental policies and investment restrictions of the Trust, as set out in the
Trust's registration statement under the ICA, or as amended by the Trust's
shareholders; (v) the Prospectus and Statement of Additional Information of the
Trust; and (vi) investment guidelines or other instructions received in writing
from Investment Manager. Sub-Advisor shall supervise and monitor the activities
of its representatives, personnel and agents in connection with the investment
program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has
furnished the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the
date hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement
of the Sub-Advisor as Sub-Advisor to the Investment
Manager and approving the form of this agreement;
(d) The resolutions of the Trustees selecting the Investment
Manager as investment manager to the Trust and approving the
form of the Investment Manager's Management Agreement with the
Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager
as currently in effect; and
(g) A list of companies the securities of which are not to be
bought or sold for the Portfolio because of non-public
information regarding such companies that is available to
Investment Manager or the Trust, or which, in the sole opinion
of the Investment Manager, it believes such non-public
information would be deemed to be available to Investment
Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor
has furnished the Investment Manager with copies of each of the following
documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to
have authorized to give written and/or oral instructions to
Custodians of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will thereafter furnish the Investment Manager with
copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to items (a), (c) and (d) above within 30 days of
the time such materials become available to the Sub-Advisor. With respect to
item (b) above, the Sub-Advisor will thereafter furnish the Investment Manager,
within 30 days of the time such materials become available to the Sub-Advisor,
with a copy of the Sub-Advisor's audited balance sheet as at the end of each
fiscal year of the Sub-Advisor.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense,
will furnish all necessary investment facilities, including salaries of
personnel required for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor for the Portfolio's use an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the
Sub-Advisor's ongoing responsibilities with respect to the Portfolio. The
Sub-Advisor is further authorized to allocate the orders placed by it on behalf
of the Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine in
good faith in conformity with its responsibilities under applicable laws, rules
and regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information requested for inclusion in the Trust's
Registration Statement, in such form as may be mutually agreed, to review the
Portfolio and discuss the management of it. The Sub-Advisor shall permit the
financial statements, books and records with respect to the Portfolio to be
inspected and audited by the Trust, the Investment Manager or their agents at
all reasonable times during normal business hours. The Sub-Advisor shall
immediately notify and forward to the Investment Manager and the Trust any legal
process served upon it on behalf of the Investment Manager or the Trust. The
Sub-Advisor shall promptly notify the Investment Manager of any changes in any
information concerning the Sub-Advisor or the Sub-Advisors activities in
connection with the investment program for the Portfolio required to be
disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each
month, at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .65 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $150 million; plus
.55 of 1% of the portion of the average daily net assets of the Portfolio over
$150 million but not in excess of $300 million; plus .45 of 1% of the portion of
the average daily net assets of the Portfolio in excess of $300 million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Advisers
Act, that it will use its reasonable best efforts to maintain such registration,
and that it will promptly notify the other if it ceases to be so registered, if
its registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it should show
cause why its registration should not be suspended or terminated.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that the Sub-Advisor shall not be liable
for any failure to recommend the purchase or sale of any security on behalf of
the Portfolio on the basis of any information which might, in Sub-Advisor's
opinion, constitute a violation of any federal or state laws, rules or
regulations.
11. Other Activities of Sub-Advisor. Investment Manager agrees that the
Sub-Advisor and any of its partners or employees, and persons affiliated with it
or with any such partner or employee may render investment management or
advisory services to other investors and institutions, and such investors and
institutions may own, purchase or sell, securities or other interests in
property the same as or similar to those which are selected for purchase,
holding or sale for the Portfolio, and the Sub-Advisor shall be in all respects
free to take action with respect to investments in securities or other interests
in property the same as or similar to those selected for purchase, holding or
sale for the Portfolio. Purchases and sales of individual securities on behalf
of the Portfolio and other portfolios of the Trust or accounts for other
investors or institutions will be made on a basis that is equitable to all
portfolios of the Trust and other accounts. Nothing in this agreement shall
impose upon the Sub-Advisor any obligation to purchase or sell or recommend for
purchase or sale, for the Portfolio any security which it, its partners,
affiliates or employees may purchase or sell for the Sub-Advisor or such
partner's, affiliate's or employee's own accounts or for the account of any
other client, advisory or otherwise.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
by either party to this Agreement, as defined in the ICA, or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager
within a reasonable time of any change in the personnel of the Sub-Advisor with
responsibility for making investment decisions in relation to the Portfolio or
who have been authorized to give instructions to a Custodian of the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different address for such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Advisor: Putnam Investment Management, Inc.
One Post Office Square
Boston, Massachusetts 02109
Attention: Charles A. Ruys de Perez, Esq.
Senior Vice President & Senior Counsel
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities as portfolio manager of the Portfolio (1) to the
extent of and as a result of the willful misconduct, bad faith, or gross
negligence by Sub-Advisor, any of Sub-Advisor's employees or representatives or
any affiliate of or any person acting on behalf of Sub-Advisor, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
relating to the Sub-Advisor or the Sub-Advisor's activities in connection with
the investment program for the Portfolio contained in a prospectus or statement
of additional information covering the Portfolio or the Trust or any amendment
thereof or any supplement thereto or the omission or alleged omission to state
therein such a material fact required to be stated therein or necessary to make
the statement therein not misleading, if such a statement or omission was made
in reliance upon written information furnished to the Investment Manager, the
Trust or any affiliated person of the Investment Manager or the Trust by the
Sub-Advisor or upon verbal information confirmed by the Sub-Advisor in writing
or (3) to the extent of, and as a result of, the failure of the Sub-Advisor to
execute, or cause to be executed, Portfolio transactions according to the
standards and requirements of the ICA; provided, however, that in no case is
Sub-Advisor's indemnity in favor of Investment Manager or any affiliated person
or controlling person of Investment Manager deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misconduct, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement; and, provided further, that in the case of an
alleged untrue statement or omission of a material fact for which the
Sub-Advisor provides this indemnity, the Investment Manager shall reimburse the
Sub-Advisor for all amounts paid pursuant to this indemnity unless a court of
competent jurisdiction shall issue a final judgment finding that such an untrue
statement or omission of material fact did occur.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein such a material fact required to be stated
therein or necessary to make the statement therein not misleading, if such a
statement or omission was made by the Trust other than in reliance upon written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case is Investment Manager's indemnity
in favor of Sub-Advisor or any affiliated person or controlling person of
Sub-Advisor deemed to protect such person against any liability to which any
such person would otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. This agreement is made under, and shall be governed by
and construed in accordance with, the laws of the State of Connecticut.
The effective date of this agreement is October 15, 1996.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
___________________________________ _____________________________
Thomas Mazzaferro
President & Chief Operating Officer
Date: ___________ Date: __________
Attest:____________________________ Attest: _____________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
5(tt) Sub-Advisory Agreement between American
Skandia Investment Services, Incorporated and
Putnam Investment Management, Inc. for the
AST Putnam Balanced Portfolio.
</TABLE>
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is between American Skandia Investment Services,
Incorporated (the "Investment Manager") and Putnam Investment Management,
Inc. (the "Sub-Advisor").
WHEREAS American Skandia Trust (the "Trust") is a Massachusetts business trust
organized with one or more series of shares, and is registered as an investment
company under the Investment Company Act of 1940 (the "ICA"); and
WHEREAS the trustees of the Trust (the "Trustees") have engaged the Investment
Manager to act as investment manager for the AST Putnam Balanced Portfolio (the
"Portfolio") under the terms of a management agreement, dated October 15, 1996,
with the Trust (the "Management Agreement"); and
WHEREAS the Investment Manager has engaged the Sub-Advisor and the Trustees have
approved the engagement of the Sub-Advisor to provide investment advice and
other investment services set forth below;
NOW, THEREFORE the Investment Manager and the Sub-Advisor agree as follows:
1. Investment Services. The Sub-Advisor will furnish the Investment Manager with
investment advisory services in connection with a continuous investment program
for the Portfolio which is to be managed in accordance with the investment
objective, investment policies and restrictions of the Portfolio as set forth in
the Prospectus and Statement of Additional Information of the Trust and in
accordance with applicable provisions of the Trust's Declaration of Trust and
By-laws provided to the Sub-Advisor from time to time by the Investment Manager.
Officers, directors, and employees of Sub-Advisor will be available to consult
with Investment Manager and the Trust, their officers, employees and Trustees
concerning the business of the Trust. Investment Manager will promptly furnish
Sub-Advisor with any amendments to any of the foregoing documents (the
"Documents"). Any amendments to the Documents will not be deemed effective with
respect to the Sub-Advisor until the Sub-Advisor's receipt thereof.
Subject to the supervision and control of the Investment Manager, which
is in turn subject to the supervision and control of the Trust's Board of
Trustees, the Sub-Advisor will in its discretion determine and select the
securities to be purchased for and sold from the Portfolio from time to time and
will place orders with and give instructions to brokers, dealers and others for
all such transactions and cause such transactions to be executed. Custody of the
Portfolio will be maintained by a custodian bank (the "Custodian") and the
Investment Manager will authorize the Custodian to honor orders and instructions
by employees of the Sub-Advisor designated by the Investment Manager to settle
transactions in respect of the Portfolio. No assets may be withdrawn from the
Portfolio other than for settlement of transactions on behalf of the Portfolio
except upon the written authorization of appropriate officers of the Trust who
shall have been certified as such by proper authorities of the Trust prior to
the withdrawal. The Sub-Advisor shall not be responsible for the provision of
administrative, bookkeeping or accounting services to the Trust. The Sub-Advisor
shall supply the Investment Manager and the Trust with such information as is
specifically provided herein, as required by the ICA or the Investment Advisers
Act of 1940, as amended (the "Advisers Act") in connection with the
Sub-Advisor's management of the Portfolio, or as may be necessary to supply the
information to the Investment Manager, the Trust, the Trust's Board of Trustees
or their respective agents required to be supplied under this Agreement. Any
records required to be maintained shall be the property of the Trust and
surrendered to the Trust promptly upon request or upon termination of this
Agreement. The Sub-Advisor may retain copies of any records surrendered to the
Trust.
To the extent deemed necessary by the Sub-Advisor in connection with
the investment program for the Portfolio, the Sub-Advisor will obtain and
evaluate pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the Portfolio, and concerning the individual
issuers whose securities are included in the Portfolio or the activities in
which they engage, or with respect to securities which the Sub-Advisor considers
desirable for inclusion in the Portfolio or such other information as the
Sub-Advisor deems relevant.
The Sub-Advisor represents that it reviewed the Registration Statement
of the Trust, including any amendments or supplements thereto, and any Proxy
Statement relating to the approval of this Agreement, as filed with the
Securities and Exchange Commission and represents and warrants that with respect
to disclosure about the Sub-Advisor or information relating to the Sub-Advisor
or the Sub-Advisor's activities in connection with the investment program for
the Portfolio, such Registration Statement or Proxy Statement contains, as of
the date thereof, no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or necessary
to make the statements contained therein not misleading. The Sub-Advisor further
represents and warrants that it is an investment advisor registered under the
Advisers Act and under the laws of all jurisdictions in which the conduct of its
business hereunder requires such registration.
Sub-Advisor shall use its best judgment, effort, and advice in
rendering services under this Agreement.
In furnishing the services under this Agreement, the Sub-Advisor will
comply with the requirements of the ICA and subchapters L and M (including,
respectively, Section 817(h) and Section 851(b)(1), (2), (3) and (4)) of the
Internal Revenue Code, applicable to the Portfolio, and the regulations
promulgated thereunder, to the extent such compliance is within the
Sub-Advisor's control. Sub-Advisor shall also comply with (i) other applicable
provisions of state or federal law; (ii) the provisions of the Declaration of
Trust and By-laws of the Trust communicated to the Sub-Advisor pursuant to
paragraph 1 of this Agreement; (iii) policies and determinations of the Trust
and Investment Manager communicated to the Sub-Advisor in writing; (iv) the
fundamental policies and investment restrictions of the Trust, as set out in the
Trust's registration statement under the ICA, or as amended by the Trust's
shareholders; (v) the Prospectus and Statement of Additional Information of the
Trust; and (vi) investment guidelines or other instructions received in writing
from Investment Manager. Sub-Advisor shall supervise and monitor the activities
of its representatives, personnel and agents in connection with the investment
program of the Portfolio.
Nothing in this Agreement shall be implied to prevent the Investment
Manager from engaging other sub-advisors to provide investment advice and other
services in relation to portfolios of the Trust for which Sub-Advisor does not
provide such services, or to prevent Investment Manager from providing such
services itself in relation to such portfolios.
2. Delivery of Documents to Sub-Advisor. The Investment Manager has
furnished the Sub-Advisor with copies of each of the following documents:
(a) The Declaration of Trust of the Trust as in effect on the
date hereof;
(b) The By-laws of the Trust in effect on the date hereof;
(c) The resolutions of the Trustees approving the engagement
of the Sub-Advisor as Sub-Advisor to the Investment Manager
and approving the form of this agreement;
(d) The resolutions of the Trustees selecting the Investment
Manager as investment manager to the Trust and approving the
form of the Investment Manager's Management Agreement with the
Trust;
(e) The Investment Manager's Management Agreement with the Trust;
(f) The Code of Ethics of the Trust and of the Investment Manager
as currently in effect; and
(g) A list of companies the securities of which are not to be
bought or sold for the Portfolio because of non-public
information regarding such companies that is available to
Investment Manager or the Trust, or which, in the sole opinion
of the Investment Manager, it believes such non-public
information would be deemed to be available to Investment
Manager and/or the Trust.
The Investment Manager will furnish the Sub-Advisor from time to time
with copies, properly certified or otherwise authenticated, of all amendments of
or supplements to the foregoing, if any. Such amendments or supplements as to
items (a) through (f) above will be provided within 30 days of the time such
materials became available to the Investment Manager. Such amendments or
supplements as to item (g) above will be provided not later than the end of the
business day next following the date such amendments or supplements become known
to the Investment Manager.
3. Delivery of Documents to the Investment Manager. The Sub-Advisor has
furnished the Investment Manager with copies of each of the following documents:
(a) The Sub-Advisor's Form ADV as filed with the Securities and
Exchange Commission;
(b) The Sub-Advisor's most recent balance sheet;
(c) Separate lists of persons who the Sub-Advisor wishes to have
authorized to give written and/or oral instructions to
Custodians of Trust assets for the Portfolio;
(d) The Code of Ethics of the Sub-Advisor as currently in effect.
The Sub-Advisor will thereafter furnish the Investment Manager with
copies, properly certified or otherwise authenticated, of all material
amendments of or supplements to items (a), (c) and (d) above within 30 days of
the time such materials become available to the Sub-Advisor. With respect to
item (b) above, the Sub-Advisor will thereafter furnish the Investment Manager,
within 30 days of the time such materials become available to the Sub-Advisor,
with a copy of the Sub-Advisor's audited balance sheet as at the end of each
fiscal year of the Sub-Advisor.
4. Investment Advisory Facilities. The Sub-Advisor, at its expense,
will furnish all necessary investment facilities, including salaries of
personnel required for it to execute its duties faithfully.
5. Execution of Portfolio Transactions. Sub-Advisor is responsible for decisions
to buy and sell securities for the Portfolio, broker-dealer selection, and
negotiation of its brokerage commission rates. Sub-Advisor shall determine the
securities to be purchased or sold by the Portfolio pursuant to its
determinations with or through such persons, brokers or dealers, in conformity
with the policy with respect to brokerage as set forth in the Trust's Prospectus
and Statement of Additional Information, or as the Board of Trustees may
determine from time to time. Generally, Sub-Advisor's primary consideration in
placing Portfolio securities transactions with broker-dealers for execution is
to obtain and maintain the availability of best execution at the best net price
and in the most effective manner possible. The Sub-Advisor may consider sale of
the shares of the Portfolio, as well as recommendations of the Investment
Manager, subject to the requirements of best net price and most favorable
execution.
Consistent with this policy, the Sub-Advisor will take the following
into consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolio on a continuing
basis. Accordingly, the cost of the brokerage commissions to the Portfolio may
be greater than that available from other brokers if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies and procedures as the Board of Trustees of the
Trust may determine, the Sub-Advisor shall not be deemed to have acted
unlawfully or to have breached any duty solely by reason of its having caused
the Portfolio to pay a broker-dealer that provides research services to the
Sub-Advisor for the Portfolio's use an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the research services provided by such
broker, viewed in terms of either that particular transaction or the
Sub-Advisor's ongoing responsibilities with respect to the Portfolio. The
Sub-Advisor is further authorized to allocate the orders placed by it on behalf
of the Portfolio to such broker-dealers who also provide research or statistical
material, or other services to the Portfolio or the Sub-Advisor. Such allocation
shall be in such amounts and proportions as the Sub-Advisor shall determine in
good faith in conformity with its responsibilities under applicable laws, rules
and regulations and the Sub-Advisor will report on said allocations to the
Investment Manager regularly as requested by the Investment Manager and, in any
event, at least once each calendar year if no specific request is made,
indicating the brokers to whom such allocations have been made and the basis
therefor.
6. Reports by Sub-Advisor. The Sub-Advisor shall furnish the Investment Manager
monthly, quarterly and annual reports concerning transactions and performance of
the Portfolio, including information requested for inclusion in the Trust's
Registration Statement, in such form as may be mutually agreed, to review the
Portfolio and discuss the management of it. The Sub-Advisor shall permit the
financial statements, books and records with respect to the Portfolio to be
inspected and audited by the Trust, the Investment Manager or their agents at
all reasonable times during normal business hours. The Sub-Advisor shall
immediately notify and forward to the Investment Manager and the Trust any legal
process served upon it on behalf of the Investment Manager or the Trust. The
Sub-Advisor shall promptly notify the Investment Manager of any changes in any
information concerning the Sub-Advisor or the Sub-Advisors activities in
connection with the investment program for the Portfolio required to be
disclosed in the Trust's Registration Statement.
7. Compensation of Sub-Advisor. The amount of the compensation to the
Sub-Advisor is computed at an annual rate. The fee is payable monthly in
arrears, based on the average daily net assets of the Portfolio for each
month, at the annual rates shown below.
For all services rendered, the Investment Manager will calculate and
pay the Sub-Advisor at the annual rate of: .45 of 1% of the portion of the
average daily net assets of the Portfolio not in excess of $150 million; plus
.40 of 1% of the portion of the average daily net assets of the Portfolio over
$150 million but not in excess of $300 million; plus .35 of 1% of the portion of
the average daily net assets of the Portfolio in excess of $300 million.
In computing the fee to be paid to the Sub-Advisor, the net asset value
of the Portfolio shall be valued as set forth in the then current registration
statement of the Trust. If this agreement is terminated, the payment shall be
prorated to the date of termination.
Investment Manager and Sub-Advisor shall not be considered as partners
or participants in a joint venture. Sub-Advisor will pay its own expenses for
the services to be provided pursuant to this Agreement and will not be obligated
to pay any expenses of Investment Manager or the Trust. Except as otherwise
provided herein, Investment Manager and the Trust will not be obligated to pay
any expenses of Sub-Advisor.
8. Confidential Treatment. It is understood that any information or
recommendation supplied by the Sub-Advisor in connection with the performance of
its obligations hereunder is to be regarded as confidential and for use only by
the Investment Manager, the Trust or such persons the Investment Manager may
designate in connection with the Portfolio. It is also understood that any
information supplied to Sub-Advisor in connection with the performance of its
obligations hereunder, particularly, but not limited to, any list of securities
which, on a temporary basis, may not be bought or sold for the Portfolio, is to
be regarded as confidential and for use only by the Sub-Advisor in connection
with its obligation to provide investment advice and other services to the
Portfolio.
9. Representations of the Parties. Each party to this Agreement hereby
acknowledges that it is registered as an investment advisor under the Advisers
Act, that it will use its reasonable best efforts to maintain such registration,
and that it will promptly notify the other if it ceases to be so registered, if
its registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it should show
cause why its registration should not be suspended or terminated.
10. Liability. The Sub-Advisor shall use its best efforts and good faith in the
performance of its services hereunder. However, so long as the Sub-Advisor has
acted in good faith and has used its best efforts, then in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations hereunder, it shall not be liable to the Trust or its shareholders
or to the Investment Manager for any act or omission resulting in any loss
suffered in any portfolio of the Trust in connection with any service to be
provided herein. The Federal laws impose responsibilities under certain
circumstances on persons who act in good faith, and therefore, nothing herein
shall in any way constitute a waiver of limitation of any rights which the Trust
or Investment Manager may have under applicable law.
The Investment Manager agrees that the Sub-Advisor shall not be liable
for any failure to recommend the purchase or sale of any security on behalf of
the Portfolio on the basis of any information which might, in Sub-Advisor's
opinion, constitute a violation of any federal or state laws, rules or
regulations.
11. Other Activities of Sub-Advisor. Investment Manager agrees that the
Sub-Advisor and any of its partners or employees, and persons affiliated with it
or with any such partner or employee may render investment management or
advisory services to other investors and institutions, and such investors and
institutions may own, purchase or sell, securities or other interests in
property the same as or similar to those which are selected for purchase,
holding or sale for the Portfolio, and the Sub-Advisor shall be in all respects
free to take action with respect to investments in securities or other interests
in property the same as or similar to those selected for purchase, holding or
sale for the Portfolio. Purchases and sales of individual securities on behalf
of the Portfolio and other portfolios of the Trust or accounts for other
investors or institutions will be made on a basis that is equitable to all
portfolios of the Trust and other accounts. Nothing in this agreement shall
impose upon the Sub-Advisor any obligation to purchase or sell or recommend for
purchase or sale, for the Portfolio any security which it, its partners,
affiliates or employees may purchase or sell for the Sub-Advisor or such
partner's, affiliate's or employee's own accounts or for the account of any
other client, advisory or otherwise.
12. Continuance and Termination. This Agreement shall remain in full force and
effect for one year from the date hereof, and is renewable annually thereafter
by specific approval of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Portfolio. Any such renewal
shall be approved by the vote of a majority of the Trustees who are not
interested persons under the ICA, cast in person at a meeting called for the
purpose of voting on such renewal. This agreement may be terminated without
penalty at any time by the Investment Manager or Sub-Advisor upon 60 days
written notice, and will automatically terminate in the event of its assignment
by either party to this Agreement, as defined in the ICA, or (provided
Sub-Advisor has received prior written notice thereof) upon termination of the
Investment Manager's Management Agreement with the Trust.
13. Notification. Sub-Advisor will notify the Investment Manager
within a reasonable time of any change in the personnel of the Sub-Advisor
with responsibility for making investment decisions in relation to the
Portfolio or who have been authorized to give instructions to a Custodian of
the Trust.
Any notice, instruction or other communication required or contemplated
by this agreement shall be in writing. All such communications shall be
addressed to the recipient at the address set forth below, provided that either
party may, by notice, designate a different address for such party.
Investment Manager: American Skandia Investment Services, Incorporated
One Corporate Drive
Shelton, Connecticut 06484
Attention: Thomas M. Mazzaferro
President & Chief Operating Officer
Sub-Advisor: Putnam Investment Management, Inc.
One Post Office Square
Boston, Massachusetts 02109
Attention: Charles A. Ruys de Perez, Esq.
Senior Vice President & Senior Counsel
14. Indemnification. The Sub-Advisor agrees to indemnify and hold harmless
Investment Manager, any affiliated person within the meaning of Section 2(a)(3)
of the ICA ("affiliated person") of Investment Manager and each person, if any
who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), controls ("controlling person") Investment Manager, against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses), to which Investment Manager or such affiliated person or
controlling person may become subject under the 1933 Act, the ICA, the Advisers
Act, under any other statute, at common law or otherwise, arising out of
Sub-Advisor's responsibilities as portfolio manager of the Portfolio (1) to the
extent of and as a result of the willful misconduct, bad faith, or gross
negligence by Sub-Advisor, any of Sub-Advisor's employees or representatives or
any affiliate of or any person acting on behalf of Sub-Advisor, or (2) as a
result of any untrue statement or alleged untrue statement of a material fact
relating to the Sub-Advisor or the Sub-Advisor's activities in connection with
the investment program for the Portfolio contained in a prospectus or statement
of additional information covering the Portfolio or the Trust or any amendment
thereof or any supplement thereto or the omission or alleged omission to state
therein such a material fact required to be stated therein or necessary to make
the statement therein not misleading, if such a statement or omission was made
in reliance upon written information furnished to the Investment Manager, the
Trust or any affiliated person of the Investment Manager or the Trust by the
Sub-Advisor or upon verbal information confirmed by the Sub-Advisor in writing
or (3) to the extent of, and as a result of, the failure of the Sub-Advisor to
execute, or cause to be executed, Portfolio transactions according to the
standards and requirements of the ICA; provided, however, that in no case is
Sub-Advisor's indemnity in favor of Investment Manager or any affiliated person
or controlling person of Investment Manager deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misconduct, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement; and, provided further, that in the case of an
alleged untrue statement or omission of a material fact for which the
Sub-Advisor provides this indemnity, the Investment Manager shall reimburse the
Sub-Advisor for all amounts paid pursuant to this indemnity unless a court of
competent jurisdiction shall issue a final judgment finding that such an untrue
statement or omission of material fact did occur.
The Investment Manager agrees to indemnify and hold harmless
Sub-Advisor, any affiliated person of Sub-Advisor and each controlling person of
Sub-Advisor, if any, against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which Sub-Advisor
or such affiliated person or controlling person may become subject under the
1933 Act, the ICA, the Advisers Act, under any other statute, at common law or
otherwise, arising out of Investment Manager's responsibilities as investment
manager of the Portfolio (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by Investment Manager, any of
Investment Manager's employees or representatives or any affiliate of or any
person acting on behalf of Investment Manager, or (2) as a result of any untrue
statement or alleged untrue statement of a material fact contained in a
prospectus or statement of additional information covering the Portfolio or the
Trust or any amendment thereof or any supplement thereto or the omission or
alleged omission to state therein such a material fact required to be stated
therein or necessary to make the statement therein not misleading, if such a
statement or omission was made by the Trust other than in reliance upon written
information furnished by Sub-Advisor, or any affiliated person of the
Sub-Advisor or other than upon verbal information confirmed by the Sub-Advisor
in writing; provided, however, that in no case is Investment Manager's indemnity
in favor of Sub-Advisor or any affiliated person or controlling person of
Sub-Advisor deemed to protect such person against any liability to which any
such person would otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.
15. Warranty. The Investment Manager represents and warrants that (i) the
appointment of the Sub-Advisor by the Investment Manager has been duly
authorized and (ii) it has acted and will continue to act in connection with the
transactions contemplated hereby, and the transactions contemplated hereby are,
in conformity with the ICA, the Trust's governing documents and other applicable
laws.
The Sub-Advisor represents and warrants that it is authorized to
perform the services contemplated to be performed hereunder.
16. Governing Law. This agreement is made under, and shall be governed by
and construed in accordance with, the laws of the State of Connecticut.
The effective date of this agreement is October 15, 1996.
FOR THE INVESTMENT MANAGER: FOR THE SUB-ADVISOR:
___________________________________ ____________________________
Thomas Mazzaferro
President & Chief Operating Officer
Date:__________ Date:__________
Attest:____________________________ Attest:_____________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
6(b) Sales Agreement between Registrant and Kemper
Life Insurance Company.
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
This AGREEMENT is made as of the 7th day of June, 1996, by and between
American Skandia Trust ("FUND"), a Massachusetts business trust, American
Skandia Investment Services, Incorporated ("ASISI"), an Investment Advisor for
Fund, and Kemper Investors Life Insurance Company ("COMPANY"), a life insurance
company organized under the laws of the State of Illinois.
WHEREAS, FUND is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
diversified investment management Company; and
WHEREAS, FUND is organized as a series fund authorized to issue separate series
of shares ("Portfolios"); and
WHEREAS, ASISI is registered as an investment advisor under the Investment
Advisors Act of 1940, as amended; and
WHEREAS, FUND has obtained an order from the Securities and Exchange Commission,
dated August 1, 1995, granting participating insurance companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a) and 15(b) of the 40 Act and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by certain qualified plans and to be
sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies; and
WHEREAS, COMPANY has registered or will register certain variable annuity and
variable life insurance contracts under the Securities Act of 1933 Act, as
amended (the "1933 Act"); and
WHEREAS, each segregated asset account of the COMPANY set forth on Schedule "A"
hereto as may be amended from time to time ("Account") is a duly organized,
validly existing segregated asset account, established by resolution of the
Board of Directors of the COMPANY, on the date shown for such Account on
Schedule A, to set aside and invest assets attributable to such variable annuity
and variable life insurance contracts; and
WHEREAS, COMPANY has registered or will register each Account as a unit
investment trust under the 1940 Act;
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the COMPANY wishes to purchase shares in the Portfolios on behalf of each
Account to fund certain variable annuity and variable life insurance contracts;
NOW, THEREFORE, and in consideration of the mutual covenants herein contained,
it is hereby agreed by and between FUND and COMPANY as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 FUND will make available to the Accounts shares of FUND Portfolios
designated by FUND and listed in Appendix "A" for purchase by the COMPANY and
its Accounts at the applicable net asset value per share on those days on which
the Fund calculates its net asset value pursuant to the rules of the Securities
and Exchange Commission and the FUND shall use reasonable efforts to calculate
such net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Trustees of the FUND (the
"Board") may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio, if such action is required by
law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, necessary in the best
interests of the shareholders of such Portfolio.
1.2 Orders shall be placed for such shares with FUND or its designee pursuant to
procedures which are then in effect and which may be modified from time to time.
FUND will inform COMPANY of the procedures for placing orders with the FUND or
its designee and will undertake to inform COMPANY of any modifications to such
procedures, all such procedures to be consistent with this Agreement. Issuance
and transfer of FUND'S shares will be by book entry only. Stock certificates
will not be issued to the COMPANY or any Account. Shares ordered from the FUND
or its designee will be recorded in an appropriate title for each Account or the
appropriate subaccount of each Account.
For purposes of this Section 1.2, the COMPANY shall be the designee of
the FUND for receipt of orders for such shares and receipt by such designee
shall constitute receipt by the FUND; provided that, the FUND receives notice of
such orders for shares on the next following business day, before 8:45 Central
time. Business day shall mean any day on which the New York Stock Exchange is
open for trading.
1.3 FUND agrees to redeem for cash, on COMPANY'S request, any full or fractional
shares of the FUND held by COMPANY, executing such requests on a daily basis at
the net asset value computed after receipt by FUND or its designee of the
request for redemption. For purposes of this Section 1.3, the COMPANY shall be
the designee of the FUND for receipt of requests for redemption from each
Account and receipt by such designee shall constitute receipt by the FUND;
provided that, the FUND receives notice of such request for redemption on the
next following business day, as set out in Section 1.2. Business day shall mean
any day on which the New York Stock Exchange is open for trading.
1.4 COMPANY agrees that purchases and redemptions of Portfolio shares offered by
the then current prospectus of the FUND shall be made in accordance with the
applicable provisions of such prospectus and the FUND'S statement of additional
information. COMPANY agrees that all net amounts available under the variable
annuity and variable life insurance contracts which are listed on Schedule A
hereto, as such Schedule A may be amended by the parties in writing
("Contracts"), shall be invested in the FUND and in such other investment
companies advised by American Skandia Life Investment Management, Inc.
("Advisor") as may be agreed to in writing by the parties to this Agreement,
provided that such amounts may also be invested in an investment company other
than the FUND if (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of all of the Portfolios of the Fund; or (b)
COMPANY gives FUND sixty (60) days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the COMPANY so informs the
FUND prior to its signing this Agreement; or (d) the FUND consents in writing to
the use of such other investment company.
1.5 COMPANY shall pay for FUND shares by wire transfer no later than 10:00 am
central time on the next Business Day after contract owners of the COMPANY enter
orders to purchase Fund shares. Payment shall be made in federal funds
transmitted by wire. For the purpose of Section 2.10 and 2.11, upon receipt by
the FUND of the federal funds so wired, such funds shall cease to be the
responsibility of the COMPANY and shall become the responsibility of the FUND.
1.6 FUND shall furnish same day notice (by wire or telephone, followed by
written confirmation) to the COMPANY of any income, dividends or capital gain
distributions payable on the FUND'S shares. COMPANY hereby elects to receive all
such income dividends and capital gains distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. COMPANY reserves the
right to revoke this election and to receive all such income dividends and
capital gains distributions in cash. FUND shall promptly notify COMPANY of the
number of shares so issued as payment of such dividends and distributions.
1.7 FUND shall make the net asset value per share for each Portfolio available
to the COMPANY on a daily basis as soon as reasonable practical after the net
asset value per share is calculated and shall use its best efforts to make such
net asset value per share available by 6 p.m. New York time.
ARTICLE II. REPRESENTATIONS
2.1 COMPANY represents and warrants that the Contracts are or will be registered
under the 1933 Act; that the Contracts will be issued and sold in compliance in
all material respects with all applicable federal and state laws and that the
sale of the Contracts shall comply in all material respects with state insurance
suitability requirements. COMPANY further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established each Account prior to any issuance
or sale thereof as a segregated asset account under applicable insurance law and
has registered, prior to any issuance or sale of the Contracts, or will
register, each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts.
2.2 COMPANY represents and warrants that the Contracts are currently treated as
annuity or variable life insurance contracts, under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and that it will make
every effort to maintain such treatment and that it will notify the FUND
immediately upon having a reasonable basis for believing the Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.3 COMPANY represents and warrants that all of its officers, directors,
employees, investment advisors, and other individuals/entities, if any, dealing
with the money and or securities of the Fund are and shall continue to be
covered by a blanket fidelity bond or similar coverage for the benefit of the
FUND in an amount not less than $5 million. The aforesaid includes coverage for
larceny and embezzlement and is issued by a reputable bonding company.
2.4 FUND represents and warrants that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts.
2.5 FUND represents and warrants that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification and that it will notify the COMPANY
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify as of the FUND'S fiscal year end.
2.6 FUND represents and warrants that all of its officers, directors, employees,
and investment advisors are and shall continue to be covered by a blanket
fidelity bond or similar coverage for the benefit of the FUND in an amount not
less than the minimal coverage as required currently by Rule 17g-(1) of the 1940
Act or related provisions as may be promulgated from time to time. The bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.7 FUND represents and warrants that the FUND will diversify the assets in each
Portfolio in the manner required for the variable contracts to be treated as
such under Section 817(h) of the Code, and the rules and regulations thereunder.
In the event of a breach of this Section 2.7 by the FUND, the FUND will take all
reasonable steps (a) to notify COMPANY of such breach, and (b) to adequately
diversify the FUND so as to achieve compliance within the grace period afforded
by Regulation 817-5 of the Code.
2.8 ASISI represents and warrants that:
(a) it is lawfully organized and validly existing under the
laws of the State of Connecticut;
(b) the FUND will diversify the assets in each Portfolio in
the manner required for the variable contracts to be treated as such under
Section 817(h) of the Code, and the rules and regulations thereunder; and
(c) In the event of a breach of this Section 2.7 by the FUND,
ASISI will take all reasonable steps (a) to notify COMPANY of such breach, and
(b) to use its best efforts to adequately diversify the FUND so as to achieve
compliance within the grace period afforded by Regulation 817-5 of the Code.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1 FUND will provide COMPANY camera ready copy of the current FUND prospectus,
and any supplements thereto for printing by COMPANY. FUND will provide COMPANY a
copy of the statement of additional information for duplication. FUND will
provide COMPANY copies of its proxy material suitable for printing. FUND will
provide COMPANY annual and semi-annual reports and any supplements thereto, in
camera-ready form.
3.2 COMPANY shall provide pass-through voting privileges to all variable
contract owners so long as the Securities and Exchange Commission continues to
interpret the 1940 Act to require such pass-through voting privileges for
variable contract owners. COMPANY shall be responsible for assuring that each of
its separate accounts participating in the FUND calculates voting privileges in
a manner consistent with the 1940 Act. It is a condition of the Agreement that
COMPANY will vote shares of FUND, for which it has not received voting
instructions as well as shares attributable to COMPANY, in the same proportion
as it votes shares for which it has received instructions.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 COMPANY will only (i) convey any information or make any representations
concerning FUND or its investment advisor, its shares or operations which are
contained in the most recent Registration Statement relating to the FUND and any
supplements thereto or (ii) use any materials or advertising which mention the
FUND or its investment advisor (including sales literature, brochures, letters,
illustrations and other similar material, whether transmitted directly to
potential applicants or published in print or audio-visual media), if, in either
case, FUND approves such items prior to use.
4.2 COMPANY shall furnish to the FUND or its designee, each piece of sales
literature or other promotional material in which the FUND or its investment
advisor or any affiliate thereof is named, at least eight (8) Business Days
prior to its use, and the Fund has five (5) days to respond and comment thereon.
4.3 FUND will provide to the COMPANY at least one complete copy of all
Registration Statements, Prospectuses and Statements of Additional Information,
proxy statements, applications for exemptions, requests for no-action letters
and all amendments to any of the above, that relate to the FUND or its shares,
promptly after filing such documents with the Securities and Exchange
Commission.
4.4 COMPANY will provide to the FUND at least one complete copy of all
Registration Statements, Prospectuses and Statements of Additional Information,
solicitations for voting instructions, applications for exemptions, requests for
no-action letters and all amendments to any of the above, that relate to the
Contracts or each Account promptly after filing such documents with the
Securities and Exchange Commission. COMPANY will provide to the FUND, final
copies of all sales literature and other promotional literature that relates to
the FUND or its shares, promptly after they become available.
4.5 For the purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the FUND or any affiliate of the FUND (such as material published, or
designed for use in, a newspaper, magazine, or other periodical, radio,
television, electronic media, telephone or tape recording, videotape display,
signs or billboards, motion pictures or other public media), sales literature
(namely, any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communication distributed or made generally available to some
or all agents or employees, and registration statements, Prospectuses,
Statements of Additional Information, shareholder reports and proxy materials.
4.6 Neither COMPANY nor FUND will use the other's name nor any other name, logo,
trademark, service mark nor symbol that is now or may hereafter be owned by the
other party, a parent or an affiliate or subsidiary thereof, except in the
manner and to the extent that the other party agrees to in furtherance of the
purposes of this Agreement. Each party will discontinue the use of such name,
logo, trademark, service mark or symbol belonging to the other party, parent,
affiliate or subsidiary thereof on termination of this Agreement. Such
discontinuance will occur immediately or, if applicable, as soon as permitted
under applicable law or regulation.
ARTICLE V. FEES AND EXPENSES
5.1 The COMPANY shall bear the expense of printing and distributing the FUND's
prospectus, statement of additional information, proxy materials, and annual and
semi-annual reports. For providing these services, the FUND will pay COMPANY
0.10% per annum of the average daily net asset value of FUND shares legally
owned by the Accounts of COMPANY.
Such value is payable within ten (10) days after the end of each month.
5.2 The COMPANY represents that it will pay 24f-2 fees as required by law. If
the COMPANY does not pay such fees and the FUND is obligated to pay such fees,
the COMPANY will reimburse the FUND for those fees.
ARTICLE VI. INDEMNIFICATION
6.1 COMPANY shall be solely responsible for its actions in connection with its
use of FUND and its shares and shall indemnify and hold harmless FUND, including
its officers, trustees and employees, from any losses, claims, damages,
liabilities or expenses (including reasonable attorneys fees and disbursements)
arising from the grossly negligent or intentional wrongful act or failure to act
with respect to the use of FUND or its shares by the COMPANY, including
COMPANY's officers, directors and employees; or arising from the bad faith,
willful misconduct or gross negligence in the performance by the COMPANY, or
COMPANY's officers, directors and employees, of such person's duties either
under this Agreement or to COMPANY, as applicable; or arising from the reckless
disregard of the obligations of the COMPANY, or COMPANY's officers, directors
and employees, either under this Agreement or to the COMPANY, as applicable; or
arising from COMPANY's furnishing of information to FUND, for use in FUND's
Prospectus or Statement of Additional Information, which is misleading or omits
to state a material fact necessary to make the statements made, in light of the
circumstances in which made, not misleading. Notwithstanding the foregoing,
COMPANY will not be liable to the extent ; that any such loss, claim, damage,
liability or expense (including reasonable attorneys fees and disbursements)
arises out of or is based upon an untrue statement or omission or alleged
omission made in good faith reliance upon and in conformity with information
furnished by FUND specifically for use in the Registration Statement or sales
literature relating to the variable contracts.
COMPANY shall not be liable under this Paragraph 6.1 with respect to
any losses, claims, damages, liabilities or expenses incurred or assessed
against the FUND, its officers, trustees, or employees to the extent that such
losses, claims, damages, liabilities or expenses arose from the FUND's willful
misconduct, bad faith or gross negligence in the performance of FUND's duties or
by reason of FUND's reckless disregard of its obligations under this Agreement.
6.2 FUND shall be solely responsible for its actions in connection with its
operations and shall indemnify and hold harmless COMPANY, including its
officers, directors and employees, from any losses, claims, damages, liabilities
or expenses (including reasonable attorneys fees and disbursements) arising from
the breach of its representations and warranties of this Agreement; arising from
the grossly negligent or intentional wrongful act or failure to act by the FUND,
including FUND's officers, trustees and employees; or arising from the bad
faith, willful misconduct or gross negligence in the performance by the FUND, or
FUND's officers, trustees and employees, of such person's duties either under
this Agreement or to FUND, as applicable; or arising from the reckless disregard
of the obligations of the FUND, or its officers, trustees and employees, either
under this Agreement or to the FUND, as applicable, or arising from FUND's
furnishing of information to COMPANY for use in COMPANY's Prospectus or
Statement of Additional Information which is misleading or omits to state a
material fact necessary to make the statements made, in light of the
circumstances in which made, not misleading. Notwithstanding the foregoing, FUND
will not be liable to the extent that any such loss, claim, damage, liability or
expense (including reasonable attorney's fees and disbursements) arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in good faith reliance upon and in conformity with
information furnished by COMPANY specifically for use in Registration Statement
or sales literature relating to FUND.
FUND shall not be liable under this Paragraph 6.2 with respect to any
losses, claims, damages, liabilities or expenses incurred or assessed against
the COMPANY, its officers, directors or employees, to the extent that such
losses, claims, damages, liabilities or expenses arose from such party's willful
misconduct, bad faith or gross negligence in the performance of such party's
duties or by reason of such party's reckless disregard of its obligations under
this Agreement or to the COMPANY, as applicable.
6.3 ASISI shall be solely responsible for its actions in connection with its
operations and shall indemnify and hold harmless COMPANY, including its
officers, directors and employees, from any losses, claims, damages, liabilities
or expenses (including reasonable attorneys fees and disbursements) arising from
the breach of its representations and warranties of Section 2.8(b); from the
grossly negligent or intentional wrongful act or failure to act by ASISI,
including ASISI's officers and employees; or arising from the bad faith, willful
misconduct or gross negligence in the performance by ASISI, or ASISI's officers
and employees, of such person's duties either under this Agreement or to ASISI,
as applicable; or arising from the reckless disregard of the obligations of
ASISI, or its officers and employees, either under this Agreement or to ASISI,
as applicable, or arising from ASISI's furnishing of information to COMPANY for
use in COMPANY's Prospectus or Statement of Additional Information which is
misleading or omits to state a material fact necessary to make the statements
made, in light of the circumstances in which made, not misleading.
Notwithstanding the foregoing, ASISI will not be liable to the extent that any
such loss, claim, damage, liability or expense (including reasonable attorney's
fees and disbursements) arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in good faith
reliance upon and in conformity with information furnished by COMPANY
specifically for use in the Registration Statement or sales literature relating
to ASISI.
ASISI shall not be liable under this Paragraph 6.3 with respect to any
losses, claims, damages, liabilities or expenses incurred or assessed against
the COMPANY, its officers, directors or employees, to the extent that such
losses, claims, damages, liabilities or expenses arose from such party's willful
misconduct, bad faith or gross negligence in the performance of such party's
duties or by reason of such party's reckless disregard of its obligations under
this Agreement or to the COMPANY, as applicable.
ARTICLE VII. POTENTIAL CONFLICTS
7.1 COMPANY agrees to inform the Board of the existence of, or any potential of,
any material irreconcilable conflict of interest of which it becomes aware
between the interests of owners of contracts using the Accounts of COMPANY which
invest in the FUND and/or the interests of owners of contracts using any other
separate account of any other insurance company which invests in the FUND.
7.2 The Board shall monitor FUND for the existence of any material
irreconcilable conflicts between the interests of the contract owners of all
separate accounts investing in the FUND.
7.3 A material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling, or
any similar action by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different life insurance companies utilizing FUND; or
(f) a decision by COMPANY to disregard the voting instructions of
contract owners.
COMPANY will be responsible for assisting the Board in carrying out its
responsibilities by providing the Board with all information reasonably
necessary for the Board to consider any issue raised including, inter alia, any
potential or existing conflicts between contract owners and information as to a
decision by COMPANY to disregard voting instructions of contract owners.
It is agreed that if it is determined by a majority of the members of
the Board or a majority of its disinterested Directors that a material
irreconcilable conflict exists affecting COMPANY, COMPANY shall, at its own
expense, take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the separate
accounts of COMPANY from FUND or any Portfolio and reinvesting such assets in a
different investment medium, including another Portfolio of the FUND, if any, or
submitting to a vote of all affected contract owners the question of whether
segregation of assets should be implemented and, as appropriate, segregating the
assets of any particular group (i.e., annuity contract owners, life insurance
contract owners or qualified contract owners) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; or
(ii) establishing a new registered management investment company or
managed separate account.
If a material irreconcilable conflict arises because of COMPANY'S
decisions to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, COMPANY may be
required, at the FUND'S election, to withdraw its Accounts' investment in FUND.
No penalty, other than applicable transaction costs, will be imposed against an
Account as a result of such a withdrawal. COMPANY agrees that any remedial
action taken by it in resolving any material conflicts of interest will be
carried out with a view only to the interest of contract owners.
For purposes hereof, a majority of the disinterested members of the
Board shall determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event will FUND be required to establish
a new funding medium for any variable contracts. COMPANY shall not be required
by the terms hereof to establish a new funding medium for any variable contracts
if an offer to do so has been declined by vote of a majority of adversely
affected contract owners. Should FUND or any affiliate of FUND choose to
establish a new funding medium or recommend other remedial action as a way to
resolve any material irreconcilable conflict, COMPANY will recommend to its
policyowners that they decline an offer to establish a new funding medium or
take other remedial action only if it believes it is in the best interest of the
contract owners to do so.
FUND will undertake to promptly make known to COMPANY the Board's
determination of the existence of a material irreconcilable conflict and its
implications.
ARTICLE VIII. TERMINATION
8.1 This Agreement shall terminate automatically in the event of its assignment,
unless made with the written consent of each party.
8.2 This Agreement shall continue in full force and effect from its effective
date, and may be terminated at any time on six (6) months' written notice to the
other party hereto.
ARTICLE IX. MISCELLANEOUS
9.1 This Agreement shall be subject to the provisions of the federal securities
laws and the rules and regulations, thereunder, including any exemptive relief
therefrom and the orders of the Securities and Exchange Commission setting forth
such relief, and the laws of the State of Connecticut.
FUND will comply with applicable state law concerning permissible
investments for separate accounts, provided that COMPANY will notify the FUND of
any changes in such laws when COMPANY has been made aware of such changes in
connection with COMPANY contracts which utilize the FUND.
9.2 If any provisions of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
9.3 Any notice required under this Agreement shall be deemed to have been
sufficiently given when sent by registered or certified mail to the COMPANY at:
Kemper Investors Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049
Attention: General Counsel
or to the FUND at:
American Skandia Trust
One Corporate Drive
Shelton, Connecticut 06484
Attention: Mary Ellen O'Leary, Secretary
or to such other address furnished to the other party pursuant hereto.
9.4 The waiver by any party of a breach by any other party of any of the
provisions of this Agreement shall not operate or be deemed as a waiver of any
other provision of this Agreement or of any subsequent breach thereof by any
party.
9.5 This Agreement may be executed in any number of counterparts and by the
different parties hereto each of which shall be deemed to be an original and all
of which, when so executed and delivered by the parties, taken together, shall
constitute one and the same instrument.
9.6 This Agreement constitutes the entire agreement between the parties hereto,
and supersedes all prior agreements, written or oral, between the parties, and
may not be modified except in a written instrument executed by all parties
hereto.
9.7 It is understood by the parties that this Agreement is not to be deemed an
exclusive arrangement.
IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to
be executed by their authorized officers as of the day and year first above
written.
AMERICAN SKANDIA TRUST
By: ______________________________________________
Print Name: _______________________________________
Title: ____________________________________________
Attest: ___________________________________________
AMERICAN SKANDIA INVESTMENT
SERVICES, INCORPORATED
For the purposes of Sections 2.8 and 6.3 only
By: ______________________________________________
Print Name: _______________________________________
Title: ____________________________________________
Attest: ___________________________________________
KEMPER INVESTORS LIFE INSURANCE COMPANY
By: ______________________________________________
Print Name: _______________________________________
Title: ____________________________________________
Attest: ___________________________________________
<PAGE>
APPENDIX A
The following portfolios are available for purchase by the COMPANY and its
Accounts:
<TABLE>
<CAPTION>
Investment Options Fund Portfolios
<S> <C>
Founders Capital Appreciation Portfolio Founders Capital Appreciation Portfolio
Berger Capital Growth Portfolio Berger Capital Growth Portfolio
JanCap Growth Portfolio JanCap Growth Portfolio
Lord Abbett Growth and Income Portfolio Lord Abbett Growth and Income Portfolio
INVESCO Equity Income Portfolio INVESCO Equity Income Portfolio
T. Rowe Price International Equity Portfolio T. Rowe Price International Equity Portfolio
T. Rowe Price Asset Allocation Portfolio T. Rowe Price Asset Allocation Portfolio
PIMCO Limited Maturity Bond Portfolio PIMCO Limited Maturity Bond Portfolio
PIMCO Total Return Bond Portfolio PIMCO Total Return Bond Portfolio
</TABLE>
WERNER & KENNEDY
1633 BROADWAY
NEW YORK, N.Y. 10019
---------
TELEPHONE (212) 408-6900
FACSIMILE (212) 408-6950
Writer's Direct Dial Number
(212) 408-6900
December 23, 1996
American Skandia Trust
One Corporate Drive
Shelton, Connecticut 06484
Re: Post-Effective Amendment No. 20 under the Securities Act of
1933 and Post-Effective Amendment No. 22 under the Investment
Company Act of 1940 Form N-1A filed by American Skandia Trust
Registration No.: 33-24962
Investment Company No.: 811-5186
Our File No.74874-00-100
______________________________________________________
Dear Mesdames and Messrs.:
You have requested us, as general counsel to American Skandia Trust
(the "Trust") to furnish you with this opinion in connection with the
above-referenced registration statement filed by the Trust under the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended,
(the "Registration Statement").
We have made such examination of the statutes, authorities, and records
of the Trust and other documents as in our judgment are necessary to form a
basis for opinions hereinafter expressed. In our examination, we have assumed
the genuineness of all signatures on, and authenticity of, and the conformity to
original documents of all copies submitted to us. As to various questions of
fact material to our opinion, we have relied upon statements and certificates of
officers and representatives of the Trust and others.
Based upon the foregoing, we are of the opinion that the Trust is a
registered business trust under the laws of the Commonwealth of Massachusetts,
whose securities, sold in accordance with the laws of applicable jurisdictions,
and with the terms of the Prospectus and Statement of Additional Information
included as part of the Registration Statement, are valid, legally issued, fully
paid, and non-assessable.
We hereby consent to the use of this opinion as an exhibit to
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A under
the Securities Act of 1933, as amended, and to Post-Effective Amendment No. 22
under the Investment Company Act of 1940, as amended, and to the reference to
our name under the heading "Legal Proceedings" included in the Registration
Statement.
Very truly yours,
/s/ Werner & Kennedy
Werner & Kennedy
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
American Skandia Trust:
We consent to the use in Post-Effective Amendment No. 20 to Registration
Statement No. 33-24962 of our report dated February 9, 1996 appearing in the
Statement of Additional Information which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
Princeton, New Jersey
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814679
<NAME> AMERICAN SKANDIA TRUST
<SERIES>
<NUMBER> 01
<NAME> SELIGMAN HENDERSON INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 281031242
<INVESTMENTS-AT-VALUE> 311220621
<RECEIVABLES> 6316978
<ASSETS-OTHER> 10929761
<OTHER-ITEMS-ASSETS> 1134723
<TOTAL-ASSETS> 329602083
<PAYABLE-FOR-SECURITIES> 3303960
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 674679
<TOTAL-LIABILITIES> 3978639
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 290024670
<SHARES-COMMON-STOCK> 17447919
<SHARES-COMMON-PRIOR> 14726219
<ACCUMULATED-NII-CURRENT> 122340
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4148598
<OVERDISTRIBUTION-GAINS> 0
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<NAME> AMERICAN SKANDIA TRUST
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<NAME> AMERICAN SKANDIA TRUST
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