PROSPECTUS MAY 1, 1995
AMERICAN SKANDIA TRUST
One Corporate Drive, Shelton, Connecticut 06484
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American Skandia Trust (the "Trust") is a managed, open-end, diversified
investment company, which seeks to meet the differing investment objectives of
its separate portfolios (the "Portfolios"). The Portfolios as of the date of
this Prospectus and their investment objectives are as follows:
Seligman Henderson International Equity Portfolio (formerly known as the
Henderson International Growth Portfolio) seeks long-term capital appreciation
consistent with the preservation of capital primarily through investment in
securities of non-United States issuers; Seligman Henderson International Small
Cap Portfolio seeks long-term capital appreciation primarily by making
international investments in companies with small to medium market
capitalizations; 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 Money Market Portfolio seeks high current
income and maintenance of high levels of liquidity by investing in high quality
money market instruments; Federated Utility Income Portfolio seeks high current
income and moderate capital appreciation by investing in equity and debt
securities of utility companies; Federated High Yield Portfolio seeks high
current income by investing in a diversified portfolio of fixed income
securities. The Portfolio consists primarily of lower-rated corporate debt
obligations, which are commonly referred to as "junk bonds." These lower-rated
bonds are considered speculative and are subject to additional risks; AST
Phoenix Balanced Asset Portfolio seeks reasonable income, long-term capital
growth and conservation of capital through investment in common stocks and fixed
income securities, with emphasis on income-producing securities which appear to
have some potential for capital enhancement; AST Phoenix Capital Growth
Portfolio seeks long-term appreciation of capital. Because income is not an
objective, any income generated will be incidental to its objective; 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 through investment primarily in
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;
Founders Capital Appreciation Portfolio seeks capital appreciation through
investment primarily in common stocks of small U.S. companies with market
capitalizations of $1.5 billion or less. The Portfolio's securities will
ordinarily be traded in the over-the-counter market; INVESCO Equity Income
Portfolio seeks high current income while following sound investment practices,
with capital growth potential as an additional but secondary consideration, by
investing its assets primarily in dividend-paying, marketable common stock of
domestic and foreign industrial issuers; PIMCO Total Return Bond Portfolio seeks
to realize maximum total return. A secondary objective is preservation of
capital; PIMCO Limited Maturity Bond Portfolio seeks to realize maximum total
return, consistent with preservation of capital and prudent investment
management; AST Scudder International Bond Portfolio seeks income primarily by
investing in high-grade bonds denominated in foreign currencies. Protection and
possible enhancement of principal value is a secondary objective; Eagle Growth
Equity Portfolio seeks long-term capital appreciation primarily through
investment in common stocks and other equity securities; and Berger Capital
Growth Portfolio seeks to achieve long-term capital appreciation primarily by
investing in the common stocks of established companies.
Investments in American Skandia Trust are neither insured nor guaranteed by the
United States Government. 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. Such investments are not bank deposits, and are
not insured by, guaranteed by, obligations of or otherwise supported by any
bank.
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 May 1, 1995,
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.
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)
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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. Subject to
obtaining necessary regulatory approvals, 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 Company is American Skandia Life Assurance
Corporation. 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
Page
Financial Highlights 5
Investment Objectives and Policies 10
Certain Risk Factors and Investment Methods 64
Regulatory Matters 71
Portfolio Turnover 71
Brokerage Allocation 72
Investment Restrictions 73
Net Asset Values 73
Purchase and Redemption of Shares 73
Management of the Trust 73
Tax Matters 83
Organization and Description of Shares of the Trust 84
Portfolio Annual Expenses 85
Performance 87
Transfer and Shareholder Servicing Agent 88
and Custodian
Counsel and Auditors 88
Other Information 88
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FINANCIAL HIGHLIGHTS: Selected Per Share Data for an Average Share Outstanding
and Ratios Throughout Each Period: The tables below contain 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 Statements for the year ended December 31, 1994
and the Independent Auditors' Report thereon are included in the Trust's
Statement of Additional Information. No financial information is included for
the Seligman Henderson International Small Cap Portfolio, the T. Rowe Price
Natural Resources Portfolio or the PIMCO Limited Maturity Bond Portfolio which
are first being offered as of the effective date of this Prospectus.
<TABLE>
<CAPTION>
Seligman Henderson International Equity Portfolio (formerly, the Henderson International Growth Portfolio)
Audited for the Years 1989 - 1994
For the Year Ended December 31,
1994 1993 1992 1991 1990 1989(B)
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $17.34 $12.74 $13.90 $12.99 $13.76 $10.00
------ ------ ------ ------ ------ ------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.0963 0.1406 (0.1700) 0.0100 0.2200 0.0600
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions 0.3615 4.4594 (0.9900) 0.9000 (0.6300) 3.7000
------- ------ -------- ------ -------- ------
Total Increase (Decrease)
from Investment Operations 0.4578 4.6000 (1.1600) 0.9100 (0.4100) 3.7600
------ ------ -------- ------ -------- ------
Less Dividends and Distributions
Dividends from Net Investment Income (0.0282) 0.0000 0.0000 0.0000 (0.2340) 0.0000
Distributions from Net Realized Capital Gains (0.1596) 0.0000 0.0000 0.0000 (0.1271) 0.0000
-------- ------ ------ ------ -------- ------
Total Dividends and Distributions (0.1878) 0.0000 0.0000 0.0000 (0.3611) 0.0000
-------- ------ ------ ------ -------- ------
Net Asset Value at End of Period. $17.61 $17.34 $12.74 $13.90 $12.99 $13.76
====== ====== ====== ====== ====== ======
Total Return 2.64% 36.11% (8.35%) 7.01% (2.97%) 37.60%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $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 1.22% 1.52% 2.50% 2.50% 2.38% 1.17%(A)
Before Advisory Fee Waiver and Expense
Reimbursement 1.32% 1.52% 2.50% 2.82% 8.80% 67.51%(A)
Ratios of Net Investment Income (Loss) to
Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement 0.55% 0.28% (1.62%) 0.12% 1.67% 3.72%(A)
Before Advisory Fee Waiver and Expense
Reimbursement 0.46% 0.28% (1.62%) (0.20%) (4.75%) (62.62%)(A)
Portfolio Turnover Rate 48.69% 31.69% 54.56% 58.74% 76.10% 55.06%
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</TABLE>
(A) Annualized.
(B) The Seligman Henderson International Equity Portfolio commenced operations
on April 19, 1989.
<PAGE>
<TABLE>
<CAPTION>
Lord Abbett Growth and
Income Portfolio
For the Year Ended December 31,
1994 1993 1992(2)
---- ---- ----
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 12.06 $ 10.70 $ 10.00
------- ------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.2037 0.1032 0.0700
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions 0.0581 1.3534 0.6300
------ ------ ------
Total Increase (Decrease) from
Investment Operations 0.2618 1.4566 0.7000
------ ------ ------
Less Dividends and Distributions
Dividends from Net Investment Income (0.1214) (0.0358) 0.0000
Distributions from Net Realized Capital Gains (0.2004) (0.0607) 0.0000
-------- -------- ------
Total Dividends and Distributions (0.3218) (0.0965) 0.0000
-------- -------- ------
Net Asset Value at End of Period $ 12.00 $ 12.06 $ 10.70
------- ------- -------
Total Return 2.22% 13.69% 7.00%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $92,050 $48,385 $10,159
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement 1.06% 1.22% 0.99%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 1.06% 1.33% 1.75%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement 2.45% 2.05% 2.49%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 2.45% 1.94% 1.73%(1)
Portfolio Turnover Rate 60.47% 56.70% 34.29%
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</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.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
<PAGE>
<TABLE>
<CAPTION>
JanCap Growth Portfolio
For the Year Ended December 31,
1994 1993 1992(3)
---- ---- ----
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 11.78 $ 10.53 $ 10.00
------- ------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.0581 0.0276 (0.0100)
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currenc.y Transactions (0.5880) 1.2224 0.5400
------- ------ ------
Total Increase (Decrease) from
Investment Operations (0.5299) 1.2500 0.5300
------- ------ ------
Less Dividends and Distributions
Dividends from Net Investment Income (0.0301) 0.0000 0.0000
Distributions from Net Realized Capital Gains 0.0000 0.0000 0.0000
------ ------ ------
Total Dividends and Distributions (0.0301) 0.0000 0.0000
-------- ------ ------
Net Asset Value at End of Period $ 11.22 $ 11.78 $ 10.53
------- ------- -------
Total Return (4.51%) 11.87% 5.30%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $245,645 $157,852 $15,218
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement 1.18% 1.22% 1.33%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 1.18% 1.22% 2.21%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement 0.62% 0.35% (0.90%)(1)
Before Advisory Fee Waiver and
Expense Reimbursement 0.62% 0.35% (1.78%)(1)
Portfolio Turnover Rate 93.92% 92.16% 1.52%
</TABLE>
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(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.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
<PAGE>
<TABLE>
<CAPTION>
AST Money Market Portfolio
For the Year Ended December 31,
1994 1993 1992(4)
---- ---- -------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.0369 0.0252 0.0032
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions 0.0000 0.0000 0.0000
------ ------ ------
Total Increase (Decrease) from
Investment Operations 0.0369 0.0252 0.0032
------ ------ ------
Less Dividends and Distributions
Dividends from Net Investment Income (0.0367) (0.0252) (0.0032)
Distributions from Net Realized Capital Gains (0.0002) 0.0000 0.0000
------- ------ ------
Total Dividends and Distributions (0.0369) (0.0252) (0.0032)
-------- ------- -------
Net Asset Value at End of Period $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Total Return N/A N/A N/A
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $288,588 $114,074 $4,294
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement 0.64% 0.65% 0.65%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 0.76% 0.84% 1.15%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement 3.91% 2.52% 2.43%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 3.78% 2.34% 1.93%(1)
Portfolio Turnover Rate N/A N/A N/A
</TABLE>
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(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.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
<PAGE>
<TABLE>
<CAPTION>
Federated Utility Income AST Phoenix Balanced Asset
Portfolio Portfolio
For the Year Ended December 31, For the Year Ended December 31,
1994 1993(5) 1994 1993(5)
---- ------- ---- -------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $ 10.79 $ 10.00 $ 10.57 $ 10.00
------- ------- ------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.4607 0.1655 0.2670 0.0836
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions (1.2030) 0.6245 (0.2571) 0.4864
-------- ------ -------- ------
Total Increase (Decrease) from Investment
Operations (0.7423) 0.7900 0.0099 0.5700
-------- ------ ------ ------
Less Dividends and Distributions
Dividends from Net Investment Income (0.1582) 0.0000 (0.0721) 0.0000
Distributions from Net Realized Capital Gains (0.0195) 0.0000 (0.0179) 0.0000
-------- ------ -------- ------
Total Dividends and Distributions (0.1777) 0.0000 (0.0900) 0.0000
-------- ------ -------- ------
Net Asset Value at End of Period $ 9.87 $ 10.79 $ 10.49 $ 10.57
------ ------- ------- -------
Total Return (6.95%) 7.90% 0.09% 5.70%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $71,205 $57,643 $145,624 $91,591
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement 0.99% 1.18%(1) 0.99% 1.13%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 0.99% 1.18%(1) 0.99% 1.13%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement 5.11% 5.09%(1) 3.08% 2.53%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 5.11% 5.09%(1) 3.08% 2.53%(1)
Portfolio Turnover Rate 54.26% 5.30% 86.50% 46.35%
</TABLE>
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(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.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
<PAGE>
<TABLE>
<CAPTION>
Federated High Yield AST Phoenix Capital T. Rowe Price Asset
Portfolio Growth Portfolio Allocation Portfolio
For the Year For the Year For the Year
Ended December 31, Ended December 31, Ended December 31,
1994(6) 1994(6) 1994(6)
------- -------- -------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 10.00 $ 10.00 $ 10.00
------- ------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.5506 0.0728 0.2069
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions (0.8606) (0.7328) (0.2669)
-------- -------- -------
Total Increase (Decrease) from Investment
Operations (0.3100) (0.6600) (0.0600)
------- ------- -------
Less Dividends and Distributions
Dividends from Net Investment Income 0.0000 0.0000 0.0000
Distributions from Net Realized Capital Gains 0.0000 0.0000 0.0000
------ ------ -------
Total Dividends and Distributions 0.0000 0.0000 0.0000
------ ------ ------
Net Asset Value at End of Period $ 9.69 $ 9.34 $ 9.94
------ ------ ------
Total Return (3.10%) (6.60%) (0.60%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $21,308 $14,845 $23,463
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement 1.15%(1) 1.15%(1) 1.25%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 1.34%(1) 1.59%(1) 1.47%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement 9.06%(1) 1.47%(1) 3.64%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 8.87% 1.03%(1) 3.42%(1)
Portfolio Turnover Rate 40.55% 216.86% 31.62%
</TABLE>
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(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.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
<PAGE>
<TABLE>
<CAPTION>
PIMCO INVESCO
Total Return Bond Portfolio Equity Income Portfolio
For the Year Ended December 31, For the Year Ended December 31,
1994(6) 1994(6)
------- -------
<S> <C> <C>
Net Asset Value at Beginning of Period $ 10.00 $ 10.00
------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.2635 0.1578
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions (0.5135) (0.4078)
------- --------
Total Increase (Decrease) from Investment
Operations (0.2500) (0.2500)
------- -------
Less Dividends and Distributions
Dividends from Net Investment Income 0.0000 0.0000
Distributions from Net Realized Capital Gains 0.0000 0.0000
------ ------
Total Dividends and Distributions 0.0000 0.0000
------ ------
Net Asset Value at End of Period $ 9.75 $ 9.75
------ ------
Total Return (2.50%) (2.50%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $46,493 $65,201
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement 1.02%(1) 1.14%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 1.02%(1) 1.14%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement 5.57%(1) 3.41%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 5.57%(1) 3.41%(1)
Portfolio Turnover Rate 139.25% 62.87%
</TABLE>
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(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.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
<PAGE>
<TABLE>
<CAPTION>
Founders Capital T. Rowe Price International
Appreciation Portfolio Equity Portfolio
For the Year Ended December 31, For the Year Ended December 31,
1994(6) 1994(6)
------ ------
<S> <C> <C>
Net Asset Value at Beginning of Period $ 10.00 $ 10.00
------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.1102 0.0237
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions 0.7298 (0.4037)
------ --------
Total Increase (Decrease) from Investment
Operations 0.8400 (0.3800)
------ -------
Less Dividends and Distributions
Dividends from Net Investment Income 0.0000 0.0000
Distributions from Net Realized Capital Gains 0.0000 0.0000
------ ------
Total Dividends and Distributions 0.0000 0.0000
------ ------
Net Asset Value at End of Period $ 10.84 $ 9.62
------- ------
Total Return 8.40% (3.80%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $28,559 $108,751
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement. 1.30%(1) 1.75%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 1.55%(1) 1.77%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement 2.59%(1) 0.45%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 2.34%(1) 0.43%(1)
Portfolio Turnover Rate 197.93% 15.70%
</TABLE>
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(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.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
<PAGE>
<TABLE>
<CAPTION>
AST Scudder
Eagle Growth International Berger Capital
Equity Portfolio Bond Portfolio Growth Portfolio
For the Year For the Year For the Year
Ended December 31, Ended December 31, Ended December 31,
1994(7) 1994(7) 1994(8)
------- ------- -------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 10.00 $ 10.00 $ 10.00
------- ------- -------
Increase (Decrease) from Investment Operations
Net Investment Income (Loss) 0.0295 0.2681 0.0103
Net Realized & Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions (0.0795) (0.5881) (0.0403)
------- -------- --------
Total Increase (Decrease) from Investment
Operations (0.0500) (0.3200) (0.0300)
------- -------- --------
Less Dividends and Distributions
Dividends from Net Investment Income 0.0000 0.0000 0.0000
Distributions from Net Realized Capital Gains 0.0000 0.0000 0.0000
------- ------ ------
Total Dividends and Distributions 0.0000 0.0000 0.0000
------- ------ ------
Net Asset Value at End of Period $ 9.95 $ 9.68 $ 9.97
------- ------ -----
Total Return (0.50%) (3.20%) (0.30%)
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $3,479 $15,218 $3,030
Ratios of Expenses to Average Net Assets:
After Advisory Fee Waiver and Expense
Reimbursement 1.25%(1) 1.68%(1) 1.25%(1)
Before Advisory Fee Waiver and
Expense Reimbursement 2.63%(1) 1.68%(1) 1.70%(1)
Ratios of Net Investment Income (Loss)
to Average Net Assets:
After Advisory Fee Waiver and
Expense Reimbursement 0.80%(1) 7.03%(1) 1.41%(1)
Before Advisory Fee Waiver and
Expense Reimbursement (0.56%)(1) 7.03%(1) 0.97%(1)
Portfolio Turnover Rate 11.39% 163.27% 5.36%
</TABLE>
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(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.
(6) Commenced operations on January 4, 1994.
(7) Commenced operations on May 3, 1994.
(8) Commenced operations on October 20, 1994.
<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. ASISI was formerly
known as American Skandia Life Investment Management, Inc. The name of the
Investment Manager was changed on April 7, 1995.
Currently, ASISI engages a sub-advisor ("Sub-advisor") for each Portfolio.
The Sub-advisor for each Portfolio is as follows: (a) Seligman Henderson
International Equity Portfolio (formerly, the Henderson International Growth
Portfolio): Seligman Henderson Co.; (b) Seligman Henderson International Small
Cap Portfolio: Seligman Henderson Co.; (c) Lord Abbett Growth and Income
Portfolio: Lord, Abbett & Co., (d) the JanCap Growth Portfolio: Janus Capital
Corporation; (e) AST Money Market Portfolio: J.P. Morgan Investment Management
Inc.; (f) Federated Utility Income Portfolio: Federated Investment Counseling;
(g) Federated High Yield Portfolio: Federated Investment Counseling; (h) AST
Phoenix Balanced Asset Portfolio (formerly, the AST Balanced Portfolio): Phoenix
Investment Counsel, Inc.; (i) AST Phoenix Capital Growth Portfolio: Phoenix
Investment Counsel, Inc. (j) T. Rowe Price Asset Allocation Portfolio: T. Rowe
Price Associates, Inc.; (k) T. Rowe Price International Equity Portfolio: Rowe
Price-Fleming International, Inc.; (l) T. Rowe Price Natural Resources
Portfolio: T. Rowe Price Associates, Inc.; (m) Founders Capital Appreciation
Portfolio: Founders Asset Management, Inc.; (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) AST Scudder International Bond Portfolio:
Scudder, Stevens & Clark, Inc.; (r) Eagle Growth Equity Portfolio: Eagle Asset
Management, Inc.; and (s) Berger Capital Growth Portfolio: Berger Associates,
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.
Seligman Henderson International Equity Portfolio:
Investment Objective: The investment objective of the Seligman Henderson
International Equity Portfolio (formerly, the Henderson International Growth
Portfolio) is long-term capital appreciation consistent with preservation of
capital primarily through investment in securities of non-United States issuers.
This is a fundamental objective of the Portfolio.
Investment Policies:
While the Sub-advisor may invest the assets of the Portfolio in
securities of issuers domiciled in any country, under normal conditions
investments will be made in three principal international regions: The United
Kingdom and Continental Europe; the Pacific Basin countries; and Latin America.
The Sub-advisor believes that the Portfolio will usually have assets invested in
each of these international regions. Although under normal market conditions the
Portfolio will be invested in a minimum of five countries, it may have assets
invested in many countries. Investments will not normally be made in securities
of issuers located in the United States or Canada. Some of the countries in
which the Portfolio may invest may be considered to be developing and may
involve special risks. For a description of these risks as well as the risks of
investing in foreign securities in general, see this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods."
When allocating investments among geographic regions and individual
countries, the Sub-advisor will consider various criteria that in its view are
deemed relevant based on its experience, such as the relative economic growth
potential of the various economies and securities regions; expected levels of
inflation; government policies influencing business conditions; and the outlook
for currency relationships.
The Portfolio may invest in all types of securities, most of which will
be denominated in foreign currencies. Since opportunities for long-term growth
are primarily expected from equity securities, the Portfolio will normally
invest substantially all of its assets in such securities, including common
stock, securities convertible into common stock, depository receipts for these
securities and warrants. The Portfolio may, however, invest up to 25% of its
assets in preferred stock and debt securities if the Sub-advisor believes that
the capital appreciation available from an investment in such securities will
equal or exceed the capital appreciation available from an investment in equity
securities.
All common stock in which the Portfolio will invest will be listed on a
foreign stock exchange or traded in the over-the-counter market. There is no
minimum capitalization requirement for a security to be eligible for inclusion
in the Portfolio. The Portfolio will generally purchase securities of medium to
large size companies in the principal international markets, although it may
purchase securities of companies which have a lower market capitalization on the
smaller regional markets.
With respect to the Portfolio's investment in debt securities, there is
no requirement that all such securities be rated by a recognized rating agency.
However, it is the policy of the Trust that investments for the Portfolio in
debt securities, whether rated or unrated, will be made only if they are, in the
opinion of the Sub-advisor, of equivalent quality to "investment grade"
securities. "Investment grade" securities are those rated within the four
highest quality grades as determined by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("Standard & Poor's"). Securities
rated within the highest of the four investment grade categories (i.e., Aaa by
Moody's and AAA by Standard & Poor's) are judged to be of the best quality and
carry the smallest degree of risk. Securities rated with the lowest of the four
categories (i.e., Baa by Moody's and BBB by Standard & Poor's) lack quality
investment characteristics, and, in fact, may be speculative. For a discussion
of the 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." For a description of securities ratings,
see the Appendix to the Trust's Statement of Additional Information.
By investing in foreign securities, the Sub-advisor will attempt to
take advantage of differences between economic trends and performance of
securities markets in various countries. To date, the market value of securities
of issuers located in different countries have moved relatively independently of
each other and during certain periods the return on equity investments in some
countries has exceeded the return on similar investments in the United States.
The Sub-advisor believes that, in comparison with investment companies investing
solely in domestic securities, it may be possible to obtain significant
appreciation from a portfolio of foreign investments and also achieve increased
diversification. The Portfolio will gain increased diversification by combining
securities from various markets that offer different investment opportunities
and are affected by different economic trends. International diversification
reduces the effect that events in any one country will have on the Portfolio's
entire investment holdings. Of course, a decline in the value of the Portfolio's
investments in one country may offset potential gains from investments in
another country. The Sub-advisor believes that it may reduce risk and may
increase returns to shareholders through exposure to a shifting international
investment base, expanding foreign stock markets and foreign currencies.
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."
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."
Forward Currency Exchange Contracts. The Sub-advisor will consider
changes in exchange rates in making investment decisions. As one way of managing
exchange rate risk, the Portfolio may enter into forward currency exchange
contracts. The Portfolio will usually enter into these contracts to fix the U.S.
dollar value of a security that it has agreed to buy or sell for the period
between the date the trade was entered into and the date the security is
delivered and paid for. The Portfolio may also use these contracts to hedge the
U.S. dollar value of securities it already owns. The Portfolio may be required
to cover certain forward currency exchange contract positions by establishing a
segregated account with its custodian that will contain only liquid assets, such
as U. S. Government securities or other liquid high-grade debt obligations.
While the Sub-advisor will seek to benefit the Portfolio when using
forward contracts, it may or may not be able to project precisely the future
exchange rates between foreign currencies and the U.S. dollar. The Portfolio may
therefore incur a gain or loss on a forward contract. A forward contract may
help reduce the 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. For an additional discussion of foreign currency exchange contracts,
see this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
Futures Transactions. The Portfolio may purchase and sell U.S. stock
index futures contracts and related options, and certain foreign stock index
futures contracts and related options which have been approved by the Commodity
Futures Trading Commission ("CFTC") for investment by U.S. investors, for the
purpose of hedging against changes in values of the Portfolio's securities or
options on stock indices held by the Portfolio. The Portfolio may also purchase
and sell foreign currency futures contracts and options on such futures and
forward currency contracts for the purpose of hedging against changes in foreign
currency exchange rates and other hedging strategies relating to the Portfolio's
securities. In addition, the Portfolio may invest in U.S. interest rate futures
contracts and related options and in certain foreign interest rate futures
contracts and related options which have been approved by the CFTC for
investment by U.S. investors, for the purpose of hedging against changes in
interest rates in relation to the interest rates that are reflected in the
Portfolio's securities. The Portfolio will not use futures contracts and related
options transactions for leveraging purposes.
In addition, the Portfolio may not engage in such activities if the sum
of the amount of initial margin deposits and premiums paid for such transactions
would exceed 5% of the fair market value of the Portfolio's assets, after taking
into account unrealized profits and unrealized losses on those transactions 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 such 5%. There may be varying degrees of correlation between
movements in options and futures prices and movements in the price of the
Portfolio security being hedged, which increases the possibility that losses on
the hedge may be greater than gains in the value of the Portfolio security.
Risks in Futures Transactions. There are risks involved in futures
transactions. For a discussion of futures transactions and the risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Options Transactions. The Portfolio may purchase call and put options
on securities and on stock indices to attempt to hedge the Portfolio's
securities and to increase the Portfolio's total return. The Portfolio may
purchase call options when, in the opinion of the Sub-advisor, the market price
of the underlying security or index will increase above the exercise price. The
Portfolio may purchase put options when the Sub-advisor expects the market price
of the underlying security or index to decrease below the exercise price. The
Portfolio may also purchase call options for the purpose of hedging against an
increase in the price of a security sold short for the Portfolio. In addition,
the Portfolio may write covered put or call options on securities or stock
indices. The Portfolio will not write options if immediately after such sale the
aggregate value of the obligations under the outstanding options would exceed
25% of the Portfolio's net assets.
Risks in Options Transactions. There are risks involved in options
transactions. For discussion of call and put options and the risks involved
therein, see this Prospectus and the Trust's Statement of Additional Information
under "Certain Risk Factors and Investment Methods."
Leverage Through Borrowing. The Portfolio may from time to time borrow
money in an amount up to 33-1/3% of its total assets from banks at prevailing
interest rates and invest the funds in additional securities. For additional
limitations on borrowing 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. The Portfolio may lend its securities to
brokers, dealers and other institutional investors in an amount not to exceed
33-1/3% of the Portfolio's total assets taken at market value, and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained in an amount equal to at least 100% of the current
market value of the loaned securities. For a discussion of the risks involved in
lending and additional limitations on 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
whereby the Portfolio acquires a U.S. Government security or a short-term money
market instrument subject to resale to a bank or dealer at an agreed upon price
which reflects an agreed-upon interest rate effective for the period the
Portfolio holds the instrument that is unrelated to the interest rate on the
instrument. The Portfolio will receive interest from the institution until the
time when the repurchase is to occur. The Portfolio will always receive as
collateral securities acceptable to it whose market value is equal to at least
100% of the amount invested by the Portfolio, and the Portfolio will make
payment for such securities only upon the physical delivery or evidence of book
entry transfer to the account of the Trust's custodian. 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 in illiquid securities. The
Portfolio will not invest more than 10% of its total assets in securities that
are illiquid or not readily marketable, including restricted securities and
repurchase agreements of more than one week's duration. For a discussion of
illiquid securities and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods."
Short Sales. The Portfolio may sell securities "short against the box".
While a short sale is the sale of a security the Portfolio does not own, it is
"against the box" if at all times when the short position is open the Portfolio
owns an equal amount of the securities or securities convertible into, or
exchangeable without further consideration for, securities of the same issue as
the securities sold short.
Temporary Investments. When the Sub-advisor believes that market
conditions warrant a temporary defensive position, the Portfolio may invest up
to 100% of its assets in short-term instruments such as commercial paper, bank
certificates of deposit, bankers' acceptances, or repurchase agreements for such
securities and securities of the U.S. Government and its agencies and
instrumentalities, as well as cash and cash equivalents denominated in foreign
currencies. Investments in domestic bank certificates of deposit ("CD's") and
bankers' acceptances will be limited to banks which have total assets in excess
of $500 million and are subject to regulatory supervision by the U.S. Government
or state governments. The commercial paper of U.S. issuers purchased by the
Portfolio will consist only of (a) obligations rated Prime-1 by Moody's or A-1
by Standard & Poor's; or (b) unrated obligations issued by companies having an
outstanding unsecured debt issue currently rated A or better by Standard &
Poor's. See the Appendix to the Trust's Statement of Additional Information for
a description of various commercial paper ratings and for debt securities
ratings. The Portfolio's investments in foreign short-term instruments will be
limited to those which, in the opinion of the Sub-advisor, equate generally to
the standards established for U.S. short-term instruments.
Seligman Henderson International Small Cap Portfolio
Investment Objective: The investment objective of the Seligman Henderson
International Small Cap Portfolio is long-term capital appreciation. The
Portfolio seeks to achieve this objective primarily by making international
investments in securities of companies with small to medium market
capitalizations. This is a fundamental objective of the Portfolio.
Investment Policies:
The Portfolio may invest in securities of issuers domiciled in any
country. Under normal conditions investments will be made in three principal
regions: The United Kingdom/Continental Europe; the Pacific Basin; and Latin
American. Under normal market conditions, the Portfolio's assets will be
invested in securities of issuers located in at least three different countries.
Investments will not normally be made in securities of issuers located in the
United States or Canada. Some of the countries in which the Portfolio may invest
may be considered to be developing and may involve special risks. For
description of these risks as well as the risks of investing in foreign
securities in general, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
In allocating investments among geographic regions and individual
countries, the Sub-advisor will consider such factors as the relative economic
growth potential of the various economies and securities markets; expected
levels of inflation; financial, social and political conditions influencing
investment opportunities; and the outlook for currency relationships.
The Portfolio may invest in all types of securities, most of which will
be denominated in currencies other than the U.S. dollar. The Portfolio will
normally invest its assets in equity securities, including common stock,
securities convertible into common stock, depository receipts for these
securities and warrants. The Portfolio may, however, invest up to 25% of its
assets in preferred stock and debt securities if the Sub-advisor believes that
the capital appreciation available from an investment in such securities will
equal or exceed the capital appreciation available from an investment in equity
securities. Dividends or interest income are considered only when the
Sub-advisor believes that such income will have a favorable influence on the
market value of a security in light of the Portfolio's objective of capital
appreciation.
Equity securities in which the Portfolio will invest may be listed on a
foreign stock exchange or traded in foreign over-the-counter markets. Under
normal market conditions, the Portfolio will invest at least 65% of its total
assets in securities of small-to medium-sized companies with market
capitalizations up to $750 million, although up to 35% of its total assets may
be invested in securities of companies with market capitalizations over $750
million. The Sub-advisor will periodically review and revise the capitalization
requirements of smaller companies as circumstances may require. The Sub-advisor
anticipates that the Portfolio will continue to hold the securities of smaller
companies as those companies grow or expand so long as those investments
continue to offer prospects of long-term growth. In extraordinary circumstances,
the Portfolio may invest for temporary defensive purposes, without limit, in
large capitalization companies or increase its investments in debt securities.
There is no requirement that the debt securities in which the Portfolio
may invest be rated by a recognized rating agency. However, it is the
Portfolio's policy that investments in debt securities, whether rated or
unrated, will be made only if they are "investment grade" securities or are, in
the opinion of the Sub-advisor, of equivalent quality to "investment grade"
securities. "Investment grade" securities are those rated within the four
highest quality grades as determined by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("Standard & Poor's"). Securities
rated within the highest of the four investment grade categories (i.e., Aaa by
Moody's and AAA by Standard & Poor's) are judged to be of the best quality and
carry the smallest degree of risk. Securities rated within the lowest of the
four categories (i.e., Baa by Moody's and BBB by Standard & Poor's) lack high
quality investment characteristics and, in fact, may be speculative. 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." For a description of securities ratings,
see the Appendix to the Trust's Statement of Additional Information.
The Portfolio may invest in securities represented by European
Depository Receipts ("EDRs") or American Depository Receipts ("ADRs"). For a
description of ADRs and EDRs and risks involved therein, see this Prospectus
under "Certain Risk Factors and Investment Methods."
By investing in foreign securities, the Portfolio will attempt to take
advantage of differences among economic trends and the performance of securities
markets in various countries. To date, the market values of securities of
issuers located in different countries have moved relatively independently of
each other and during certain periods the return on equity investments in some
countries has exceeded the return on similar investments in the United States.
The Sub-advisor believes that, in comparison with investment companies investing
solely in domestic securities, it may be possible to obtain significant
appreciation from a portfolio of foreign investments and securities from various
markets that offer different investment opportunities and are affected by
different economic trends. International diversification reduces the effect that
events in any one country will have on the Portfolio's entire investment
portfolio. Of course, a decline in the value of the Portfolio's investments in
one country may offset potential gains from investments in another country.
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."
Risk of Currency Fluctuations. Investments in foreign securities will
usually be denominated in foreign currency, and the Portfolio may temporarily
hold funds 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. 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.
Forward Currency Exchange Contracts. The Sub-advisor will consider
changes in exchange rates in making investment decisions. As one way of managing
exchange rate risk, the Portfolio may enter into forward currency exchange
contracts. The Portfolio will usually enter into these contracts to fix the U.S.
dollar value of a security that it has agreed to buy or sell for the period
between the date the trade was entered into and the date the security is
delivered and paid for. The Portfolio may also use these contracts to hedge the
U.S. dollar value of securities it already owns. The Portfolio may be required
to cover certain forward currency exchange contract positions by establishing a
segregated account with its custodian that will contain only liquid assets, such
as U. S. Government securities or other liquid high-grade debt obligations.
While the Sub-advisor will seek to benefit the Portfolio when using
forward contracts, it may or may not be able to project precisely the future
exchange rates between foreign currencies and the U.S. dollar. The Portfolio may
therefore incur a gain or loss on a forward contract. A forward contract may
help reduce the 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. For an additional discussion of foreign currency exchange contracts,
see this Prospectus and the Trust's Statement of Additional Information under
"Certain Risk Factors and Investment Methods."
Futures Transactions. The Portfolio may purchase and sell U.S stock
index futures contracts and related options, as well as certain foreign stock
index futures contracts and related options that have been approved by the staff
of the Commodity Futures Trading Commission ("CFTC") for investment by U.S.
investors, for the purpose of hedging against changes in the value of the
Portfolio's portfolio securities. The Portfolio may also purchase and sell
foreign currency futures contracts and options on such futures and forward
currency contracts for the purpose of hedging against changes in foreign
currency exchange rates and may execute other hedging strategies relating to
Portfolio securities. In addition, the Portfolio may invest in U.S. interest
rate futures contracts and related options and in certain foreign interest rate
futures contracts and related options that have been approved by the CFTC for
investment by U. S. investors, for the purpose of hedging against changes in
interest rates in relation to the interest rates on Portfolio securities. The
Portfolio will not use futures contracts and related options transactions for
speculative purposes or leveraging purposes.
The Portfolio will limit its use of futures contracts so that no more
than 5% of the fair market value of the Portfolio's assets would be committed to
initial margin deposits and premiums after taking into account unrealized
profits and unrealized losses on those transactions it has entered into
(excluding in-the- money amounts on options in-the-money when purchased). There
may be varying degrees of correlation between movements in options and futures
prices and movements in the price of the portfolio security being hedged, which
increases the possibility that losses on the hedge may be greater than gains in
the value of the portfolio security.
Risks of Futures Transactions. For a discussion of futures transactions and
the risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Options Transactions. The Portfolio may purchase call and put options
on securities and on stock indices to hedge its portfolio and to increase total
return. Call options may be purchased when it is believed that the market price
of the underlying security or index will increase above the exercise price. Put
options may be purchased when the market price of the underlying security or
index is expected to decrease below the exercise price. The Portfolio may also
purchase call options to provide a hedge against an increase in the price of a
security sold short by the Portfolio. In addition, the Portfolio may write
covered call options on securities or stock indices. The Portfolio will not
write options if immediately after such sale the aggregate value of the
obligations under the outstanding options would exceed 25% of the Portfolio's
net assets.
Risks of Options Transactions. For a discussion of call and put options and
the risks involved therein, see this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
Risks of Small Cap Investing. The Sub-advisor believes that smaller
companies generally have greater earnings and sales growth potential than larger
companies. However, investments in such companies may involve greater risks,
such as limited product lines, markets and financial or managerial resources.
Less frequently-traded securities may be subject to more abrupt price movements
than securities of larger companies.
Leverage Through Borrowing. The Portfolio may from time to time borrow
money from banks for temporary, extraordinary or emergency purposes and may
invest the funds in additional securities. Such borrowings will not exceed 5% of
the Portfolio's total assets and will be made at prevailing interest rates. For
additional limitations on borrowing, 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. The Portfolio may lend its portfolio
securities to brokers, dealers and other institutional investors in an amount
not to exceed 33 1/3% of the Portfolio's total assets taken at market value, for
which it will receive collateral in cash or securities issued or guaranteed by
the U.S. Government to be maintained in an amount equal to at least 100% of the
current market value of the loaned securities. For a discussion of the risks
involved in lending, see this Prospectus 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
with commercial banks or broker/dealers under which the Portfolio acquires a
U.S. Government or a short-term money market instrument subject to resale at a
mutually agreed-upon price and time. The resale price reflects an agreed-upon
interest rate effective for the period the Portfolio holds the instrument that
is unrelated to the interest rate on the instrument. The Portfolio's repurchase
agreements will at all times be fully collateralized, and the Portfolio will
make payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of its custodian. 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 in illiquid securities. The
Portfolio will not invest more than 10% of its total assets in securities that
are illiquid or not readily marketable, including restricted securities and
repurchase agreements of more than one week's duration. For a discussion of
illiquid securities and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods."
Short Sales. The Portfolio may sell securities short "against-the-box."
A short sale "against-the-box" is a short sale in which the Portfolio owns an
equal amount of the securities sold short or securities convertible into or
exchangeable without payment of further consideration for securities of the same
issue as, and equal in amount to, the securities sold short.
Temporary Investments. When the Sub-advisor believes that market
conditions warrant a temporary defensive position, the Portfolio may invest up
to 100% of its assets in short-term instruments such as commercial paper, bank
certificates of deposit, bankers' acceptances, or repurchase agreements for such
securities and securities of the U.S. Government and its agencies and
instrumentalities, as well as cash and cash equivalents denominated in foreign
currencies Investments in domestic bank certificates of deposit and bankers'
acceptances will be limited to banks that have total assets in excess of $500
million and are subject to regulatory supervision by the U.S. Government or
state governments. The Portfolio's investments in commercial paper of U.S.
issuers will be limited to (a) obligations rated Prime-1 by Moody's or A-1 by
Standard & Poor's or (b) unrated obligations issued by companies having an
outstanding unsecured debt issue currently rated A or better by Standard &
Poor's. A description of various commercial paper ratings and debt securities
ratings appears in the Appendix to the Trust's Statement of Additional
Information. The Portfolio's investments in foreign short-term instruments will
be limited to those that, in the opinion of the Sub-advisor, equate generally to
the standards established for U.S. short-term instruments.
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 investment 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 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 related below investment grade), 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"
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 also purchase securities of
foreign issuers, including securities of foreign governments and Euromarket
securities. The Sub-advisor will consider the political and economic conditions
in a country, the prospect for changes in the value of its currency and the
liquidity of the investment in that country's securities markets in selecting
investments in foreign securities for the Portfolio. The Portfolio may purchase
foreign securities through dollar-denominated American Depository Receipts
("ADRs") which are issued by domestic banks and publicly traded in the United
States. For a description of ADRs, see this Prospectus under "Certain Risk
Factors and Investment Methods." 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 the risks involved in
investing 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 and Options Transactions. Subject to certain limitations, the
Portfolio may purchase and write options on securities (including index options)
and options on foreign currencies, and may invest in futures contracts for the
purchase or sale of instruments based on financial indices, including interest
rates or an index of U.S. Government or foreign government securities or equity
or fixed-income securities, futures contracts on foreign currencies and
fixed-income securities ("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; i.e., to attempt to reduce
the overall level of investment risk that normally would be expected to be
associated with the Portfolio and to attempt to protect the Portfolio against
market movements that might adversely affect the value of the Portfolio's
securities or the price of securities that the Portfolio is considering
purchasing. 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.
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."
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. For a
discussion of these instruments and the risks involved in lending, 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 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.
These are fundamental objectives of the Portfolio.
Investment Policies:
The Portfolio attempts to accomplish its objectives by maintaining a
dollar-weighted average maturity of not more than 90 days and by investing in
the types of 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 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 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, reduce
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.
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 which are traded on United States securities exchanges or in the
over-the-counter market in the form of depository receipts. 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 depository 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 total 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. 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 investment objective.
Lower-rated debt obligations are generally considered to be high risk
investments.
Investment Policies:
The Portfolio will invest 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. 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."
Put and Call Options and Futures Transactions. The Portfolio may
purchase put options on portfolio securities. The Portfolio may also write
(sell) call options on securities either held by the Portfolio or which it 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 options which
the Portfolio writes must be listed on a recognized options exchange. Purchases
of puts or sales of calls by the Portfolio are intended to protect against price
movements in particular securities in the Portfolio. Sales of calls also may
generate income for the Portfolio. The Portfolio also reserves the right to
attempt to hedge the Portfolio by buying financial futures and put options on
financial futures. The Portfolio may not use financial futures and related
options for leveraging purposes.
Risks of Options and Futures Transactions. There are risks involve in
futures and options transactions. For an additional discussion of put and call
options and financial futures 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."
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.
AST Phoenix Balanced Asset Portfolio:
Investment Objective: The investment objective of the AST Phoenix Balanced Asset
Portfolio is to seek reasonable income, long-term capital growth and
conservation of capital. The Portfolio intends to invest based on combined
considerations of risk, income, capital enhancement and protection of capital
value. This is a fundamental objective of the Portfolio.
Investment Policies:
The Portfolio may invest in any type or class of security. Usually, the
Portfolio will invest in common stocks and fixed income securities; however, it
may also invest in securities convertible into common stocks. At least 25% of
the value of its assets will be invested in fixed income senior securities. The
Portfolio may also engage in certain options transactions and enter into
financial futures contracts and related contracts for hedging purposes and may
invest in deferred or zero coupon debt obligations. In implementing the
investment objective, the Portfolio will invest in securities which the
Sub-advisor believes to have the potential for the production of current income,
with emphasis on securities that also have the potential for capital
enhancement. In an effort to protect its assets against major market declines,
or for other temporary defensive measures, the Portfolio may actively pursue a
policy of retaining cash or investing all or a part of the Portfolio's assets in
cash equivalents, such as government securities and high grade commercial paper.
Zero Coupon Bonds. The Portfolio may invest in debt obligations that do
not make any interest payments for a specified period of time prior to maturity
or until maturity ("deferred coupon" or "zero coupon" obligations). Even though
interest is not actually paid on these instruments, for tax purposes the
Portfolio is imputed with ordinary income. This imputed income is paid out to
shareholders as dividends. The value of these obligations fluctuates more in
response to interest rate changes than does the value of debt obligations that
make current interest payments. For an additional discussion of zero coupon
bonds 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 and at such times that the Sub-advisor deems
appropriate and consistent with this Portfolio's investment objective, the
Portfolio may invest in repurchase agreements. The Sub-advisor will review the
creditworthiness of the other party to the agreement and will find it
satisfactory before entering into a repurchase agreement. For a discussion of
repurchase agreements and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods."
Securities and Index Options. The Portfolio may write covered call
options and purchase call and put options. Securities and index options and the
risks involved therein are described below and in more detail in the Trust's
Statement of Additional Information under "Investment Objectives and Policies"
and under "Certain Risk Factors and Investment Methods."
Selling Call Options. The Portfolio may write (sell) exchange-traded
covered call options. A call option is "covered" if the Portfolio owns the
underlying security or has an absolute and immediate right to acquire that
security without additional cash consideration (or additional cash consideration
held in a segregated account by the Portfolio's custodian) upon conversion or
exchange of other securities held in the Portfolio. A call option is also
covered if the Portfolio holds on a share-for-share basis a covering call on the
same security as the call written where (i) the exercise price of the covering
call held is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained by the Portfolio in cash, U.S. Treasury bills or other high-grade
short-term obligations in a segregated account with its custodian, and (ii) the
covering call expires at the same time or after the call written.
The value of the total assets of the Portfolio which may be subject to
call options is limited to 50% of the Portfolio's total assets. The Sub-advisor
currently intends to cease writing options if and as long as 25% of such total
assets are subject to outstanding options contracts or if required under
regulations of state securities administrators. Call options on securities
indices will be written only to hedge in an economically appropriate way
portfolio securities which are not otherwise hedged with options of financial
futures contacts and will be "covered" by identifying the specific portfolio
securities being hedged.
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 the Portfolio's ability to close out options it
has written. For a discussion of selling 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."
Purchasing Call and Put Options. The Portfolio may invest up to 2% of
its total assets in exchange-traded call and put options on securities and
securities indices for the purpose of hedging against changes in the market
value of its securities. The Portfolio will invest in call and put options
whenever, in the opinion of the Sub-advisor, a hedging transaction is consistent
with the investment objective of the Portfolio. The 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.
Purchasing a call or put option involves the risk that the Portfolio
may lose the premium paid plus transactions costs. For a discussion of
purchasing call and put options and the risks involved therein, see this
Prospectus and the Trust's Statement of Additional Information under "Certain
Risk Factors and Investment Methods."
Warrants and Stock Rights. Warrants and stock rights are almost
identical to call options in their nature, use and effect except that they are
issued by the issuer of the underlying security rather than an option writer
(seller). The Portfolio may invest in up to 5% of its total assets in warrants
or stock rights valued at the lower of cost or market, but no more than 2% of
its total assets may be invested in warrants or stock rights not listed on the
New York Stock Exchange or American Stock Exchange.
Financial Futures and Related Options: The Portfolio may enter into
financial futures contracts and related options. The Portfolio may purchase and
sell futures contracts which are traded on a recognized exchange or board of
trade and may purchase exchange- or board-traded put and call options on
financial futures contracts as a hedge against anticipated changes in the market
value of the Portfolio's securities or changes in the market value of securities
which it intends to purchase. Hedging is the initiation of a position in the
futures market which is intended as a temporary substitute for the purchase or
sale of the underlying securities in the cash market.
The Portfolio will engage in transactions in financial futures
contracts and related options only for hedging purposes and not for speculation
or leveraging. In addition, the Portfolio will not buy or sell any financial
futures contract or related option, if immediately thereafter, the sum of the
cash or U.S. Treasury bills initially committed with respect to the Portfolio
existing futures and related options positions and the premiums paid for the
related options would exceed 2% of the market value of the Portfolio's total
assets. At the time of purchase of a futures contract or a call option on a
futures contract, an amount of cash, U.S. Government securities or other
appropriate high-grade debt obligations equal to the market value of the futures
contract minus the Portfolio's initial margin deposit with respect thereto will
be deposited in a segregated account with the Portfolio's custodian to
collateralize fully the position and thereby ensure that it is not leveraged.
The extent to which the Portfolio may enter into financial futures contracts and
related options may also be limited by requirements of the Internal Revenue Code
for qualification as a regulated investment company.
Risks of Options and Futures Transactions. For an additional discussion
of options and futures 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."
Foreign Securities. The Portfolio may purchase foreign securities,
including those issued by foreign branches of U.S. banks. The Portfolio may
invest up to 25% of its total net assets in the securities of foreign issuers.
The Portfolio may invest in a broad range of foreign securities including
equity, debt and convertible securities and foreign government securities. The
Portfolio may enter into forward foreign currency exchange contracts for the
purpose of protecting against losses resulting from fluctuations in exchange
rates between the U.S. Dollar and a particular foreign currency denominating a
security which the Portfolio holds or intends to acquire. The Portfolio will not
speculate in forward foreign currency exchange contracts. For a discussion of
foreign currency exchange contracts and the risks of foreign currency
fluctuations, see below and this Prospectus and the Trust's Statement of
Additional Information under "Certain Risk Factors and Investment Methods."
The Portfolio's custodian may use a foreign sub-custodian in connection
with its purchase of foreign securities and may maintain cash and cash
equivalents in the care of a foreign sub-custodian. The amount of cash or cash
equivalent maintained in the care of eligible foreign sub-custodians will be
limited to an amount reasonably necessary to effect the Portfolio's foreign
securities transactions.
The Portfolio will calculate its net asset value and complete orders to
purchase, exchange or redeem shares only on a Monday-Friday basis (excluding
holidays on which the New York Stock Exchange is closed). Foreign securities in
which the Portfolio may invest may be primarily listed on foreign stock
exchanges which may trade on other days (such as Saturdays). As a result, the
net asset value of the Portfolio may be affected by such trading on days when a
shareholder has no access to the Portfolio.
The Portfolio may invest in securities issued by companies doing
business in developing countries may be considered to be developing this involve
special risks. For a discussion of these risks as well the risks involved in
foreign investing in general, see this Prospectus and the Statement of
Additional Information under "Certain Risk Factors and Investments."
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."
Forward Currency Exchange Contracts. The Sub-advisor may consider
changes in exchange rates in making investment decisions. As one way of managing
exchange rate risk, the Portfolio may enter into forward currency exchange
contracts. The Portfolio may enter into these contracts to fix the U.S. dollar
value of a security that it has agreed to buy or sell for the period between the
date the trade was entered into and the date the security is delivered and paid
for. The Portfolio may also use these contracts to hedge the U.S. dollar value
of securities it already owns. The Portfolio may be required to cover certain
forward currency exchange contract positions by establishing a segregated
account with its custodian that will contain only liquid assets, such as U. S.
Government securities or other liquid high-grade debt obligations.
While the Sub-advisor will seek to benefit the Portfolio when using
forward contracts, it may or may not be able to project precisely the future
exchange rates between foreign currencies and the U.S. dollar. The Portfolio may
therefore incur a gain or loss on a forward contract. A forward contract may
help reduce the 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. For an additional discussion of foreign currency exchange contracts,
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 risks involved in borrowing, see this Prospectus under "Certain
Risk Factors and Investment Methods."
Lending. The Portfolio may make loans of its securities under certain
circumstances. For a 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."
AST Phoenix Capital Growth Portfolio:
Investment Objective: The investment objective of the AST Phoenix Capital Growth
Portfolio is to seek long-term appreciation of capital. Because income is not an
objective, any income generated by the Portfolio's assets will be incidental to
its objective. This is a fundamental objective of the Portfolio.
Investment Policies:
The Portfolio intends to invest primarily in the common stock of
companies believed by management to have appreciation potential. However,
because no one class or type of security at all times necessarily affords the
greatest promise for capital appreciation, the Portfolio may invest any amount
or proportion of its assets in any class or type of security believed by
management to offer potential for capital appreciation over both the
intermediate and the long term. Normally, of course, its investment will consist
largely of common stocks selected for the promise they offer of appreciation of
capital. However, the Portfolio may also invest in preferred stocks, bonds,
convertible preferred stocks and convertible debentures if, in the judgment of
management, the investment would further its investment objective. The Portfolio
may also engage in certain options transactions and enter into financial futures
contracts and related options for hedging purposes. Each security held will be
monitored to determine whether it is contributing to the basic objective of
long-term appreciation of capital.
The Sub-advisor believes that a portfolio of such securities provides
the most effective way to obtain capital appreciation, but when, for temporary
defensive purposes (as when market conditions for growth stocks are adverse),
other types of investments appear advantageous on the basis of combined
considerations of risk and the protection of capital values, investments may be
made in fixed income securities with or without warrants or conversion features.
In an effort to protect its assets against major market declines, or for other
temporary defensive purposes, the Portfolio may actively pursue a policy of
retaining cash or investing part or all of its assets in cash equivalents.
Diversification is an important consideration in selecting the
portfolio. However, greater emphasis will be placed upon careful selection of
securities believed to have good potential for appreciation than upon wide
diversification.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust and at such times that the Sub-advisor deems
appropriate and consistent with this Portfolio's investment objective, the
Portfolio may invest in repurchase agreements. The Sub-advisor will review the
creditworthiness of the other party to the agreement and will find it
satisfactory before entering into a repurchase agreement. For a discussion of
repurchase agreements and the risks involved therein, see this Prospectus under
"Certain Risk Factors and Investment Methods."
Securities and Index Options. The Portfolio may write covered call
options and purchase call and put options. Securities and index options are
described below and in more detail in the Trust's Statement of Additional
Information under "Investment Objectives and Policies" and "Certain Risk Factors
and Investment Methods."
Selling Call Options. The Portfolio may write (sell) exchange-traded
covered call options. A call option is "covered" if the Portfolio owns the
underlying security or has an absolute and immediate right to acquire that
security without additional cash consideration (or additional cash consideration
held in a segregated account by the Portfolio's custodian) upon conversion or
exchange of other securities held in the Portfolio. A call option is also
covered if the Portfolio holds on a share-for-share basis a covering call on the
same security as the call written where (i) the exercise price of the covering
call held is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained by the Portfolio in cash, U.S. Treasury bills or other high-grade
short-term obligations in a segregated account with its custodian, and (ii) the
covering call expires at the same time or after the call written.
The value of the total assets of the Portfolio which may be subject to
call options is limited to 50% of the Portfolio's total assets. The Sub-advisor
currently intends to cease writing options if and as long as 25% of such total
assets are subject to outstanding options contracts or if required under
regulations of state securities administrators. Call options on securities
indices will be written only to hedge in an economically appropriate way
Portfolio securities which are not otherwise hedged with options or financial
futures contacts and will be "covered" by identifying the specific Portfolio
securities being hedged.
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 the Portfolio's ability to close out options it
has written. For a discussion of selling call 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."
Purchasing Call and Put Options. The Portfolio may invest up to 2% of
its total assets in exchange-traded call and put options on securities and
securities indices for the purpose of hedging against changes in the market
value of its securities. The Portfolio will invest in call and put options
whenever, in the opinion of the Sub-advisor, a hedging transaction is consistent
with the investment objective of the Portfolio. The 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.
Purchasing a call or put option involves the risk that the Portfolio
may lose the premium paid plus transactions costs. For a discussion of
purchasing call and put options and the risks involved therein, see this
Prospectus and 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."
Warrants and Stock Rights. Warrants and stock rights are almost
identical to call options in their nature, use and effect except that they are
issued by the issuer of the underlying security rather than an option writer
(seller). The Portfolio may invest in up to 5% of its total assets in warrants
or stock rights valued at the lower of cost or market, but no more than 2% of
its total assets may be invested in warrants or stock rights not listed on the
New York Stock Exchange or American Stock Exchange.
Financial Futures and Related Options: The Portfolio may enter into
financial futures contracts and related options. The Portfolio may purchase and
sell futures contracts which are traded on a recognized exchange or board of
trade and may purchase exchange- or board-traded put and call options on
financial futures contracts for the purpose of hedging against anticipated
changes in the market value of the Portfolio's securities or changes in the
market value of securities which it intends to purchase. Hedging is the
initiation of a position in the futures market which is intended as a temporary
substitute for the purchase or sale of the underlying securities in the cash
market.
The Portfolio will engage in transactions in financial futures
contracts and related options only for hedging purposes and not for speculation
or leveraging. In addition, the Portfolio will not buy or sell any financial
futures contract or related option, if immediately thereafter, the sum of the
cash or U.S. Treasury bills initially committed with respect to the Portfolio
existing futures and related options positions and the premiums paid for the
related options would exceed 2% of the market value of the Portfolio's total
assets. At the time of purchase of a futures contract or a call option on a
futures contract, an amount of cash, U.S. Government securities or other
appropriate high-grade debt obligations equal to the market value of the futures
contract minus the Portfolio's initial margin deposit with respect thereto will
be deposited in a segregated account with the Portfolio's custodian to
collateralize fully the position and thereby ensure that it is not leveraged.
The extent to which the Portfolio may enter into financial futures contracts and
related options may also be limited by requirements of the Internal Revenue Code
for qualification as a regulated investment company.
Risks of Options and Futures Transactions. For a discussion of
financial futures and related 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."
Foreign Securities. The Portfolio may purchase foreign securities,
including those issued by foreign branches of U.S. banks. The Portfolio may
invest up to 25% of its total net assets in the securities of foreign issuers.
The Portfolio may invest in a broad range of foreign securities including
equity, debt and convertible securities and foreign government securities. The
Portfolio may enter into forward foreign currency exchange contracts for the
purpose of protecting against losses resulting from fluctuations in exchange
rates between the U.S. Dollar and a particular foreign currency denominating a
security which the Portfolio holds or intends to acquire. The Portfolio will not
speculate in forward foreign currency exchange contracts.
The Portfolio's custodian may use a foreign sub-custodian in connection
with its purchase of foreign securities and may maintain cash and cash
equivalents in the care of a foreign sub-custodian. The amount of cash or cash
equivalent maintained in the care of eligible foreign sub-custodians will be
limited to an amount reasonably necessary to effect the Portfolio's foreign
securities transactions.
The Portfolio will calculate its net asset value and complete orders to
purchase, exchange or redeem shares only on a Monday-Friday basis (excluding
holidays on which the New York Stock Exchange is closed). Foreign securities in
which the Portfolio may invest may be primarily listed on foreign stock
exchanges which may trade on other days (such as Saturdays). As a result, the
net asset value of the Portfolio may be affected by such trading on days when a
shareholder has no access to the Portfolio.
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 the risks involved in foreign investing in general, see this
Prospectus and the Statement of Additional Information under "Certain Risk
Factors and Investments."
Risks of Foreign 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."
Forward Currency Exchange Contracts. The Sub-advisor may consider
changes in exchange rates in making investment decisions. As one way of managing
exchange rate risk, the Portfolio may enter into forward currency exchange
contracts. The Portfolio may enter into these contracts to fix the U.S. dollar
value of a security that it has agreed to buy or sell for the period between the
date the trade was entered into and the date the security is delivered and paid
for. The Portfolio may also use these contracts to hedge the U.S. dollar value
of securities it already owns. The Portfolio may be required to cover certain
forward currency exchange contract positions by establishing a segregated
account with its custodian that will contain only liquid assets, such as U. S.
Government securities or other liquid high-grade debt obligations.
While the Sub-advisor may seek to benefit the Portfolio when using
forward contracts, it may or may not be able to project precisely the future
exchange rates between foreign currencies and the U.S. dollar. The Portfolio may
therefore incur a gain or loss on a forward contract. A forward contract may
help reduce the 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. For an additional discussion of foreign currency exchange contracts,
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."
Lending. The Portfolio may make loans of its securities under certain
circumstances. For a 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."
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 investment 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, of if unrated, the Sub-advisor
equivalent.
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 or premiums on such contracts used for non-hedging
purposes will not equal more than 5% of the Portfolio's net asset value. 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 5% 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 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."
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 investment 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. In order to increase total return, the Portfolio may
invest up to 35% of its assets in any other type of security including
convertible securities; preferred stocks, warrants; bonds, notes and other debt
securities (including Eurodollar securities); and obligations of domestic or
foreign governments and their political subdivisions. 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 may 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 Depository 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 the Sub-advisor
equivalent.
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 portfolio 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 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 aggregate market value of the Portfolio's
currencies or portfolio securities covering call or put options will not exceed
25% of the Portfolio's net assets.
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. 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."
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 5% 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."
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 portfolio 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 5% 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 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 fund 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."
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.
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 able 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 Corporation ("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."
Foreign Securities. The Portfolio may invest in dollar-denominated
American Depository 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 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, 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. 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. For a discussion of the
special risks involved in investing in developing countries and the 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."
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."
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.
While forward contracts will be traded to attempt to reduce certain
risks, trading in forward contracts itself entails certain other risks. Thus,
while the Portfolio may benefit from the use of such contracts, if the
Sub-advisor is incorrect in its forecast of currency prices, a poorer overall
performance may result than if it had not entered into any forward contracts.
Some forward contracts may not have a broad and liquid market, in which case the
contracts may not be able to be closed at a favorable price. Moreover, in the
event of an imperfect correlation between the forward contract and the portfolio
position which is intended to be protected, the desired protection may not be
obtained. For an additional discussion of currency contracts and the risks of
foreign currency fluctuations, see this Prospectus and the Trust's Statement of
Additional Information "Certain Risk Factors and Investment Methods."
Temporary Investments. The Portfolio may invest up to 10% 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."
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 assets in securities which are not readily marketable, including repurchase
agreements maturing in more than seven days and foreign securities not listed on
a recognized foreign or domestic exchange. 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 weekly. The Portfolio
may invest up to 5% of the market value of its respective assets in restricted
securities.
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. Other than as is limited in this
section, the Portfolio may enter into futures contracts for the purpose of
hedging all or a portion of its investment portfolios, for the purpose of
hedging 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
speculation or leveraging, and will limit its use of futures contracts so that
no more than 5% of its total assets will be committed to initial margin deposits
or premiums on such contracts. The Portfolio may purchase put and call options
on securities, financial indices, and currencies. Futures contracts and options
can be highly volatile and could result in reduction of the Portfolio's total
return, and any attempt to use such investments for hedging purposes may not be
successful.
Risks of Futures Contracts and Options. There are risks involved in
futures and options contracts. For a discussion of futures contracts and options
and the risks involved therein, see this Prospectus under "Certain Risk Factor
and Investment Methods" and the Trust's Statement of Additional Information
under "Investment Objectives and Policies" and "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. Such turnover rates may also generate larger taxable income and taxable
capital gains than would result from lower portfolio turnover rates, and may
create higher tax liability for the Portfolio's shareholders. A 100% portfolio
turnover rate would occur if all of the securities in the portfolio were
replaced during the period.
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 investment 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 between 60% and 75% of its assets in dividend-paying, marketable
common stocks of domestic and foreign industrial issuers. 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
dividend-paying common stocks 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 seek to maximize total return. A secondary objective is
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
timeframe based upon the Sub-advisor's forecast for interest rates, but under
current conditions is expected to stay within one year of what the Sub-advisor
believes to be the average duration of the bond market as a whole. 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 20% of its assets in corporate debt 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 will limit its investments denominated in foreign
currencies to 35% of the Portfolio's total assets. 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 total 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-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."
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 investment policies. Certain restrictions imposed on the
Trust 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
United States 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 investment
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 "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 total 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's 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' 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.
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 United States 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."
AST Scudder International Bond Portfolio:
Investment Objective: The Portfolio seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As a
secondary objective, the Portfolio seeks protection and possible enhancement of
principal value by actively managing currency, bond market and maturity exposure
and by security selection.
Special Risk Considerations. The Portfolio is intended for long-term
investors who can accept the risks associated with investing in international
bonds. Total return from investment in the Portfolio will consist of income
after expenses, bond price gains (or losses) in terms of the local currency and
currency gains (or losses). For tax purposes, realized gains and losses on
currency are regarded as ordinary income and loss and could, under certain
circumstances, have an impact on distributions. 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 will attempt to control exchange rate and interest rate
risks through active portfolio management. 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.
The Portfolio may also engage in Strategic Transactions (see the
heading by that name in this Prospectus) to enhance potential gains for
non-hedging purposes. No more than 5% of the Portfolio's assets will be
committed to Strategic Transactions entered into for non-hedging purposes. The
use of such transactions can increase the gain or loss over that which would
have resulted had such strategic transactions not been utilized.
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 primarily invest in a
managed portfolio of high-grade international bonds that are denominated in
foreign currencies, including bonds denominated in the European Currency Unit
(ECU). Portfolio investments will be selected on the basis of, among other
things, yields, credit quality, and the fundamental outlooks for currency and
interest rate trends in different parts of the globe, taking into account the
ability to hedge a degree of currency or local bond price risk. The Portfolio
will normally invest at least 65% of its total assets in bonds denominated in
foreign currencies.
The high-grade debt securities in which the Portfolio primarily invests
will be rated in one of the three highest rating categories of one of the major
U.S. rating services or, if not rated, considered to be of equivalent quality in
local currency terms by the Sub-advisor. These securities are rated AAA, AA or A
by Standard & Poor's Corporation ("S&P") or Aaa, Aa, or A by Moody's Investors
Service, Inc. ("Moody's").
The Portfolio may also purchase debt securities rated BBB, BB or B by
S&P or Baa, Ba or B by Moody's and unrated securities considered to be of
equivalent quality in local currency terms by the Sub-advisor. The Portfolio
will do so to avail itself of the higher yields available with these securities,
but only to the extent that up to 15% of the Portfolio's total assets may be
invested in securities rated below BBB by S&P or Baa by Moody's. 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. Under normal circumstances, the Portfolio
will invest no more than 35% of the value of its total assets in U.S. debt
securities. The Portfolio may invest 10% of its net assets in securities which
are not readily marketable, repurchase agreements maturing in more than seven
days and restricted securities; and up to 5% of its assets in restricted
securities. The Portfolio may engage in strategic transactions, as described
below, for hedging purposes and to seek to increase gain. 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.
Indexed securities. The Portfolio may invest in indexed securities, the
value of which is linked to currencies, interest rates, commodities, indices or
other financial indicators ("reference instruments"). The interest rate or
(unlike most fixed-income securities) the principal amount payable at maturity
of an indexed security may be increased or decreased, depending on changes in
the value of the reference instrument. Indexed securities may be positively or
negatively indexed, so that appreciation of the reference instrument may produce
an increase or a decrease in the interest rate or value at maturity of the
security. In addition, the change in the interest rate or value at maturity of
the security may be some multiple of the change in the value of the reference
instrument. Thus, in addition to the credit risk of the security's issuer, the
Portfolio will bear the market risk of the reference instrument.
Repurchase agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust and as a means of earning income for periods as short
as overnight, the Portfolio may enter into repurchase agreements with selected
banks and broker/dealers. Under a repurchase agreement, the Portfolio acquires
securities, subject to the seller's agreement to repurchase them at a specified
time and price. The Portfolio may also enter into repurchase commitments for
investment purposes for periods of 30 days or more. Such commitments involve
investment risk similar to that of debt securities in which the Portfolio
invests. For a discussion of the risks involved in repurchase agreements, see
this Prospectus under "Certain Risk Factors and Investment Methods."
Dollar roll transactions. The Portfolio may enter into dollar roll
transactions with selected banks and broker/dealers. Dollar roll transactions
are treated as reverse repurchase agreements for purposes of the Portfolio's
borrowing restrictions and consist of the sale by the Portfolio of
mortgage-backed securities with a commitment to purchase similar, but not
identical, securities at a future date, at the same price. In addition, the
Portfolio is paid a fee as consideration for entering into the commitment to
purchase. Dollar rolls may be renewed after cash settlement and initially may
involve only a firm commitment agreement by the Portfolio to buy a security. If
the broker/dealer to whom the Portfolio sells the security becomes insolvent,
the Portfolio's right to purchase or repurchase the security may be restricted;
the value of the security may change adversely over the term of the dollar roll;
the security which the Portfolio is required to repurchase may be worth less
than a security which the Portfolio originally held, and the return earned by
the Portfolio with the proceeds of a dollar roll may not exceed transaction
costs.
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."
Strategic Transactions and Derivatives. The Portfolio may, but is not
required to, utilize various other investment strategies as described below to
hedge various market risks (such as interest rates, currency exchange rates, and
broad or specific fixed-income market movements), to manage the effective
maturity or duration of the Portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Techniques
and instruments may change over time as new instruments and strategies are
developed or regulatory changes occur. In the course of pursuing these
investment strategies, the Portfolio may purchase and sell exchange-listed and
over-the-counter put and call options on securities, equity and fixed-income
indices and other financial instruments, purchase and sell financial futures
contracts and options thereon, enter into various interest rate transactions
such as swaps, caps, floors or collars, and enter into various currency
transactions such as currency forward contracts, currency futures contracts,
currency swaps or options on currencies or currency futures (collectively, all
the above are called "Strategic Transactions"). Strategic Transactions may be
used to attempt to protect against possible changes in the market value of
securities held in or to be purchased for the Portfolio resulting from
securities markets or currency exchange rate fluctuations, to protect the
Portfolio's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Portfolio or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Portfolio's assets will be
committed to Strategic Transactions entered into for non-hedging purposes. Any
or all of these investment techniques may be used at any time and there is no
particular strategy that dictates the use of one technique rather than another,
as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Portfolio to utilize these
Strategic Transactions successfully will depend on the Sub-advisor's ability to
predict pertinent market movements, which cannot be assured. The Portfolio will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes. Strategic Transactions have risks associated with
them including possible default by the other party to the transaction,
illiquidity and, to the extent the Sub-advisor's view as to certain market
movements is incorrect, the risk that the use of such Strategic Transactions
could result in losses greater than if they had not been used. Use of put and
call options may result in losses to the Portfolio, force the sale or purchase
of Portfolio securities at inopportune times or for prices higher than (in case
the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Portfolio can realize on its
investments or cause the Portfolio to hold a security it might otherwise sell.
The use of currency transactions can result in the Portfolio incurring losses as
a result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. The use of options and futures transactions entails certain other
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of
the Portfolio creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Portfolio's position. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Portfolio might not be able to close out a transaction without incurring
substantial losses, it at all. Although the use of futures contracts and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. See this Prospectus and the Trust's
Statement of Additional Information under "Certain Risk Factors and Investment
Methods" for a further discussion of the risks involved in future and options
transactions.
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."
Eagle Growth Equity Portfolio:
Investment Objective: The investment objective of the Eagle Growth Equity
Portfolio is long-term capital appreciation primarily through investment in
common stocks and other equity securities. This is a fundamental investment
objective of the Portfolio.
Investment Policies:
The Portfolio will pursue its objective by investing primarily in
common stocks of companies which, in the view of the Sub-advisor, have
above-average prospects for substantial long-term capital appreciation. The
Portfolio may also invest in preferred stocks and securities convertible into
common stock. The Portfolio may purchase securities traded on recognized
securities exchanges and in the over-the-counter market. The Portfolio will
normally invest at least 65% of its total assets in equity securities of
companies which the Sub-advisor believes will achieve significant growth. Common
stock and other equity investments will generally be in companies that the
Sub-advisor believes are healthy, growing businesses with strong or dominant
market share, free cash flow, and availability at a price below Sub-advisor's
perception of a company's value as a going concern. The Portfolio may invest its
remaining assets in U.S. Government securities, repurchase agreements or other
short-term money market instruments. The Portfolio may purchase and sell a
security without regard to the length of time a security will be or has been
held.
Repurchase Agreements. Subject to guidelines promulgated by the Board
of Trustees of the Trust, the Portfolio may enter into repurchase agreements
with security dealers, or member banks of the Federal Reserve System. A
repurchase agreement arises when a buyer such as the Portfolio purchases a
security and simultaneously agrees to resell it to the vendor at an agreed upon
future date, normally one day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed upon interest rate that is
effective for the period the buyer's money is invested in the security and that
is related to the current market rate rather than the coupon rate on the
purchased security. Repurchase agreements permit the Portfolio to keep all of
its assets invested while retaining overnight flexibility in pursuit of
longer-term investments. For a discussion of repurchase agreements and the risks
involved therein, see this Prospectus under "Certain Risk Factors and Investment
Methods."
For temporary defensive purposes during anticipated periods of general
market decline, the Portfolio may invest up to 100% of its net assets in money
market instruments, including securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements secured
thereby, as well as bank certificates of deposit and banker's acceptances issued
by banks having net assets of at least $1 billion as of the ends of their most
recent fiscal year, high grade commercial paper, and other long- and short-term
debt instruments which are rated A or higher by Standard & Poor's Ratings Group
or Moody's Investors Service, Inc.
Foreign Securities. While the Portfolio may invest in foreign
securities and American Depository Receipts, such investments may not exceed 25%
of the Portfolio' holdings. These investments may involve greater risks than are
normally present in domestic investment. In addition, the Portfolio may invest
in countries which are considered to be developing, which may involve special
risks. Before investing in foreign securities, the Portfolio will consider
possible political and financial instability abroad, as well as the liquidity
and volatility of foreign investments. Fluctuations in monetary exchange rates
will affect the dollar value of foreign investments. Solely to protect against
such uncertainty, the Portfolio can enter into forward contracts to purchase or
sell foreign currencies at a future date. For a discussion of these risks as
well as the 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."
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."
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."
Berger Capital Growth Portfolio:
Investment Objective: The investment objective of the Berger Capital Growth
Portfolio is to achieve long-term capital appreciation. The Portfolio seeks to
achieve this objective primarily by investing in common stocks of established
companies. As a high level of income return is not an investment objective, 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 the assets of the Portfolio 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' 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 management of the Portfolio believes they
offer the potential for a higher total return than non-convertible 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. 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
"strips." Zero coupon bonds do not make regular interest payments; rather, they
are sold at a discount from face value. Principal and accreted discount
(representing interest accrued but not paid) are paid at maturity. "Strips" are
debt securities that are stripped of their interest after the securities are
issued, but otherwise are comparable to zero coupon bonds. The market values of
"strips" and zero coupon bonds generally fluctuates 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 acquire illiquid securities (no more
than 15% of net assets). The Portfolio will not invest more than 5% 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."
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 not to 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) 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. They 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 Depository Receipts (ADRs) and European Depository Receipts (EDRs):
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. ADRs and EDRs may be issued
as sponsored or unsponsored programs. In sponsored programs, the issuer makes
arrangements to have its securities traded in the form of ADRs or EDRs. 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 ADRs or
EDRs 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 it will exchange into. 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 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
Portfolios' 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
of the absence of a readily available market or due to legal or contractual
restrictions. 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 and Exchange Commission. 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. Each Portfolio has or will make a commitment to
the State of California Department of Insurance which further limits the amount
which may be borrowed.
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) it 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 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 West 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 is
as follows:
Seligman Henderson International Equity Portfolio: not to exceed 100%.
Seligman Henderson International Small Cap Portfolio: not to exceed
100% under normal market conditions.
Lord Abbett Growth and Income Portfolio: not to exceed 100%.
JanCap 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.
AST Phoenix Balanced Asset Portfolio: not to exceed 200% under normal
market conditions.
AST Phoenix Capital Growth Portfolio: not to exceed 200% 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
Founders Capital Appreciation Portfolio: not to exceed 200% 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.
AST Scudder International Bond Portfolio: not to exceed 250% under normal
market conditions.
Eagle Growth Equity Portfolio: not to exceed 100% under normal market
conditions.
Berger Capital Growth Portfolio: not to exceed 100% 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
brokers 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 brokers 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 (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 Board of Trustees has established
procedures for valuing the Trust's 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 is the only Participating Insurance Company. 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 both 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, nineteen 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 the 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, 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-Trustees and Officers."
Investment Manager: American Skandia Investment Services, Incorporated, One
Corporate Drive, Shelton, Connecticut ("ASISI"), 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. 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 Company as of the date of this
Prospectus was American Skandia Life Assurance Corporation, which is also a
wholly-owned subsidiary of American Skandia Investment Holding Corporation.
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 (formerly known as "Skandia Life Equity
Sales Corporation") (the principal underwriter for various annuities deemed to
be securities for American Skandia Life Assurance Corporation) and American
Skandia Investment Holding Corporation.
Sub-advisors:
Seligman Henderson International Equity Portfolio (formerly known as
the "Henderson International Growth Portfolio"): Seligman Henderson Co. serves
as Sub-advisor to the Portfolio. Seligman Henderson Co. was founded in 1991 as a
joint venture between J&W Seligman & Co. Incorporated and Henderson
International, Inc., a controlled affiliate of Henderson Administration Group
plc. The Sub-advisor, headquartered in New York, was created to provide
international and global investment management services to institutional and
individual investors and investment companies in the United States. Seligman
Henderson Co. also currently serves as sub-advisor to Seligman Capital Fund,
Seligman Common Stock Fund, Seligman Communications and Information Fund,
Seligman Frontier Fund, Seligman Growth Fund, Seligman Henderson Global
Technology Fund, Seligman Henderson International Fund, Seligman Henderson
Global Small Companies Fund, Seligman Income Fund, the Global Portfolio and
Global Small Companies Portfolio of Seligman Portfolios, Inc. Tri-Continental
Corporation and the International Equity Fund series of The Compass Capital
Group. The address of the Sub-advisor is 100 Park Avenue, New York, NY 10017.
Mr. Iain C. Clark is responsible for the day-to-day investment activity of
the Portfolio. Mr. Clark is a Managing Director and Chief Investment Officer of
Seligman Henderson Co.
Seligman Henderson International Small Cap Portfolio: Seligman Henderson
Co. serves as Sub-advisor to the Portfolio. Seligman Henderson Co. was founded
in 1991 as a joint venture between J&W Seligman & Co. Incorporated and Henderson
International, Inc., a controlled affiliate of Henderson Administration Group
plc. The Sub-advisor, headquartered in New York, was created to provide
international and global investment management services to institutional and
individual investors and investment companies in the United States. Seligman
Henderson Co. also currently serves as sub-advisor to Seligman Capital Fund,
Seligman Common Stock Fund, Seligman Communications and Information Fund,
Seligman Frontier Fund, Seligman Growth Fund, Seligman Henderson Global
Technology Fund, Seligman Henderson International Fund, Seligman Henderson
Global Small Companies Fund, Seligman Income Fund, the Global Portfolio and
Global Small Companies Portfolio of Seligman Portfolios, Inc. Tri-Continental
Corporation and the International Equity Fund series of The Compass Capital
Group. The address of the Sub-advisor is 100 Park Avenue, New York, NY 10017.
Mr. Iain C. Clark is responsible for the day-to-day investment activity of
the Portfolio. Mr. Clark is a Managing Director and Chief Investment Officer of
Seligman Henderson Co.
Lord Abbett Growth and Income Portfolio: Lord Abbett & Co., 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 60 years. As of December 31, 1994, Lord Abbett
managed approximately $16 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 certain position in the
research department of Lord, Abbett & Co. since 1982.
JanCap Growth Portfolio: Janus Capital Corporation, 100 Fillmore
Street, Suite 300, Denver, Colorado 80206-4923, acts as the Sub-advisor for the
JanCap Growth Portfolio. Janus Capital Corporation 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 December 31, 1994, Janus Capital Corporation managed assets worth
approximately $22 billion. Kansas City Southern Industries, Inc. ("KCSI") owns
approximately 81 % of the outstanding voting stock of Janus Capital Corporation,
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 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.
AST Money Market Portfolio: J.P. Morgan Investment Management Inc., 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. It is a
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated, which, as of December
31, 1994, managed approximately $112 billion in assets. As of the date of this
Prospectus, it also was 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, the only
Participating Insurance Company.
Federated Utility Income Portfolio and Federated High Yield Portfolio:
Federated Investment Counseling, 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
Counseling, 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 Counseling 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 December 31, 1994, is approximately $70 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 in 1990. He was
previously associated with Mellon Bank as an Assistant Vice President and as
Investment Manager with Mahoning National Bank. He is a Chartered Financial
Analyst and received his M.B.A. in Finance from Cleveland State University.
Linda A. Duessel has been the companies portfolio manager since May 1, 1995. Ms.
Duessel joined Federated Investors in 1991 and has been an Assistant Vice
President of an affiliate of the Sub-advisor. Ms. Duessel was employed by
Westinghouse Credit Corporation from 1983 until 1991, serving in a variety of
positions which culminated in her being named Vice President/Portfolio Manager
in the Mechanical Banking Group in 1990. Ms. Duessel served as a Senior Staff
Accountant at Arthur Young & Company from 1979 to 1982. Ms. Duessel received her
M.S.I.A. from Carnegie Mellon University. Ms. Duessel is a Certified Public
Accountant and a Chartered Financial Analyst.
The portfolio manager responsible for management of the Federated High
Yield Portfolio is Mark Durbiano. Mr. Durbiano has been a Vice President of
Federated Research Corp. since 1988. He joined Federated in 1982. He is a
Chartered Financial Analyst and received his M.B.A. from the University of
Pittsburgh.
AST Phoenix Balanced Asset Portfolio and AST Phoenix Capital Growth
Portfolio: Phoenix Investment Counsel, Inc., One American Row, Hartford,
Connecticut 06115-2520, acts as Sub-advisor to the AST Phoenix Balanced Asset
Portfolio and AST Phoenix Capital Growth Portfolio. The Sub-advisor was
originally organized in 1932 as John P. Chase, Inc. In addition to the AST
Phoenix Balanced Asset Portfolio and AST Capital Growth Portfolio, it serves as
investment advisor to other entities. The Sub-advisor is a wholly owned
subsidiary of Phoenix Equity Planning Corporation an indirect subsidiary of
Phoenix Home Life Mutual Insurance Company of Hartford, Connecticut. As of
December 31, 1994, Phoenix Investment Counsel, Inc. and its affiliates managed
assets worth approximately $12.8 billion.
Mr. Michael R. Matty, Vice President, Phoenix Investment Counsel, Inc.,
has been the Portfolio Manager primarily responsible for the day-to-day
management of the AST Phoenix Balanced Asset Portfolio since the Portfolio's
inception on May 1, 1993. Mr. Matty also serves as Portfolio Manager, Common
Stock, Phoenix Home Life Mutual Insurance Company ("Phoenix Home Life"); Vice
President, Phoenix Series Fund and Vice President, National Securities and
Research Corporation. Mr. Matty has held various positions with Phoenix Home
Life since 1986.
Mr. John Wilson, Vice President, Phoenix Investment Counsel, Inc. has been
named the Portfolio Manager to be primarily responsible for the day-to-day
management of the AST Phoenix Capital Growth Portfolio, beginning May 1, 1995.
Mr. Wilson also serves as Portfolio Manager, Common Stock, Phoenix Home Life;
Vice President, Phoenix Series Fund and Vice President, National Securities and
Research Corporation. Mr. Wilson has held various positions with Phoenix Home
Life since 1990. Prior to May 1, 1995, Mr. Thomas S. Melvin, Jr. had primary
responsibility for this Portfolio.
T. Rowe Price Asset Allocation Portfolio: T. Rowe Price Associates, Inc.,
was founded in 1937 by the late Thomas Rowe Price, Jr. As of December 31, 1994,
the firm and its affiliates managed approximately $60 billion for approximately
two and one-half million individual and institutional investors. The Portfolio
has 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.
T. Rowe Price International Equity Portfolio: Rowe Price-Fleming
International, Inc. 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
$17 billion under management as of December 31, 1994 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 members of the
advisory group are listed below.
Martin G. Wade, Christopher Alderson, Peter Askew, David Boardman, 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 26 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.
Peter Askew joined Price-Fleming in 1988 and has 20 years of experience
managing multicurrency fixed income portfolios. Christopher Alderson joined
Price-Fleming in 1988, and has eight years of experience with the Fleming Group
in research and portfolio management, including an assignment in Hong Kong.
David Boardman joined Price-Fleming in 1988 and has 20 years experience in
managing multicurrency fixed income portfolios. Richard J. Bruce joined
Price-Fleming in 1991 and has six years of experience in investment management
with the Fleming Group in Tokyo. Mark J.T. Edwards joined Price-Fleming in 1986
and has 14 years of experience in financial analysis, including three years in
Fleming European research. John R. Ford joined Price-Fleming in 1982 and has 15
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 15 years of experience in economic research
in Japan. James B.M. Seddon joined Price-Fleming in 1987 and has eight years of
experience in investment management. Benedict R.F. Thomas joined Price-Fleming
in 1988 and has six years of portfolio management experience, including
assignments in London and Baltimore. David J.L. Warren joined Price-Fleming in
1984 and has 15 years experience in equity research, fixed income research and
portfolio management, including an assignment in Japan.
T. Rowe Price Natural Resources Portfolio: T. Rowe Price Associates, Inc.,
was founded in 1937 by the late Thomas Rowe Price, Jr. As of December 31, 1994,
the firm and its affiliates managed approximately $50 billion for approximately
two and one-half million individual and institutional investors.
The 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 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. Roche has been
Chairman of the Committee since 1988. He joined the Sub-advisor in 1968 and has
been managing investments since 1979. Mr. Ober has been Co-Chairman of the
Committee since 1995. He joined the Sub-advisor in 1980 as an investment
analyst, and has served as an Investment Advisory Committee member for the past
five years.
Founders Capital Appreciation Portfolio: Founders Asset Management,
Inc., 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, Worldwide Growth, Growth,
Blue Chip, Balanced, Opportunity Bond, Government Securities, and Money Market
Funds. Founders, which is also the investment advisor for a number of private
accounts, managed assets aggregating approximately $2.2 billion as of December
31, 1994.
The portfolio manager responsible for management of the Portfolio is
Michael K. Haines, a vice president of investments of Founders. Mr. Haines has
been associated with Founders for ten years, serving as assistant portfolio
manager and as a lead portfolio manager.
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 Growth Fund, 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. is a wholly-owned
subsidiary of INVESCO North American Holdings, Inc. ("INAH"), a Delaware
corporation, which in turn is a wholly-owned subsidiary of INVESCO PLC. INVESCO
PLC was organized in 1935.
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: Pacific Investment Management
Company ("PIMCO") serves as Sub-advisor to the Portfolio. It is an investment
counseling firm founded in 1971 and currently has over $56 billion of assets
under management. PIMCO is a subsidiary general partnership of PIMCO Advisors
L.P. ("PIMCO Advisors"). A majority interest in PIMCO Advisors which 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 SEC and a commodity trader advisor with
the CFTC.
The portfolio manager responsible for management of the Portfolio is
William H. Gross. Mr. Gross is managing director of PIMCO Investment Management
Company and has been associated with the firm for 23 years.
PIMCO Limited Maturity Bond Portfolio: Pacific Investment Management
Company ("PIMCO") serves as sub-advisor to the Portfolio. It is an investment
counseling firm founded in 1971 and currently has over $56 billion of assets
under management. PIMCO is a subsidiary general partnership of PIMCO Advisors
L.P ("PIMCO Advisors"). A majority interest in PIMCO Advisors which 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 SEC and a commodity trader advisor with
the CFTC.
The portfolio manager is William H. Gross. Mr. Gross is managing director
of PIMCO Investment Management Company and has been associated with the firm for
23 years.
AST Scudder International Bond Portfolio: Scudder, Stevens & Clark,
Inc., 345 Park Avenue, New York, New York 10154, an investment counsel firm,
acts as Sub-advisor to the Portfolio. This organization is one of the most
experienced investment management firms in the U.S. It was established in 1919
and pioneered the practice of providing investment counsel to individual clients
on a fee basis. In 1928 it introduced the first no-load mutual fund to the
public. In 1953, the Sub-advisor introduced Scudder International Fund, the
first mutual fund registered with the Commission in the U.S. investing
internationally in securities in securities of issuers in several foreign
countries.
Lead Portfolio Manager Adam Greshin has been responsible for the
Portfolio's day-to-day management since 1995. He joined Scudder, Stevens &
Clark, Inc. in 1986. Mr. Greshin who specializes in global and international
bond investments, was involved in the original design of a public mutual fund,
the Scudder International Bond Fund, and has been a portfolio manager of that
fund since its inception in 1988.
Eagle Growth Equity Portfolio: Eagle Asset Management, Inc., 880 Carillon
Parkway, St. Petersburg, Florida, 33716, acts as the Sub-advisor for the Eagle
Growth Equity Portfolio. Eagle Asset Management, Inc. manages accounts for both
retail and institutional clients. As of January 1, 1995, the Sub-advisor managed
approximately $1.5 billion in its advisory accounts.
The portfolio manager responsible for management of the Portfolio is
Herbert E. Ehlers. Mr. Ehlers is a Senior Vice President of the Sub-advisor, and
he manages other growth equity accounts along with the Portfolio. Mr. Ehlers is
also Chairman and Chief Executive Officer of Liberty Investment Management,
Inc., an independent investment advisory firm.
Berger Capital Growth Portfolio: Berger Associates, Inc., 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 December 31,
1994 Berger Associates, Inc., managed assets worth approximately $2.9 billion.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 84 % of the
outstanding voting stock of Berger Associates, Inc., most of which it acquired
in 1994. KCSI is a publicly-traded holding company whose primary subsidiaries
are engaged in transportation and financial services.
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 One Hundred and One 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.
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:
Seligman Henderson International Equity Portfolio: An annual rate of
1.0% 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 .15% on
assets in excess of $75 million. The Investment Manager may terminate this
agreement at any time. For the year ended December 31, 1994, the amount of the
fee paid by the Trust to the Investment Manager was $1,904,849.
Seligman Henderson International Small Cap Portfolio: An annual rate of
1.0% of the average daily net assets of the Portfolio.
Lord Abbett Growth and Income Portfolio: An annual rate of 0.75% of the
average daily net assets of the Portfolio. For the year ended December 31, 1994,
the amount of the fee paid by the Trust to the Investment Manager was $520,944.
JanCap Growth Portfolio: An annual rate of 0.90% of the average daily
net assets of the Portfolio. For the year ended December 31, 1994, the amount of
the fee paid by the Trust to the Investment Manager was $1,810,949.
AST Money Market Portfolio: An annual rate of 0.50% 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 agreement at
any time. For the year ended December 31, 1994, the amount of the fee paid by
the Trust to the Investment Manager was $1,207,541.
Federated Utility Income Portfolio: An annual rate equal to 0.75% 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, 1994, the amount of the fee paid by the Trust to the
Investment Manager was $470,691.
Federated High Yield Portfolio: .75% of the average daily net assets of the
Portfolio. For the year ended December 31, 1994, the amount of the fee paid by
the Trust to the Investment Manager was $100,187.
AST Phoenix Balanced Asset Portfolio: An annual rate equal to .75% of
the first $75 million of the Portfolio's average daily net assets; plus .65% of
the Portfolio's average daily net assets in excess of $75 million. For the year
ended December 31, 1994, the amount of the fee paid by the Trust to the
Investment Manager was $890,225.
AST Phoenix Capital Growth Portfolio: .75% of the average daily net assets
of the Portfolio. For the year ended December 31, 1994, the amount of the fee
paid by the Trust to the Investment Manager was $59,043.
T. Rowe Price Asset Allocation Portfolio: .85% of the average daily net
assets of the Portfolio. For the year ended December 31, 1994, the amount of the
fee paid by the Trust to the Investment Manager was $114,139.
T. Rowe Price International Equity Portfolio: 1.00% of the average daily
net assets of the Portfolio. For the year ended December 31, 1994, the amount of
the fee paid by the Trust to the Investment Manager was $601,032.
T. Rowe Price Natural Resources Portfolio: .90% of the average daily net
assets of the Portfolio.
Founders Capital Appreciation Portfolio: .90% of the average daily net
assets of the Portfolio. For the year ended December 31, 1994, the amount of the
fee paid by the Trust to the Investment Manager was $100,689.
INVESCO Equity Income Portfolio: .75% of the average daily net assets of
the Portfolio. For the year ended December 31, 1994, the amount of the fee paid
by the Trust to the Investment Manager was $232,348.
PIMCO Total Return Bond Portfolio: .65% of the average daily net assets of
the Portfolio. For the year ended December 31, 1994, the amount of the fee paid
by the Trust to the Investment Manager was $146,549.
PIMCO Limited Maturity Bond Portfolio: .65% of the average daily net assets
of the Portfolio.
AST Scudder International Bond Portfolio: 1.00 % of the average daily net
assets of the Portfolio. For the year ended December 31, 1994, the amount of the
fee paid by the Trust to the Investment Manager was $59,968.
Eagle Growth Equity Portfolio: .80% of the average daily net assets of the
Portfolio. For the year ended December 31, 1994, the amount of the fee paid by
the Trust to the Investment Manager was $10,292.
Berger Capital Growth Portfolio: .75% of the average daily net assets of
the Portfolio. For the year ended December 31, 1994, the amount of the fee paid
by the Trust to the Investment Manager was $1,659.
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:
Seligman Henderson Co. for the Seligman Henderson International Equity
Portfolio: An annual rate of 1.0% of the average daily net assets of the
Seligman Henderson International Equity Portfolio; plus .75% of the portion over
$100 million. The Sub-advisor has voluntarily agreed to waive a portion of its
fee equal to .25% of the Portfolio's average daily net assets not in excess of
$50 million; plus .35% of the portion over $50 million but not in excess of $75
million; plus .50% of the portion in excess of $75 million. The Sub-advisor may
terminate this voluntary agreement at any time. For the year ended December 31,
1994, the amount paid by the Investment Manager to the Sub-advisor was
$1,216,823.
Seligman Henderson Co. for the Seligman Henderson International Small Cap
Portfolio: An annual rate of .60% of the average daily net assets of the
Seligman Henderson International Small Cap Portfolio not in excess of $100
million; plus .50% of the portion over $100 million.
Lord, Abbett & Co.: An annual rate of .50% of the portion of the
average daily net assets of the Lord Abbett Growth and Income 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, 1994, the amount paid by the Investment Manager to
the Sub-advisor was $347,296.
Janus Capital Corporation: An annual rate of .60% of the portion of the
average daily net assets of the JanCap Growth 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. For the year ended December
31, 1994, the amount paid by the Investment Manager to the Sub-advisor was
$1,156,691.
J.P. Morgan Investment Management Inc.: An annual rate of .25% of the
portion of the average daily net assets of the AST Money Market 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. 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 to waive .0 5% of its fee on the portion of the Portfolio's average
daily net assets over $100 million but not in excess of $200 million. For the
year ended December 31, 1994, the amount paid by the Investment Manager to the
Sub-advisor was $482,794.
Federated Investment Counseling for Federated Utility Income Portfolio:
An annual rate of 0.50% of the portion of the average daily net assets of the
Federated Utility Income 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, 1994, the
amount paid by the Investment Manager to the Sub-advisor was $252,551.
Federated Investment Counseling for 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, 1994, the amount paid by the Investment Manager to the Sub-advisor
was $66,791.
Phoenix Investment Counsel, Inc. for AST Phoenix Balanced Asset
Portfolio: An annual rate of 0.50% of the portion of the average daily net
assets of the AST Phoenix Balanced Asset Portfolio not in excess $25 million;
plus 0.40% of the portion over $25 million but not in excess of $75 million;
plus 0.30% of the portion in excess of $75 million. For the year ended December
31, 1994, the amount paid by the Investment Manager to the Sub-advisor was
$476,258.
Phoenix Investment Counsel, Inc. for AST Phoenix Capital Growth
Portfolio: An annual rate of 0.50% of the portion of the average daily net
assets of the AST Phoenix Capital Growth Portfolio not in excess $25 million;
plus 0.40% of the portion over $25 million but not in excess of $75 million;
plus 0.30% of the portion in excess of $75 million. For the year ended December
31, 1994, the amount paid by the Investment Manager to the Sub-advisor was
$39,386.
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 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, 1994, the amount paid by
the Investment Manager to the Sub-advisor was $67,141.
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. For the year
ended December 31, 1994, the amount paid by the Investment Manager to the
Sub-advisor was $368,381.
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 T. Rowe Price Natural
Resources Portfolio.
Founders Asset Management, Inc.: 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, 1994, the amount paid by the Investment
Manager to the Sub-advisor was $72,720.
INVESCO Trust Company: 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, 1994, the amount
paid by the Investment Manager to the Sub-advisor was $148,729.
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, 1994, the amount paid
by the Investment Manager to the Sub-advisor was $67,638.
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.
Scudder, Stevens & Clark, Inc.: An annual rate of .60 of 1% of the
average daily net assets of the Portfolio. For the year ended December 31, 1994,
the amount paid by the Investment Manager to the Sub-advisor was $35,981.
Eagle Asset Management, Inc.: An annual rate of .50 of 1% of the
average daily net assets of the Portfolio. For the year ended December 31, 1994,
the amount paid by the Investment Manager to the Sub-advisor was $6,433.
Berger Associates: 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, 1994, the amount paid by the Investment Manager to
the Sub-advisor was $1,217.
The current Investment Manager has voluntarily agreed to reimburse each
Portfolio for certain operating expenses so that total expenses of each
Portfolio do not exceed a specified percentage of such 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. See
"Investment Manager" and "Investment Management Agreement" in the Trust's
Statement of Additional Information.
The Annual Report of the Trust for the year ended December 31, 1994,
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; the monitoring of 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 fourth 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 Phoenix Balanced Asset Portfolio, the AST Phoenix Capital Growth Portfolio,
the T. Rowe Price Asset Allocation Portfolio, the Founders Capital Appreciation
Portfolio, the INVESCO Equity Income Portfolio, the PIMCO Total Return Bond
Portfolio, the Eagle Growth Equity Portfolio and the Berger Capital Growth
Portfolio. The minimum for the fourth year of this Administration Agreement is
$100,000 for the AST Scudder International Bond Portfolio, the T. Rowe Price
International Equity Portfolio and the Seligman Henderson International Equity
Portfolio. The minimum amount for each of the T. Rowe Price Natural Resources
Portfolio and the PIMCO Limited Maturity Bond Portfolio is $34,375 per year. The
minimum amount for the Seligman Henderson International Small Cap Portfolio is
$36,667 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 an agreement for the sale
of shares with American Skandia Life Assurance Corporation ("ASLAC"). Pursuant
to that agreement, the Trust will pay ASLAC 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. 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 accounts of ASLAC. 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.
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, diversified investment company, as defined by the 1940 Act, that is
organized as a Massachusetts business trust. The Trust's Declaration of Trust
dated October 31, 1988, which governs certain Trust matters, permits the
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 shown, the expenses shown below are for the year ending December 31,
1994. "N/A" shown below indicates that no entity has agreed to reimburse the
particular expense indicated. "+" indicates that no reimbursement was provided
in 1994, but that current arrangements (which may change) provide for
reimbursement. 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 page 86 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
Other Other Annual Annual
Manage- Manage- Expenses Expenses Expenses Expenses
ment ment after without after without
Fee Fee any any any any
after without Maximum applicable applicable applicable applicable
any any 12b-1 reimburse- reimburse- waiver or waiver or
voluntary voluntary Fees ment ment reimburse- reimburse
waiver waiver ment ment
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JanCap Growth N/A 0.90% N/A 0.28% 0.28% 1.18% 1.18%
Lord Abbett Growth
and Income N/A 0.75% N/A 0.31% 0.31% 1.06% 1.06%
Seligman Henderson
International Equity 0.90% 1.00% N/A 0.32% 0.32% 1.22% 1.32%
Federated Utility
Income N/A 0.71% N/A 0.28% 0.28% 0.99% 0.99%
Federated High Yield(1) N/A 0.75% N/A 0.40% 0.59% 1.15% 1.34%
AST Phoenix Balanced Asset N/A 0.71% N/A 0.28% 0.28% 0.99% 0.99%
AST Money Market 0.49% 0.50% N/A 0.15% 0.26% 0.64% 0.76%
AST Phoenix Capital Growth(1) N/A 0.75% N/A 0.40% 0.84% 1.15% 1.59%
T. Rowe Price
Asset Allocation(1) N/A 0.85% N/A 0.40% 0.62% 1.25% 1.47%
T. Rowe Price
International Equity(1) N/A 1.00% N/A 0.75% 0.77% 1.75% 1.77%
Founders Capital Appreciation(1) N/A 0.90% N/A 0.40% 0.65% 1.30% 1.55%
INVESCO Equity Income(1) N/A 0.75% N/A 0.39% 0.39% 1.14% 1.14%
PIMCO Total Return Bond(1) N/A 0.65% N/A 0.37% 0.37% 1.02% 1.02%
AST Scudder International Bond(2) N/A 1.00% N/A 0.68% 0.68% 1.68% 1.68%
Eagle Growth Equity(2) N/A 0.80% N/A 0.45% 1.83% 1.25% 2.63%
Berger Capital Growth(3) N/A 0.75% N/A 0.50% 0.95% 1.25% 1.70%
PIMCO Limited Maturity
Bond Portfolio(4) N/A 0.65% N/A 0.40% 0.86% 1.05% 1.51%
T. Rowe Price Natural
Resources Portfolio(4) N/A 0.90% N/A 0.45% 1.45% 1.35% 2.35%
Seligman Henderson International
Small Cap Portfolio(4) N/A 1.00% N/A 0.75% 1.58% 1.75% 2.58%
</TABLE>
(1) These portfolios commenced operation in January, 1994.
(2) These portfolios commenced operation in May, 1994. Expenses shown are
annualized.
(3) This portfolio commenced operation in October, 1994. Expenses shown are
annualized.
(4) These portfolios will commence operation in May, 1995. Expenses shown
are estimated and annualized.
EXPENSE EXAMPLES: The examples reflect expenses of the Portfolio.
The examples shown assume that: the expenses throughout the period for the
Portfolios will be the lower of the 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.
Examples (amounts shown are rounded to the nearest dollar)
You would pay the following expenses on a $1,000 investment assuming 5% annual
return at the end of each time period.
<TABLE>
<CAPTION>
After:
<S> <C> <C> <C> <C>
Portfolio 1yr. 3yrs. 5yrs. 10yrs.
JanCap Growth 12 38 66 145
Lord Abbett Growth and Income 11 34 59 130
Seligman Henderson International Equity 13 39 67 148
Federated Utility Income 10 32 55 121
Federated High Yield 12 37 64 140
AST Phoenix Balanced Asset 10 32 55 121
AST Money Market 7 21 36 80
AST Phoenix Capital Growth 12 37 64 140
T. Rowe Price Asset Allocation 13 40 69 152
T. Rowe Price International Equity 18 56 96 208
Founders Capital Appreciation 13 41 71 156
INVESCO Equity Income 12 37 64 140
PIMCO Total Return Bond 10 32 56 125
AST Scudder International Bond 17 53 92 200
Eagle Growth Equity 13 40 69 152
Berger Capital Growth 13 40 69 152
Seligman Henderson Int'l Small Cap 18 56 96 208
T. Rowe Price Natural Resources 14 43 74 162
PIMCO Limited Maturity Bond 11 34 59 130
</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 contacts, 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. The
Seligman Henderson International Equity Portfolio, Seligman Henderson
International Small Cap Portfolio, T. Rowe Price International Equity Portfolio
and AST Scudder International Bond 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 Portfolio 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 Seligman Henderson International Equity Portfolio,
the Seligman Henderson International Small Cap Portfolio, the T. Rowe Price
International Equity Portfolio, and the AST Scudder International Bond 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 transactions. 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.
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.